What China’s 2026 GDP target really means

Beijing’s annual government work reports (GWR) are supposed to set the direction for economic policy in the year ahead – but 2026’s iteration raised more questions than it answered.

ICYMI: On March 5, the annual meeting of China’s legislature (NPC) kicked off – as is customary – with the premier reading his work report, which set various economic targets for 2026.

Among them was the GDP growth target, set at 4.5-5% – unusual but not unexpected.

• Beijing doesn’t typically set a range.
• For the past three years, it’s been “around 5%.”

What really threw us for a loop was the rider the 2026 target came with: Striving for “better in practice.”

Talk about muddying the waters.

• We’ve previously argued that a 4.5% target would have signaled that Beijing was willing to tolerate slower growth in the name of structural adjustment.
• A 5% target would signal that growth was the priority, leaving little scope to address problems like overcapacity.

But now Beijing wants to have its cake and eat it too: The Government Work Report is saying “go for growth,” “hold the line,” and “fix the problems” all at once – objectives that are difficult to reconcile.

Further muddying the outlook is the borrowing limits the government has set.

• With the property sector and anti-involution efforts weighing on growth, infrastructure investment will play an important role in supporting the economy this year.
• But it’s unclear how much additional funding Beijing has earmarked for public works this year.

Here’s the rundown of infrastructure-related borrowing outlined in the report:

• Beijing has earmarked RMB 755 billion for investment from the central government budget, up RMB 20 billion from 2025.
• It plans to issue RMB 800 billion in ultra-long-term special treasury bonds (STB) for infrastructure – or, specifically, “major national strategies and security capacity building in key areas” – unchanged from 2025.
• The policy banks will inject RMB 800 billion into infrastructure projects, up from RMB 500 billion in 2025.
• Local governments will be permitted to issue RMB 4.4 trillion in special purpose bonds (SPBs). That’s the same as 2025 quota set in March last year – but local authorities were cleared to issue an additional RMB 200 billion in October 2025.

For those keeping score at home, this translates into an additional RMB 120 billion compared to 2025 – a paltry 1.8% increase.

• But the headline comparison is misleading because the SPB quota now covers a wide range of uses beyond infrastructure.

Traditionally, SPBs were used only for public works.

• But over the last few years, they’ve increasingly been used for a range of purposes, including recapitalizing banks, paying arrears to state suppliers and contractors, and funding land buybacks from developers.
• Of the RMB 4.6 trillion raised last year from SPBs, only about RMB 3.2 trillion went toward infrastructure.

Even SPBs publicly earmarked for infrastructure have been diverted to other uses.

• For example, of last year’s RMB 3.2 trillion infrastructure SPBs, almost half a trillion were used to buy back idle land from local government financing vehicles – which has no material impact on infrastructure spending.

The Government Work Report promises to place infrastructure-SPBs “under separate management” – which likely means local governments will be told how much debt they can use to fund infrastructure spending.

• But we have no idea when they will be told – and whether these quotas will be publicly released.
• Until then, local officials, businesses, and investors will struggle to truly understand how stimulatory infrastructure spending this year will be.

Which gets to the bigger point: Beijing’s growth targets and debt quotas are a critical signaling mechanism for what is expected of local governments and state firms.

• Clear signals translate into purposeful action – and help anchor market expectations about what’s in store.

But the lack of clarity around the amount of infrastructure funding available – and the ambiguity of this year’s GDP target – only serves to muddy the waters. 

In theory, this approach may give local authorities license to choose their own path. 

• In reality, they’re likely to spend endless hours trying to work out exactly what Beijing wants and hedge their bets rather than take decisive action.

The bottom line: This was always going to be a tough year for the Chinese economy.

• A lack of clear signaling at the top is going to make it tougher.

Dinny McMahon, Head of Markets Research, Trivium China