China Sets Ambitious Growth Target Amid Trade War Challenges

As the National People's Congress convenes, China's leaders confront challenges from US tariffs and internal economic strains, seeking to bolster growth through domestic spending and technological advancement.

China has officially set its economic growth target for the year at "around 5%" during the ongoing National People's Congress (NPC), pledging significant investments to address the downturn stemming from its trade war with the United States. This congress, though often seen as a formality, garners attention as a source of insight into China's evolving policy direction against a backdrop of increasing economic pressures.

The ongoing trade tensions escalated this week after a new 10% tariff on Chinese imports was implemented on Tuesday. This follows several tariffs imposed by the US, now totaling 20%, which have begun to undermine a key sector of the Chinese economy – exports. As a countermeasure, China promptly announced retaliatory tariffs ranging from 10% to 15% on selected agricultural products from the US, specifically impacting commodities like corn, wheat, and soybeans, given that China is the largest market for these goods.

With this congress dubbed the "Two Sessions," discussions are focused on strategies to stimulate growth amid these newfound tariffs. Despite achieving the 5% target last year largely due to strong export performance and a record trade surplus, repeating that success will now prove challenging. Economic analysts, including Harry Murphy Cruise from Moody's Analytics, predict that if tariffs persist, US-bound exports from China could decrease by 25% to 33%. Hence, a shift towards domestic consumption will be imperative for China’s economic stability.

Experts argue that fostering domestic demand, previously a lower priority, must now take precedence in China's economic strategy. The government has already initiated programs to encourage greater consumer spending by allowing citizens to exchange outdated consumer goods for newer models. Still, questions loom over whether these efforts can sufficiently boost consumption. The lingering shadows of pandemic restrictions, a struggling property market, and a clampdown on technology and finance sectors have contributed to widespread consumer uncertainty. A weak social safety net necessitates that many are cautious with their savings.

Nevertheless, Chinese officials express optimism about overcoming these hurdles. CPCC spokesperson Liu Jieyi remarked on the economy's resilience and foundational stability, despite facing myriad challenges, while encouraging the recognition of the nation's potential for recovery.

Simultaneously, investments in "high-quality development," as articulated by President Xi, are expected to dominate discourse. This encompasses advancements in high-tech industries like renewables and artificial intelligence, aligning with China’s aspirations to lessen its dependence on Western technology. Recent successes in Chinese tech firms, like DeepSeek and Unitree Robotics, have highlighted the nation’s technological advancements and reignited interest among international investors.

However, the new US tariffs could hinder China's growth aspirations by dampening both educational investments and overall investor confidence. Analysts warn that the uncertainty and disruption brought on by tariffs could significantly impede the economic landscape, compounding existing challenges faced by China’s economy.