China slashes growth target to 4.5% while boosting military spending by 7%
China has set its lowest economic growth target in decades while increasing military spending. Premier Li Qiang announced a GDP growth goal of 'around 4.5 to 5 percent' for 2026, the weakest range since the early 1990s. The government also raised its defence budget by seven percent, signalling a focus on security amid economic challenges.
The budget now stands at 1.91 trillion yuan (€239 billion), about a quarter of U.S. military expenditure. Meanwhile, the country faces persistent deflation, weak household spending, and a widening gap between industrial output and domestic demand.
China's factories continue to produce at record levels, pushing the trade surplus to over $1.2 trillion in 2025. Yet despite this output, consumer demand remains sluggish. Premier Li described the imbalance as 'acute', with many businesses struggling to stay profitable.
The budget deficit for 2026 will stay at 'around 4 percent', repeating last year's historically high level. Economic growth targets remain a political priority, but achieving them has grown harder. Since October 2022, producer prices have fallen steadily, hitting lows of -2.8 percent in late 2023 before slightly recovering to -2.2 percent in January 2026. Sectors like steel, coal, and chemicals—especially in industrial hubs such as Hebei and Shandong—have been hit hardest.
On foreign policy, Li reaffirmed China's commitment to 'reunification' with Taiwan, warning against separatist movements. The defence budget's seven percent rise outpaces overall economic growth, reflecting Beijing's strategic focus. Meanwhile, uncertainty lingers over a potential visit by former U.S. President Donald Trump to Beijing in early April, as tensions in the Middle East complicate diplomatic plans.
China's 2026 plans highlight a dual challenge: sustaining economic momentum while expanding military capabilities. The government maintains high deficit spending to support growth, but deflation and weak consumption persist. With trade surpluses at record levels and geopolitical tensions rising, the coming year will test Beijing's ability to balance domestic stability with global ambitions.
