China’s Parliament Set to Reveal Economic Plans as US Tensions Rise

China's annual parliamentary session begins Thursday with leaders expected to announce economic growth targets and industrial upgrade plans. The meeting comes as Beijing balances competing priorities of boosting consumer spending while investing in high-tech manufacturing amid escalating rivalry with Washington.

China’s yearly parliamentary session kicks off Thursday in Beijing, where government officials are set to reveal plans for industrial modernization, reducing the technology divide with America, and reinforcing commitments to boost domestic consumer spending.

Premier Li Qiang’s upcoming report is anticipated to set an economic growth objective for 2026 ranging from 4.5% to 5%, representing a modest reduction from last year’s 5% achievement. This adjustment provides additional space for more substantial efforts to address industrial overproduction issues.

While any production limitations would be crucial for reducing deflationary pricing conflicts across numerous industrial areas, Beijing is not anticipated to abandon its dedication to advanced manufacturing investments as competition with Washington grows more intense.

The nation’s 15th five-year strategic plan, covering 2026-2030 and being released simultaneously, is projected to prioritize advancing high-technology sectors. Boosting domestic consumer demand is also expected to receive elevated importance, though potentially more in rhetoric than reality.

Economic experts point out that pursuing this double objective creates policy contradictions.

Should Beijing allocate additional resources toward manufacturers, fewer funds would remain available for consumers, unless the country increases borrowing when total debt already equals three times the nation’s yearly economic production.

Researchers from the Mercator Institute for China Studies characterize consumer promises as “hollow,” noting that leadership views extensive industry support as best serving national priorities during this period of major power rivalry.

“Precariously balanced as it is, China’s economic policy will continue to systematically favour companies over households,” MERICS analysts wrote in a note.

“Beijing will persist in slow-rolling measures to expand social welfare, while using generous subsidies and tax incentives to drive industrial growth and upgrading.”

Regarding economic stimulus measures, most experts predict the budget shortfall will remain steady at 4.0% of total economic output, while allowances for additional special debt issuance will likely increase moderately.

Citi projects a 1.6 trillion yuan allocation in special treasury bonds for the central government in 2026, rising from 1.3 trillion yuan last year, and 4.9 trillion yuan for regional governments compared to 4.4 trillion yuan in 2025.

Larry Hu, Macquarie’s chief China economist, anticipates fiscal tools will be modified adaptively based on economic performance in upcoming months.

“If exports remain strong, they may tolerate weak domestic consumption. Conversely, if exports falter, they will step up domestic stimulus to defend the GDP target,” said Hu.

Former central bank advisor Liu Shinjin cautioned at a January financial conference that China’s unprecedented $1.2 trillion trade surplus last year – a crucial element in achieving the 2025 economic growth goal – demonstrates both increasing manufacturing competitiveness and insufficient domestic consumption.

He emphasized China must transition from its traditional dependence on investment and exports toward a framework primarily powered by innovation and consumption, noting that while manufacturing capabilities could be enhanced further, this doesn’t mean its economic share shouldn’t decline.

“China’s current insufficient consumption is deeply tied to a series of institutional and structural factors, making it unrealistic to fully resolve these issues in the short term,” Liu said.

“However, leaving them unaddressed is not an option either.”

Numerous economists have long advocated for tax system modifications that benefit households over businesses and capital, or reducing state-owned enterprise influence to free resources for private sector investment in services, where local demand exceeds that of consumer goods manufacturing.

However, such reforms would also weaken the fundamental structures that have enabled China to become an export leader and achieve supply chain advantages over competitors.

The response to a significant ruling by China’s highest court last year that prohibited avoiding social insurance payments – theoretically promoting long-term fund transfers from companies to workers through the welfare system – demonstrates the challenges of implementing reforms.

Many companies, facing pressure from weak domestic demand, tariffs, substantial debts, and pricing conflicts caused by industrial overproduction, have responded to the decision primarily by minimizing their own payments, sometimes even reducing employee wages.

The inconsistent enforcement of this ruling has left many economists doubtful about China’s commitment to economic rebalancing.

“This highlights a core tension in Beijing’s structural reforms,” said Alicia Garcia-Herrero, chief Asia-Pacific economist at Natixis.

As parliament begins its session, “expect rhetoric on social security improvements and consumption support, but don’t anticipate radical new enforcement mechanisms” that could burden businesses and risk destabilizing employment, she said.