Foreign institutions say the 2% inflation target will be difficult to achieve under current conditions, but it signals Beijing's determination to boost domestic demand.
Delegates attend the opening meeting of the fourth session of the 14th National People’s Congress at
by LIU Ting
China's 2026 government work report has drawn close scrutiny from foreign financial institutions. Economists from JPMorgan, Capital Economics, Barclays and Nomura told Jiemian News that this year's economic growth target appears more pragmatic.
Although the broad fiscal deficit has narrowed slightly from last year, the scale of quasi-fiscal policy financing tools has expanded and their rollout has come earlier. Economists also said achieving the roughly 2% inflation target may be challenging in the current environment, but the goal signals the government's determination to boost domestic demand.
Capital Economics also noted that this year's report places greater emphasis on correcting excessive behavior resulting from policy priorities, particularly in industrial policy. The firm said the problem lay more with policy implementation than with the policy direction itself.
Foreign institutions broadly agree that lowering the economic growth target from last year's "around 5%" to "4.5–5%", with the government saying it will strive to achieve better results in practice, reflects a pragmatic and realistic adjustment.
ZHU Feng, chief China economist and head of Greater China economic research at JPMorgan, told Jiemian News that setting the target within a range makes it more realistic while giving policymakers greater flexibility. The bank maintains its forecast of 4.7% GDP growth for China in 2026.
Julian Evans-Pritchard, head of China economics at Capital Economics, told Jiemian News that setting a growth target as a range is not unprecedented. Similar arrangements were adopted in 2016 and 2019, when actual growth generally landed at or slightly above the lower end of the range. Capital Economics forecasts China's economy will expand by 4.8% this year.
CHANG Jian, chief China economist at Barclays, described the adjustment as deliberate and realistic, consistent with somewhat reduced fiscal support. The lower target reflects domestic structural challenges and persistent external headwinds, while a range gives policymakers more flexibility in an uncertain macroeconomic environment.
LU Ting, chief China economist at Nomura, pointed to specific economic pressures behind the adjustment. Downward pressure in the property sector, the front-loaded effects of consumer trade-in programs and a decline in potential growth all support the decision to lower the target, he said.
According to the government work report, the deficit ratio for 2026 is set at about 4%, unchanged from last year. The combined scale of the fiscal deficit, special treasury bonds and local government special bonds totals 11.89 trillion yuan, a modest increase of 30 billion yuan from 2025.
Foreign investment banks said overall fiscal support has weakened somewhat compared with last year, suggesting a tighter fiscal stance.
Barclays noted that although the headline deficit ratio remains at 4%, the broader fiscal deficit — including special treasury bonds and local government special bonds — is projected to fall from 8.4% of GDP in 2025 to 8.1% in 2026, implying a modest tightening.
Lu Ting said net financing quotas for both special treasury bonds and local government special bonds remain unchanged from last year at 1.3 trillion yuan and 4.4 trillion yuan respectively, below market expectations. With the official deficit ratio maintained at 4.0%, the quota for central government general bonds will rise by 230 billion yuan, while quotas for local government general bonds and other off-budget fiscal bonds remain broadly unchanged.
However, Lu pointed to a positive development: the government work report proposes issuing 800 billion yuan of new policy-oriented financial instruments to attract additional private investment. This follows the rollout of 500 billion yuan of similar tools announced in September last year, primarily used to support lending by policy banks to stimulate investment.
The government work report sets this year's consumer price inflation target at around 2%, unchanged from last year. The report also says China will continue to implement a moderately accommodative monetary policy, using tools such as reserve requirement ratio cuts and interest rate reductions flexibly to maintain ample liquidity.
Authorities will aim to align growth in total social financing and the money supply with economic growth and inflation targets, while supporting a reasonable recovery in prices.
Zhu Feng said weak domestic demand means achieving the 2% inflation target could prove difficult without stronger policy support to stimulate consumption. Even so, setting a positive target may help signal the government's determination and boost market confidence, reinforcing the impact of supportive consumption policies. JPMorgan forecasts China’s CPI will rise 0.7% this year.
Lu Ting added that the "around 2%" inflation target functions more as a ceiling for the central bank rather than a strict binding goal. The government work report maintains a "moderately accommodative" monetary stance and pledges to optimize structural monetary policy tools and moderately expand their scale, suggesting such tools will play a major role in the near term.
Nomura expects China's central bank to implement only one policy rate cut and one reserve requirement ratio reduction in 2026, likely in the second quarter, with no further easing thereafter. The recent strengthening of the renminbi against the US dollar is unlikely to alter this gradual easing path.
The government work report outlines ten major tasks for the year, including expanding domestic demand, fostering new growth drivers, advancing high-level technological self-reliance, deepening reforms, expanding high-level opening-up, promoting rural revitalization, advancing urbanization and regional coordination, improving livelihoods, accelerating the green transition and strengthening risk prevention.
Barclays said the report again highlights expanding domestic demand — led primarily by consumption — as the top policy priority. Building a modern industrial system and strengthening technological self-reliance follow closely behind and remain central policy goals.
Evans-Pritchard said the main policy priorities listed this year are largely consistent with last year. Expanding domestic demand remains the top task for 2026, followed by fostering new growth drivers and advancing technological self-reliance.
One notable shift, he added, is a greater emphasis on correcting excessive behavior stemming from policy priorities, particularly in industrial policy. He said the problem lay more with policy implementation than with the policy direction itself.
For example, the "overall requirements" section newly includes the phrases "improving the quality of incremental supply and revitalizing existing assets" and "advancing the development of a unified national market." These measures are part of the anti-involution campaign that gained momentum last summer, aimed at addressing overcapacity and deflationary pressure through supply-side constraints and regulatory reform.
Foreign institutions generally believe that in the absence of large-scale fiscal or monetary stimulus, exports will continue to serve as a key engine of China's economic growth.
Chang Jian said the reduced fiscal support partly reflects improved prospects for trade and tariffs compared with a year earlier. In early 2025, China stepped up fiscal stimulus amid expectations that the United States might impose tariffs of around 60% on Chinese goods, whereas actual additional tariffs have so far been in the range of 10–20%.
Evans-Pritchard also noted that "risk prevention and resolution" has dropped from sixth to tenth place among the government's key tasks this year, suggesting policymakers are somewhat less concerned about downside risks — partly because exports exceeded expectations last year.
Zhu Feng offered a broader strategic perspective on the relationship between exports and domestic demand. He said geopolitical changes in recent years have created significant external pressures on China's economy.
China's exports remain highly competitive and resilient, but they also face rising uncertainty and growing protectionist pressure from other regions. As a result, placing greater emphasis on balancing international trade with stronger domestic demand may be a more pragmatic long-term strategy, even as exports continue to support short-term growth.
