Two Sessions: China Expected to Keep GDP Goal Steady, Raise Budget Deficit Target

China’s annual GDP growth target is anticipated to stay at “around 5%,” according to analysts. The country is likely to increase its budget deficit target to stimulate domestic consumption and mitigate the adverse effects of additional U.S. tariffs. These figures will be announced by Premier Li Qiang during the annual meeting of the National People’s Congress, an event that coincides with the gathering of the nation’s top political advisory body, collectively known as the “Two Sessions” [para. 1][para. 2]. Li is also expected to announce a reduction in the inflation target by 1 percentage point, aiming for around 2% due to ongoing deflationary pressures [para. 3].

Achieving the GDP growth target of around 5% is considered challenging. The Chinese economy faces numerous pressures, including U.S. tariffs affecting exports, weakened household spending, and a declining property market. Moody’s Analytics Inc. predicts that China’s growth may slow to approximately 4.2% this year, down from 5% last year [para. 4]. A new round of U.S. tariffs on Chinese imports adds another layer of complexity, raising tariffs by 10% on top of those enforced a month ago [para. 5]. In response to these external uncertainties and weak domestic demand, about half of China’s 31 provincial governments have reduced their GDP growth targets compared to last year [para. 6].

Most local governments have also set lower inflation goals, mostly around 2%, down from 3% last year. This is because of the ongoing property crisis and subdued household spending, which suggest that inflation will remain weak through 2025 [para. 7][para. 8]. Despite these challenges, analysts from China International Capital Corp. Ltd. (CICC) note an improved macro and social environment leading up to the Two Sessions compared to late last year. Notably, deflationary pressures have lessened as evidenced by four consecutive months of accelerated year-on-year growth in the core consumer price index, excluding volatile food and energy prices. Additionally, the market has been boosted by the dynamic rise of companies like DeepSeek [para. 9].

Lu Ting, chief China economist at Nomura, highlights that the success of enterprises like DeepSeek has increased investments in various sectors such as AI, cloud computing, data centers, hardware, self-driving technology, and robotics. This surge is also evident in the rising trading volumes on onshore stock markets, contributing to GDP growth. Concurrently, the real estate sector has shown better-than-expected performance, leading Nomura to revise its GDP forecast for China to 4.5% from 4% [para. 10]. Moody's noted an expected budget deficit target of 4%, which would be China's highest in recent history, surpassing the 3.8% of 2023 after a late-year sovereign bond issuance of 1 trillion yuan [para. 11].

This higher budget deficit might be in response to calls from top policymakers at the Central Economic Work Conference in December for an increased fiscal deficit ratio [para. 12]. The government is likely to promote domestic consumption through expanded subsidies for equipment upgrades and consumer goods trade-ins, alongside better support for childcare and low-income households [para. 13]. Additionally, fiscal support for pension payouts and social insurance could increase, bolstering household confidence and unlocking long-term spending potential [para. 14]. Analysts also expect ongoing measures to stabilize the property market, despite a continuous downward trend outside major cities [para. 15].