Maintaining ‘5% Growth’ at the Central Committee Meeting with Confidence in Achievement… ‘Trump Risk’ is a Concern

# China's Premier Sets Ambitious 5% Growth Target Amid Economic Challenges Achieving such a goal is not easy and will require effort. However, the ship of our country's economy will undoubtedly sail steadily and far. Li Qiang, China's Premier, made this statement during his work report at the opening ceremony of the National People's Congress (NPC), the equivalent of South Korea's National Assembly, which opened on March 5 and concluded on the afternoon of the 11th. He set the country's economic growth target for the year at 'around 5%'. This goal comes amidst ongoing internal issues such as sluggish domestic demand, high youth unemployment rates, and a prolonged real estate downturn, compounded by the 'tariff bomb' from former President Trump's administration. In response to the U.S. administration's '10+10% tariff hike,' China on the previous day imposed 'second retaliatory tariffs' on American agricultural and livestock products. According to Bloomberg and other foreign media, if the U.S.-China trade conflict continues, China's exports to the U.S. could decrease by 25-30%, posing a burden on China's economic growth, which relies heavily on exports. Despite these severe internal and external conditions, maintaining the 'Baowu' (保五, 5% growth rate) goal is closely related to the estimated record-high 12 million college graduates this year. To create new employment for 12.22 million college graduates this year, approximately 5% growth is necessary. Since China's youth unemployment rate hit a record high of 21.3% last June and remains elevated, failing to create adequate new jobs could lead to social instability. Setting the same growth target for three consecutive years indicates an effort to guarantee the stability and long-term predictability of the Chinese economy, which is estimated to contribute to one-third of global economic growth. # China Prioritizes Domestic Demand Expansion: Li Qiang Repeats 'Consumption' 31 Times Faced with economic difficulties and challenges, the Chinese government has presented four main strategies: enhancing resident consumption, expanding effective investment, establishing a modernized industrial system, and further opening up reforms. Among these, expanding domestic demand has rapidly emerged as a primary tool to navigate the waves of the trade war with the United States. Boosting domestic consumption has become the top priority among the ten annual national tasks, and the term 'consumption' appeared 31 times in Premier Li's work report, up from 21 times last year. Investment in people was also mentioned for the first time in this year's work report, recognizing humans as both the subjects of consumption and the drivers of production and innovation. The budget for the 'trade-in' program, which supports replacing old products with new ones, has increased from last year's 150 billion yuan (approximately $30 billion) to 300 billion yuan (approximately $60 billion), with an expanded scope of support. China is also set to announce a 'special action plan for promoting consumption' to further boost consumer spending. Wang Chaiyun, a representative of the NPC and head of science research at the Yili Group Global Innovation Center, told Xinhua News Agency, "With China's population of 1.4 billion, even a 1% demand corresponds to a massive market of 14 million people," emphasizing the need for constant innovation on the supply side to create new consumer demand. # Aggressive Fiscal Policy to Boost Investment Amidst Modest Expectations Regarding investment expansion, China has revealed its intention to increase fiscal deficit ratio and spending intensity through even more aggressive fiscal policies. This year's fiscal deficit ratio has been expanded to a record-high 4% of GDP. The deficit amount will increase by 1.6 trillion yuan (approximately $320 billion) to 5.66 trillion yuan (approximately $1.13 trillion) in a single year. Additionally, China plans to issue 1.3 trillion yuan (approximately $260 billion) in ultra-long-term special bonds, 300 billion yuan more than last year, and another 500 billion yuan (approximately $100 billion) in separate special bonds to strengthen state-owned bank capital, providing more loans to stimulate economic activity. Furthermore, the issuance scale of local government special-purpose bonds for unsold land purchases, among other uses, will increase from last year's 3.9 trillion yuan (approximately $781 billion) to 4.4 trillion yuan (approximately $881 billion). China's new government debt this year will rise by 2.9 trillion yuan (approximately $580 billion) from last year to 11.86 trillion yuan (approximately $2.375 trillion). Goldman Sachs noted that while the scale of this fiscal stimulus falls somewhat short of market expectations, suggesting the possibility of additional measures. # Focus on High-Tech Industry and Innovation The means to establish a modernized industrial system is technological innovation. The work report includes accelerating new quality productivity through scientific and industrial innovation. China's government has allocated a research and development budget of 398.1 billion yuan (approximately $80 billion) for this year, a 10% increase from last year. When including local governments and separate budgets, total R&D investment is expected to exceed $800 billion. During the NPC sessions, it was announced that China would establish a 1 trillion yuan (approximately $200 billion) sovereign fund to invest in advanced technologies such as AI and quantum computing. State-run China Central Television (CCTV) referred to this new fund as an 'aircraft carrier-class fund' in the startup sector. China will continue to push the 'AI+ Action' plan, a national-level comprehensive AI support measure introduced in last year's NPC work report. New terms like 'embodied intelligence' (AI interacting with real-world environments), 6G, humanoid robots, AI smartphones, and AI PCs appeared for the first time in this year's work report. During the NPC sessions, state media highlighted China's global AI sensation DeepSeek, quantum computers 1,000 times faster than supercomputers, and leading humanoid robot technology to boost confidence in China's 'science rise.' Regarding reforms and opening up, the focus will be on supporting private enterprises and expanding foreign investment access. Last month, President Xi Jinping attended a private enterprise forum for the first time in over six years, where the amendment of the Private Economy Promotion Law is being pursued. Given the 27% drop in foreign direct investment (FDI) in China compared to 'with Corona' year 2023, plans to prioritize access to overseas investments in telecommunications, healthcare, and education sectors are being developed. # Reality Check on Ambitious Goals Ahead of the NPC sessions, President Xi Jinping expressed confidence that the 'Eastern wind' (socialist forces) would prevail over the 'Western wind' (capitalist forces centered around the United States) in the long term. However, initial indicators are not promising. China's exports for January-February increased by 2.3% compared to the same period last year, a sharp decline from December's 10.7%, and much lower than the expected 5%. Experts warn that the damage to Chinese exports from U.S. tariff hikes could become evident next month. China also faces significant deflationary pressures, with the consumer price index (CPI) falling by 0.7% year-on-year in February, reversing to a decline for the first time in a year, despite the government's repeated efforts to boost domestic consumption. The Sungkyun Institute for China Studies at Sungkyunkwan University's East Asia Academic Institute, in its '2025 NPC Special Report Analysis,' stated that China's economic growth target for this year is aimed at achieving the long-term goal of 'realizing basic socialist modernization by 2035.' However, externally, this goal is viewed more as an expectation rather than an achievable target.