China enters the 4% growth era: Stability over speed

For the first time in over 30 years, China has set its economic growth target below 5%. In this year’s government work report, Premier Li Qiang put the 2026 target at 4.5% to 5%, meaning this year’s growth figure will most likely start with a “4”. While the adjustment was widely expected — inevitable, in fact — it remains a milestone with significant implications.

In his report to the National People’s Congress on 5 March, Li Qiang explained that the State Council had proposed the above targets for economic growth, employment and prices primarily to “leave room for structural adjustment, guard against risks and promote reform” in the first year of the 15th Five-Year Plan (2026–2030), to lay a solid foundation for better future development. Li said, “… all local governments should, in light of local realities, make solid efforts to deliver good outcomes.” 

Official scholars have further argued that this target range leaves room to cope with various uncertainties, and is intended to steer all sides towards focusing their efforts on high-quality development.

Some international commentators were quick to point out that China has entered a phase of slower growth. Indeed, aside from the two pandemic years, China has for some time been striving to keep growth at around 5%, which has clearly become harder. 

Last year, a number of major economic provinces and cities struggled, while problems in the property sector and local government debt remained unresolved. Furthermore, youth employment is in a dire state, and consumption and domestic demand are sluggish. Had the national target stayed at around 5%, local governments would have been forced to blindly chase high growth, spurring short-term behaviour such as inefficient investment and data inflation. This is very likely the implied message behind Li’s reminder to consider “local realities”.

China began announcing annual growth targets in the 1990s, more than 30 years ago. During the golden era of reform and opening up, both target and actual growth often reached 8% or higher. After the 1997 Asian financial crisis, Beijing coined the slogan “maintain 8%” to signal its determination to sustain growth. Although growth fell short of 8% in some years, it more often exceeded that level, and even hit double-digit rates. 

It was not until 2012 that growth slowed to 7.8%, still above the 7.5% target set by then Premier Wen Jiabao’s State Council. After that, official targets were gradually lowered to below 7%. By 2022, they were set at around 5.5%, before being reduced to about 5% in 2023, where they remained until this year.

Judging from China’s track record of meeting or exceeding its growth targets, actual growth this year would most likely fall between 4.5% to 5%.

From a macro perspective, large economies cannot sustain high growth rates indefinitely. Compared with more than 30 years ago, when it accounted for only 2% of global output, China today makes up about a tenth of the world economy. A slowdown to growth rates in the 4% range is thus a natural phenomenon, and could help shift growth drivers and make development more sustainable. But for businesses, the implications of this slowdown are extremely real.

First, it shows that the Chinese government will not step up economic stimulus merely to drive growth. Gone are the days when everyone rose with the tide of China’s economic boom. Second, China’s export-oriented economy is facing very real difficulties, and the outlook is not optimistic. 

Since last year, China’s progress in artificial intelligence and robotics has been striking, but it has yet to translate into sufficient momentum for growth. These realities signal to both Chinese and international companies that they must diversify risk and cannot rely solely on the Chinese market.

In fact, since 2023 China’s inflow of foreign direct investment (FDI) has declined for three consecutive years: down 8% in 2023, plunging 27.1% in 2024, and falling another 9.5% in 2025. Geopolitical risk is one concern for foreign investors, but their hesitation also stems from a lack of assurance about profitability, unpredictable official regulation, slowing overall economic growth, and a business environment in China that makes it difficult for companies to earn money. 

More than one investor has asked me in frustration: why are many Chinese technology firms so keen to expand technology and production capacity, yet not keen on making profits? Why do some Chinese companies — already with very high market share and strong technological moats — still refuse to raise prices and profit margins? 

I am usually at a loss for words and can only say: competition has become excessively intense — involution has effectively become a distinctive feature of China’s corporate culture.

Addressing “involutionary” competition in depth is also one of the tasks outlined in this year’s government work report. A closer look at the report reveals the sheer breadth of the Chinese government’s economic and social responsibilities: from building a modern industrial system and fostering new quality productive forces, to developing a strong domestic market and revitalising rural areas, while also attending to livelihood issues such as pensions, healthcare and housing support for newlyweds and first-time parents. 

This reflects the reality of a large economy under strong government leadership: the government’s responsibilities are vast and multifaceted. Amid rising global uncertainty and frequent international trade frictions, the Chinese government will place even greater emphasis on domestic demand and prioritise stability.

Thus, declining FDIs in China is likely to continue. Even if China’s economic growth slows to the 4.5-5% range, maintaining around 4.2% annually is sufficient to meet its 2035 long-term goals. Amid frequent global conflicts and the restructuring of trade relationships, stabilising the domestic economy first and ensuring technological self-sufficiency may well be the safest course, as determined by the authorities’ comprehensive assessment. 

As for foreign investors’ complaints that China’s level of openness and treatment of foreign businesses remain insufficient, official commitments to reform exist, but they are not the top priority.

China’s trajectory reflects a broader global trend — more countries are likely to prioritise domestic affairs, especially major powers with the capacity to do so. Smaller and medium-sized countries, meanwhile, will need to work harder to build relationships and forge partnerships on multiple levels, in order to navigate a world that is increasingly fragmented in terms of politics, security and economy.

This article was first published in Lianhe Zaobao as “中国经济增长进入“4”时代”.

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