China has lowered its GDP growth target to a historic low. Why is this good for stocks?

Chinese authorities have set 2026 as the most conservative forecast for the country's gross domestic product growth since at least the early 1990s. A less ambitious target gives Beijing leeway to manage the economy in a challenging geopolitical environment, including conflict in the Middle East and the threat of U.S. trade pressure.

The Chinese government has planned the country's GDP growth this year at the level of 4.5-5%, Premier Li Qiang said March 5 at the opening of the annual session of the National People's Congress (NPC) in Beijing, Nikkei Asia reports. The 4.5-5% GDP growth forecast is the lowest since 1991 - the moment when the Chinese government began regular publication of such forecasts, CNBC reports.

The abandonment of the "around 5%" benchmark in place for the previous three years signals a paradigm shift amid the PRC government's struggle with weak domestic demand and unstable export conditions, the Nikkei states. "While recognizing our achievements, we are also acutely aware of the difficulties and challenges we face. The impact of changes in the external environment is intensifying, geopolitical risks continue to rise, the momentum of the global economy remains weak, and multilateral cooperation and free trade are being dealt a serious blow," Li Qiang said, speaking in parliament.

"The growth target [of GDP for 2026] is quite realistic. It is a continuation of the move away from 'numbers first' thinking towards 'quality first'." Beijing does not necessarily see high growth rates as a boon, as they can provoke local officials to inflate figures through 'white elephant' projects (expensive but inefficient projects. - Oninvest) and fudging statistics," the Nikkei quoted Yue Su of the Economist Intelligence Unit as saying in a research note.

Economists surveyed by Nikkei on average expect China's real GDP to grow by 4.5% in 2026. In 2025, China achieved 5 percent economic growth in comparable prices, but in nominal terms growth was only 3.9 percent due to deflation, the publication notes.

The more modest target gives Beijing more flexibility to implement reforms that will allow the world's second-largest economy to reduce its reliance on exports. "The authorities' signal is clear: by targeting a pragmatic growth rate of 4.5-5 percent, China will focus on technological development while shifting to a more proactive fiscal policy and strategy to expand domestic demand," Liu Chenjie, chief economist at Upright Asset Management, told Reuters, adding that he expects interest rates to adjust in the second quarter.

"The key takeaway is that Beijing has recognized the structural slowdown in the economy, moving from a fixed benchmark of "around 5%" to a more flexible and lower range of 4.5-5%. Beijing is trying to deliver a manageable slowdown while building a new economy that relies on technology rather than the real estate sector," stated ITC Markets analyst Andy Ji.

Hong Kong's Hang Seng stock index added 0.4% on March 5, breaking a three-day slump. Investors stepped up their efforts to buy downgraded stocks after the market hit an 11-week low, Trading Economics notes. Insurer AIA Group, AI developer Minimax and smart electric car maker XPeng Motors led the gains. The CSI 300 index of blue-chip stocks in mainland China rose 1 percent, correcting after sagging in the previous session to the lowest level since February 2026.

The war in Iran, a major oil supplier to China, poses significant risks to Chinese exports. The military conflict in the Middle East also jeopardizes the planned visit of US President Donald Trump to Beijing. At the meeting with Xi Jinping, the leaders were expected to discuss trade duties, export controls, the status of Taiwan and the consolidation of the recent truce, CNBC emphasizes.

Official Beijing condemned the strikes by the United States and Israel against Iran and called for an immediate ceasefire. At the same time, Chinese Foreign Minister Wang Yi held a series of telephone talks with representatives of Iran and Israel, positioning China as an active mediator in resolving the Middle East crisis.

This article was AI-translated and verified by a human editor