Preview of the National Two Sessions: How to Set the Economic Growth Target

The 2026 National “Two Sessions” are about to begin.

As the first year of the “14th Five-Year Plan,” setting goals and policy tone for 2026 is especially important. The government work report will outline various economic and social development targets for this year and make specific arrangements for economic work.

Economists participating in First Financial’s primary research believe that, under the long-term goal of “doubling the total economy or per capita income by 2035,” and based on the GDP growth targets from local two sessions at the beginning of the year, combined with China’s actual economic growth over the past three years and the future macro policy orientation, the GDP growth target for 2026 may be set around 5%. At the same time, they expect the deficit ratio to be about 4%, and the CPI growth rate to be around 2%.

More Practical GDP Targets

In 2025, China’s economy pressed forward strongly, developing towards higher quality, with GDP growing by 5%, meeting the initial expectations. How will the economic growth target be set in 2026?

Zhang Jun, Chief Economist at China Galaxy Securities, analyzed for First Financial that, considering the local two sessions held earlier and the post-holiday education on correct performance evaluation, the 2026 national government work goals will be more pragmatic. The GDP growth target may be adjusted to between 4.5% and 5.0%, with efforts to achieve better results in practice.

Zhang Jun pointed out that adjusting targets should not be simply understood as relaxing requirements: on one hand, optimizing targets aligns with the guiding principles of the Central Economic Work Conference to “optimize growth” and “improve quality and efficiency,” leaving room for China’s economic logic to shift from “land finance” to “developing new productive forces suited to local conditions,” focusing on internal improvements and establishing correct performance views; on the other hand, flexible interval targets can help alleviate the previous situation of strong supply but weak demand caused by industrial stabilization efforts, which can help address low inflation to some extent.

Lian Ping, President and Chief Economist of the Guangkai Research Institute, believes that the “14th Five-Year” and “15th Five-Year” periods are critical stages for China to reach a middle-high level of per capita GDP and to achieve the goal of doubling it by 2035. From the perspective of economic laws, long-term economic growth often shows a “converging” trend. As the opening year of the “14th Five-Year Plan,” 2026, it is reasonable to expect a faster growth rate than the following four years. Meanwhile, based on the annual GDP growth rates from 2023 to 2025, achieving around 5% growth in 2026 has a solid internal basis.

At the provincial level, provinces are setting more pragmatic GDP growth targets for 2026, emphasizing “real, no-fake growth,” with many beginning to set interval targets. Overall, the central tendency of economic growth targets has shifted downward.

Except for Liaoning, Yunnan, Tianjin, and Qinghai, whose 2026 GDP growth targets are around 4.5%, other provinces aim for about 5% or higher. Tibet’s expected growth target is the highest at over 7%; next is Hainan at around 6%; Xinjiang also sets its target between 5.5% and 6%. Major economic provinces like Guangdong, Jiangsu, Fujian, Henan, Hubei, and Hunan have lowered their growth targets but emphasize striving for better results in practice.

Zhang Lin, Vice President of the Far East Credit Research Institute, noted that based on historical data, the national GDP target is usually slightly lower than the weighted average of major economic provinces. If provinces lower their GDP growth expectations to around 5%, the national target may also be slightly adjusted downward, possibly presented as an interval of 4.5% to 5%.

Deficit Ratio May Be Around 4%

The deficit ratio is a key “weather vane” indicating fiscal policy orientation and one of the indicators of fiscal risk. It is the ratio of fiscal deficit to GDP in the same period. In 2025, the deficit ratio is planned at around 4%, an increase of 1 percentage point from the previous year.

蔡伟, Director of the China Economic Research Institute at KPMG, stated that with the 2025 deficit ratio at about 4%, considering policy continuity and counter-cyclical adjustment needs, the deficit ratio in 2026 is expected to remain around 4%. The broad fiscal deficit ratio, including local government special bonds and ultra-long-term special national bonds, will slightly rise to 8.9%, supporting major projects, industrial upgrades, and social welfare.

ICBC International’s Chief Economist Cheng Shi believes that under the backdrop of stabilizing growth, fiscal policy should continue to be proactive. Public investment and targeted spending in key areas can offset insufficient domestic demand. As fiscal discipline and debt constraints strengthen, policies will focus more on improving efficiency rather than simply expanding scale. Maintaining the deficit ratio at around 4% not only supports economic recovery but also leaves room for fiscal sustainability.

Wang Han from Industrial Securities estimates that the 2026 deficit ratio will be between 3.8% and 4%, mainly because: first, the Central Economic Work Conference has clearly stated the continuation of more proactive fiscal policies, maintaining necessary deficits, total debt scale, and overall expenditure; second, a deficit above 4% reflects counter-cyclical efforts and provides room to address future risks.

Zhang Jun noted that, based on current local budget revenue growth, the national budget revenue growth rate has slightly declined. Under the theme of expanding fiscal expenditure and ensuring necessary spending, the total government budget expenditure in 2026 may exceed 30 trillion yuan, with the deficit ratio around 4%, and government debt issuance reaching new highs. The pace will involve early issuance of quotas, with fiscal efforts front-loaded; ongoing deepening of direct fiscal transfers to cities and counties, strengthening financial capacity at the grassroots level, improving fund efficiency, and ensuring the implementation of key projects.

CPI Target May Be Set at 2%

Prices are a signal of economic health and key to boosting micro-entity confidence. In 2025, the Consumer Price Index (CPI) remained flat year-on-year, while Producer Price Index (PPI) fell by 2.6%.

Since Q4 2025, price indicators have improved significantly. Starting in October, the year-on-year CPI turned positive and continued to rise, reaching 0.8% in December—the highest since March 2023. The core CPI, excluding food and energy, also steadily increased, maintaining over 1% year-on-year for four consecutive months from September 2025.

Cheng Shi said that recent trends show that since late 2025, price movements have improved, with CPI rising, service prices and some durable goods prices recovering, reflecting a slow demand repair. In this context, setting the 2026 CPI target at 2% helps continue policies focused on expanding domestic demand and promoting moderate, sustainable price increases.

蔡伟 analyzed that in 2025, CPI remained near zero year-on-year, but core CPI gradually rose to 0.7%, maintaining over 1% for four months. Under the joint influence of improved domestic demand and anti-inflation policies, prices are expected to continue a moderate upward trend in 2026. The 2% target aligns with monetary policy goals to “promote reasonable price recovery,” helping stabilize market expectations and restore consumer confidence.

In recent years, persistently low prices have been a major challenge for China’s economy. While low prices can temporarily save residents money, long-term deflation hampers corporate revenue, leading to declines in employment and income growth, adversely affecting the economic cycle. Therefore, promoting a reasonable price recovery is a key macroeconomic goal.

The 2026 Central Economic Work Conference explicitly emphasized that promoting economic stability and reasonable price recovery are important considerations for monetary policy. For the first time, “reasonable price recovery” was listed alongside “economic stability and growth,” attracting widespread attention.

Kang Yi, Director of the National Bureau of Statistics, recently stated that promoting reasonable price recovery benefits both income growth for enterprises and residents and stabilizes market expectations. It is necessary to continue macro policy effects, expand consumer spending, regulate market competition, actively address supply-demand conflicts, and promote reasonable price recovery.

At the policy level, the National Development and Reform Commission said it will focus on total volume, structure, and reform policies, implementing a series of regulation, reform, and supervision measures to push for moderate price recovery. The People’s Bank of China also stated that promoting economic stability and reasonable price recovery are key considerations for monetary policy, and will continue to implement moderately easing monetary policy to create a suitable monetary and financial environment.

Looking ahead to 2026, Wang Qing, Chief Macro Analyst at Orient Securities, predicts that the CPI year-on-year increase will be about 0.4%, remaining in low inflation for four consecutive years. This provides room for policy efforts to stabilize growth later, especially for the central bank to cut interest rates when appropriate. Additionally, the “anti-inflation” effect on industrial prices needs further observation, as weak demand will continue to constrain industrial price increases, and external trade fluctuations may exert downward pressure on domestic industrial prices. PPI is also expected to face ongoing downward pressure, with a cumulative year-on-year decline around -1.0% in 2026.

(Article source: First Financial)