China poised to trim growth ambitions in five-year plan

China's annual parliament meeting is expected to show tolerance for slightly slower economic growth in 2026, opening the door for greater, albeit not decisive, efforts to curb industrial overcapacity and rebalance the export-reliant economy.

Most analysts expect Premier Li Qiang's report on March 5, the first day of the gathering, to announce a growth target of between 4.5 per cent and 5 per cent, while pledging to boost both consumption and investment in high-tech industries.

China's 15th five-year plan, which sets strategic objectives and policies for 2026–30 and will be released the same day, is expected to reaffirm this dual, and contradictory, goal.

"Policymakers will step up efforts to spur consumption while continuing to stress tech-driven new productive forces," said a policy adviser who expects the target to shift to a range, speaking on condition of anonymity due to the topic's sensitivity.

This dual pledge is decades old but Beijing has been far more successful in expanding its vast industrial complex than the consumer sector, turning China into a mighty manufacturing power that dominates strategic supply chains and giving it leverage in the intensifying rivalry with the US and its allies.

China's 5 per cent growth last year has largely been achieved through a $US1.2 trillion ($A1.7 trillion) trade surplus, while domestic consumption lagged.

This growth model has fuelled unsustainable debt, wasteful investment, deflationary pressures and industrial overcapacity.

But it is hard for Beijing to completely give it up at a time of heightened geopolitical tensions that call for a higher degree of self-sufficiency in key industries such as semiconductors and aircraft - where China is still catching up with the US.

"There is clearly some tension between these two agendas and so we will be looking to the full five-year plan to clarify what balance the leadership will strike," analysts at Capital Economics said in a note.

"That balance will determine how much progress is made in tackling overcapacity and deflation over the next few years."

A more flexible growth target would give policymakers room to pursue some painful structural reforms, such as accelerating efforts started last year to curb industrial capacity and contain price wars in various sectors.

Expectations that Beijing may set this year's growth target as a range came after about two thirds of China's provincial governments downgraded their own ambitions, even if in some cases that only meant shifting wording from 'above' to 'around.'

Guangdong, the country's largest provincial economy, set its 2026 growth target at 4.5–5 per cent, down from "around 5 per cent" in 2025. Jiangsu, the second-largest, set a 5 per cent target, compared with "above 5 per cent" last year.

"If confirmed, this would signal a stronger willingness among policymakers to tolerate slower but more sustainable growth, rather than relying on debt-fuelled investment stimulus that risks exacerbating supply–demand imbalances," said Michelle Lam, Greater China economist at Societe Generale.

Morgan Stanley analysts are among those expecting the target to remain unchanged at around 5 per cent. They estimate the weighted average of provincial targets at 5.1 per cent versus last year's 5.4 per cent.

They said "Beijing values anchoring confidence" and that the first year of a new quinquennial plan "is not the moment to blink."

Beijing is expected to keep the budget deficit at 4.0 per cent of GDP, with debt issuance plans similar to last year.

The US Supreme Court's decision in February to strike down President Donald Trump's "reciprocal tariffs" imposed in 2025, including on China, reduces the need for more sizeable stimulus.