China Sets Lowest Growth Target in Decades, Plans Record Bond Issuance to Steady Economy

China’s government has set its lowest economic growth target in more than three decades while planning a record wave of bond issuance, signaling a shift toward slower but heavily state‑managed expansion as it grapples with a property slump, an aging population and mounting debt.

Premier Li Qiang on March 5 told the opening session of the National People’s Congress in Beijing that the government is aiming for real gross domestic product growth of 4.5% to 5% in 2026, a range that marks a clear step down from the “around 5%” goals of the past three years.

“This target is in keeping with our development goals and the realities of our economic performance,” Li said in the annual Government Work Report.

He called the range “achievable but not easy” and said policymakers would “focus on promoting high‑quality development and cultivating new quality productive forces.”

At the same time, Beijing kept its official fiscal deficit ratio unchanged at about 4% of GDP, the highest sustained level since the pandemic, but raised the nominal size of the central government deficit to 5.89 trillion yuan (about $815 billion). Total fiscal spending by all levels of government is expected to exceed 30 trillion yuan, a new record, backed by 11.89 trillion yuan in new government bond issuance.

The combination underlines a policy reset: China’s leadership is lowering its headline growth ambitions while leaning more heavily on the central government balance sheet and a supportive central bank to manage the downturn and redirect the economy.

Record borrowing, but a fixed red line

In his report to the legislature, Li said fiscal policy this year will be “more proactive,” even though the deficit‑to‑GDP ratio will stay at roughly 4%, the same as in 2025 after being raised from 3% in 2024.

Finance Minister Lan Fo’an, speaking at a press conference on March 6, said total fiscal expenditure and new bond issuance would both hit “historic highs.” He put central‑to‑local fiscal transfers at 10.42 trillion yuan, also a record, describing them as “strong support for ensuring basic livelihoods, salaries and normal operation at the local level.”

The central government will again issue 1.3 trillion yuan in ultra‑long‑term special treasury bonds, continuing a program launched in 2024. The bonds—some stretching for decades—are earmarked for large‑scale industrial equipment upgrades, public service improvements, regional development strategies and projects tied to what officials call “security in key areas,” such as energy and supply chains.

Local governments will be allowed to sell up to 4.4 trillion yuan of special‑purpose bonds, the same quota as last year after a sharp increase from 2024. Those bonds typically finance infrastructure such as transport, utilities and public facilities, and are also being used to swap opaque local borrowing into more transparent, on‑book debt and to settle overdue payments to companies.

Lan said fiscal funds would be “tilted toward key areas and weak links,” highlighting a planned 7.1% increase in central budget spending on science and technology and a combined 12.4 trillion yuan in outlays for education, social security, employment, healthcare and housing. He also pledged tighter control over “non‑essential and non‑urgent” administrative spending by central departments, including travel and official vehicles.

While the official deficit ratio is stable, analysts note that once local government financing vehicles and special bonds are taken into account, China’s broader public‑sector deficit is significantly larger. Several international research groups estimate that this “augmented” deficit has reached the equivalent of about 7% to 8% of GDP in recent years. Chinese officials say overall government debt remains manageable and lower as a share of GDP than in many advanced economies, but have repeatedly warned about local fiscal risks.

Central bank pledges an accommodative backdrop

The fiscal push is being paired with a moderately easier monetary stance.

People’s Bank of China Governor Pan Gongsheng said in January that monetary policy in 2026 would remain “appropriately accommodative,” with “room for further cuts in the required reserve ratio and interest rates this year” if needed to support the real economy.

Pan said the central bank would keep overall financing conditions “at a low level” and maintain “ample liquidity” in the banking system. He pointed to an expanded use of targeted tools to channel cheaper credit to small and midsize enterprises, high‑tech manufacturing, green projects, and services such as elder care and childcare.

Importantly for the bond market, Pan said the central bank would “flexibly conduct open‑market operations and treasury bond transactions to create a favorable environment for the smooth issuance of government bonds.” That language signaled a willingness to help absorb the record supply of sovereign and local debt and to smooth volatility in yields.

At the same time, monetary authorities reiterated concerns about financial stability, including risks tied to the long property downturn and heavily indebted local government financing platforms. Officials said they would strengthen “macro‑prudential management” of real estate lending and improve mechanisms to provide liquidity to non‑bank financial institutions in case of stress.

Slower growth accepted as the “new normal”

This year’s 4.5% to 5% growth target is the first explicit downgrade since the early 1990s, when China regularly expanded at double‑digit rates. For 2023 through 2025, the government set its goal at “around 5%,” though actual outcomes have sometimes fallen short of market expectations.

By setting a range with a lower bound below 5%, the government is signaling that slower expansion is being treated as a new baseline rather than a temporary dip. Officials frame the change as part of a shift from “high‑speed growth” to “high‑quality development,” a phrase that has become central to President Xi Jinping’s economic agenda.

The Government Work Report and accompanying planning documents cite a series of structural challenges: a prolonged property slump that has dragged down investment and household wealth; episodes of outright deflation in consumer prices; a shrinking working‑age population; and intensifying technology and trade restrictions from the United States and its allies.

To counter those headwinds, the leadership is betting on a state‑led push into advanced manufacturing, digital infrastructure and green industries, backed by both long‑dated bonds and targeted credit.

The 2026 report reiterates priorities laid out in the 15th Five‑Year Plan, approved at the same National People’s Congress session, including self‑reliance in fields such as semiconductors, artificial intelligence, quantum information, biomedicine and next‑generation telecoms.

Local governments under strain

The fiscal package also reflects Beijing’s concern about the financial health of provinces and cities, many of which relied on land sales and off‑balance‑sheet borrowing to fund infrastructure during the boom years.

As property transactions have slumped and land revenues have fallen, local governments have struggled to meet existing obligations, forcing the central government to step in with larger transfers and debt‑swap programs. The unchanged 4.4 trillion yuan special‑bond quota suggests Beijing wants to maintain support for priority projects while discouraging a fresh wave of aggressive borrowing.

The Government Work Report lists “preventing and defusing risks in key areas such as real estate and local government debt” as a central task for 2026. Officials say special bonds will be used not only for new infrastructure but also to regularize hidden debts and clear arrears to companies that have completed public projects but have not been paid.

Economists say the approach could ease immediate repayment pressures and inject cash into the private sector, but may also deepen the dependence of local governments on bond markets and central transfers.

Jobs, defense and the broader balance

Domestically, employment remains a paramount concern. The government is targeting the creation of more than 12 million new urban jobs this year and an urban unemployment rate of around 5.5%. Li said authorities would “make employment a top priority in economic and social development,” with a focus on college graduates and migrant workers.

The report also sets a consumer price inflation goal of about 2%, signaling that policymakers remain more worried about weak demand and falling prices than about overheating.

On defense, the government proposed a 7% increase in military spending for 2026, keeping growth in the defense budget comfortably above the GDP target but slightly below some recent years. The outlay supports Xi’s objective of completing the modernization of the People’s Liberation Army by 2035 and comes amid continuing tensions over Taiwan, the South China Sea and the U.S. military presence in the region.

A controlled descent with global repercussions

Taken together, the 2026 blueprint points to a controlled descent from the breakneck growth that defined China’s rise over the past four decades. The state is tightening its grip on the main levers of investment and credit, even as it acknowledges that the economy can no longer rely on property and heavy construction to deliver rapid gains.

How effectively the government can use ultra‑long bonds and accommodative monetary policy to navigate that transition will matter well beyond China’s borders. A successful shift toward more productive, higher‑tech growth could sustain demand for global commodities and capital goods and reduce the risk of financial turmoil. A misstep that leaves China with slower growth and heavier debt could weigh on global trade, investment and efforts to tackle shared challenges such as climate change.

For now, Beijing is signaling that it is prepared to live with less spectacular numbers if it can maintain stability. The question for investors, trading partners and Chinese households alike is whether this mix of lower ambition and larger, longer‑dated borrowing will be enough to keep the world’s second‑largest economy on a steady path.