Michelle ThompsonChina has set an economic growth target of “around 5%” for this year and committed to injecting billions of dollars into its struggling economy, which is currently facing a trade war with the US.
The country’s leaders introduced this plan during the National People’s Congress (NPC), a symbolic parliament that approves decisions made behind closed doors.
However, the week-long event is closely observed for insights into potential policy shifts, and this year’s session holds particular significance.
President Xi Jinping was already dealing with low consumption, a property crisis, and rising unemployment before the new 10% tariff on Chinese imports, imposed by Donald Trump, took effect on Tuesday.
This follows the 10% tariff introduced in early February, bringing the total US levy on Chinese goods to 20%. It targets a rare positive aspect of the Chinese economy: exports.
In response, Beijing quickly announced retaliatory measures on Tuesday, mirroring its actions from last month. These included 10%-15% tariffs on select agricultural imports from the US, including key products like corn, wheat, and soybeans, as China is the largest market for these goods.
At this week’s Two Sessions meeting, attention will be focused on strategies to boost growth amid these tariffs.
Although Beijing met the 5% growth target over the past two years, it was primarily driven by strong exports, leading to a record trade surplus approaching a trillion dollars.
Achieving similar results this year will be much more difficult. According to Harry Murphy Cruise, head of China economics at Moody’s Analytics, “If the tariffs persist, Chinese exports to the US could decline by 25% to 33%.”
To meet the 5% growth target, Beijing will need to increasingly rely on domestic spending, which has proven to be one of its biggest challenges.
The spending crunch
Analysts suggest that expanding domestic demand, which was the third goal at last year’s meeting, may now become the top priority.
Beijing has already introduced initiatives to encourage more consumer spending, such as allowing people to trade in and replace items like kitchen appliances, cars, phones, and electronics. The goal is to put more money in the hands of ordinary Chinese citizens and reduce China’s dependence on exports and investment.
To support these efforts, Beijing plans to issue 1.3 trillion yuan ($179bn; £140bn) in special treasury bonds this year to fund its stimulus initiatives. Additionally, local governments will be permitted to borrow up to 4.4 trillion yuan.
The government also announced plans to create over 12 million jobs in cities, with an urban unemployment target of around 5.5% by 2025.
The critical question remains whether these measures will be sufficient to boost consumption.
The lingering impact of harsh pandemic restrictions, a prolonged real estate crisis, and a government crackdown on tech and finance sectors have contributed to growing pessimism among the Chinese public. Moreover, a weak social safety net has made savings especially important for unexpected expenses.
Despite these challenges, China’s leadership remains optimistic. CPCC spokesman Liu Jieyi stated that while the economy faces issues like low demand, it is “important to recognize that China’s economic fundamentals are stable, with many advantages, strong resilience, and significant potential.”
‘High quality’ development
President Xi’s focus on “high-quality development,” which includes sectors like renewable energy and artificial intelligence (AI), is anticipated to be a key priority for investment. As the world’s second-largest economy, China has consistently aimed to establish itself as a global tech leader, in part to lessen its dependence on the West.
China’s leading political advisory body, which includes Xi (C), convened on Tuesday.
State media has highlighted recent examples like DeepSeek and Unitree Robotics, both of which have garnered global attention, as signs of China’s “technological progress.” The success of DeepSeek, in particular, triggered an AI-driven stock rally, with analysts observing renewed foreign investor interest in China.
A commentary in the state-owned Xinhua newspaper stated that “China’s new energy industries and its broader green transition, powered by cutting-edge technologies, will remain key drivers of growth.”
However, the new US tariffs—adding to those from Trump’s first term—could hinder these plans, particularly by affecting investor sentiment.
“The disruption caused by tariffs is detrimental to investment,” says Mr. Murphy Cruise. “These tariffs will deal a double blow to China’s economy, impacting both exports and investment.”
