China sets growth target of "around 5%" as it reels from Trump tariffs

China has set its economic growth target for this year at "around 5%" and pledged to inject billions of dollars into its faltering economy. Currently, the Chinese economy is facing a trade war with the United States. This target reflects China's commitment to maintaining steady economic progress despite external pressures.

Chinese leaders unveiled the plan as the National People's Congress convenes in China. The National People's Congress is a rubber-stamp parliament that approves resolutions effectively decided in closed-door meetings long beforehand. But the week-long meeting is closely watched for clues about shifts in Beijing's policies, and this year's meeting is more crucial than ever. The focus on policy changes underscores the importance of this year's congress for economic direction.

President Xi Jinping was already battling persistently weak consumer spending, a property crisis, and unemployment before new 10% tariffs on Chinese imports from Donald Trump took effect on Tuesday. This followed a 10% tariff imposed by the US in early February, bringing the total tariffs levied by the US to 20%. This hit one of the rare bright spots in the Chinese economy: exports. The impact of these tariffs has added significant strain to China's economic stability.

Beijing acted almost immediately on Tuesday with a counterattack, just as it did last month. It announced retaliatory measures, including tariffs of 10%-15% on imports of certain agricultural products from the United States. This is crucial because China is the largest market for these goods, such as US corn, wheat, and soybeans. The retaliatory measures highlight the escalating tensions in the trade relationship.

At the opening of this week's meetings, known as the "Two Sessions," China vowed to make domestic demand the "main engine and ballast" of its economic growth. Beijing achieved its 5% target in the previous two years, but growth was fueled by strong exports, which led to record trade surpluses of nearly $1 trillion. Repeating that target will be more difficult this year. Shifting the focus to domestic demand is a strategic move to ensure sustainable growth.

“If the tariffs persist, Chinese exports to the US could fall by a quarter to a third,” said Harry Murphy Cruise, head of China economics at Moody's Analytics. Beijing will rely more than ever on domestic spending to achieve 5% growth, but that has consistently been one of its biggest challenges. Chinese Premier Li Qiang said on Wednesday that consumption has been sluggish and pledged to "vigorously boost" household demand. "Domestically, the foundation for sustained recovery and growth of the Chinese economy is not yet solid enough." The emphasis on domestic spending reflects the recognition of its importance for economic stability.

“Internationally, momentous changes of a scale unseen in a century are accelerating across the world,” said Li Qiang. He also referred to the rise of protectionism around the world. Beijing has already rolled out some schemes to encourage people to spend, including allowing them to trade in old consumer goods, replacing consumer goods such as kitchen appliances, cars, phones, and electronic devices. The government's goal now is to get more money into the pockets of ordinary Chinese people and help reduce China's reliance on exports and investment. These initiatives are designed to stimulate domestic consumption and reduce economic vulnerabilities.

Beijing's plans include issuing 1.3 trillion yuan ($179 billion; £140 billion) in special treasury bonds this year to help fund its stimulus measures. Local governments will also be allowed to increase their borrowing quotas from 3.9 trillion yuan to 4.4 trillion yuan, according to the annual "government work report." Beijing has, unusually, raised its fiscal deficit – the gap between government spending and income – by a percentage point to 4% of gross domestic product (GDP), the highest level in decades. This increase signals Beijing's commitment to increasing spending to support growth. Beijing has long tried to keep the deficit at 3% of GDP or below to signal fiscal discipline. The fiscal measures demonstrate a proactive approach to supporting economic growth.

China also announced plans to create more than 12 million jobs in cities this year and set a target for the urban unemployment rate of around 5.5% in 2025. Last year, the figure was 5.1%. The government also pledged to provide more support for high-tech industries, restore stability to the property market, and expand its pension service programs for its aging population. These initiatives aim to address key economic challenges and promote social stability.

Whether these measures will be enough to boost consumption is the key question. Harsh Covid restrictions, coupled with a long-running property crisis and a government crackdown on tech and finance companies, have fueled pessimism among Chinese people. A weak social safety net means saving becomes especially important to cope with unexpected out-of-pocket expenses. The effectiveness of these measures will depend on restoring consumer confidence and addressing underlying economic anxieties.

But Chinese leaders are optimistic. Liu Jieyi, spokesperson for the Chinese People's Political Consultative Conference, told reporters ahead of the meetings that despite economic challenges such as insufficient demand, "it is important to recognize that the fundamentals of the Chinese economy are sound, with many advantages, strong resilience, and great potential." This optimism reflects a belief in the long-term strength and potential of the Chinese economy.

Investment in what President Xi Jinping has called "high-quality development" – encompassing high-tech industries ranging from renewable energy to artificial intelligence (AI) – is also expected to be a major focus. As the world's second-largest economy, China has long aimed to become a global leader in technology, partly to reduce its reliance on the West. The focus on high-quality development underscores China's ambition to become a technological powerhouse.

State media has touted recent examples such as DeepSeek and Unitree Robotics, both of which have garnered global attention, as examples of China's "technological advancement." DeepSeek's success, in particular, has sparked an AI-driven stock market rally, with analysts noting renewed interest from foreign investors in China. "Driven by China's cutting-edge technologies, China's new energy industry and overall green transition will continue to be important growth drivers," said a Xinhua commentary. These examples highlight China's progress in key technological sectors and its potential for future growth.

But the new US tariffs – which supplement tariffs from Trump's first term – could hinder these plans, especially as they could undermine investor sentiment. "The mess left by tariffs is the enemy of investment," said Murphy Cruise. "Tariffs will hit the Chinese economy with a double whammy, hitting both exports and investment." The potential impact of the tariffs on investment underscores the challenges facing China's economic growth.

Also on Wednesday, China announced a 7.2% increase in its defense budget, the same rate of growth as last year.