Unpacking China’s Two Sessions: takeaways for 2026 and beyond in World Economy News 15/03/2026 GDP growth target lowered for 2026 China’s annual target-setting is always an important event. Since GDP growth targets were first published in 1990, China has fallen short of the target only a couple of times. Generally, betting on China to miss its target has been a losing bet for forecasters. This year’s GDP growth target was reduced to 4.5-5.0%, a slight softening from the more ambiguous “around 5%” target set in the past three years. While it was debatable how much flexibility “around 5%” entailed, most market participants viewed this as within 0.2-0.3pp of 5%. With the new target, there appears to be a tolerance for slower growth, which should give policymakers more flexibility to pursue quality growth, a priority in recent years. Combined with China’s anti-involution drive, there will be a focus on reducing wasteful and duplicative investment while improving synergies and building on China’s long-term strategic direction. As the 15th Five-Year Plan has laid out, the key focuses are on improving industrial modernisation, improving technological self-reliance, and ramping up domestic demand. With that said, the 4.5% threshold represents only a rather limited slowdown; China’s longer-term growth ambitions remain unchanged. The government work report outlined an intention for “laying a solid foundation for doubling per capita GDP by 2035 compared to 2020,” a key goal set by President Xi in the past. The softer GDP target was in line with our expectations, as we had hints of this outcome earlier when various provinces also revised growth targets lower. Our GDP forecast for the year is 4.6% year-on-year, which would fall within this range. Other key targets mostly stable for 2026 There was little surprise in the other targets as well. The inflation target, having been reduced to “around 2%” last year, remained unchanged. We expect inflation to rise this year to around 1% YoY, with the recent events in the Middle East potentially adding to upside risk on this number if supply disruptions persist. The inflation target has historically not been prioritised as aggressively as the GDP target, and the final level often deviates significantly from the target. As such, we don’t expect this to play a significant role in monetary policy decision-making, where we still see a case for further easing this year. The employment target for new urban employment has been set at “around 12 million” since 2023, while the urban unemployment target was set at “around 5.5%” since 2021, and both targets have remained unchanged. There will likely be continued focus on improving employment conditions for youth, who have suffered a disproportionately high unemployment rate in recent years amid more cautious hiring. The fiscal targets were arguably the only area where there was a more lively debate on whether or not we’d see adjustments. While the fiscal deficit-to-GDP target of around 4% was expected to remain the same, it was unclear whether we’d see a small uptick in the bond issuance targets. This hasn’t turned out to be the case, with another RMB 4.4tn of special local government bond issuance and RMB 1.3tn of ultra-long-term bond issuance targeted this year. The report also noted that the central government will ramp up fiscal transfers to the local government. In our view, this suggests that while growth stability remains an important objective, the stable fiscal