China on Thursday (March 6) set a GDP growth target of 4.5 to 5% for 2026, in the first-ever revision to below 5% in over 30 years.The target for the world’s second-largest economy was announced during the Two Sessions meeting, named after the two bodies that convene in early March in Beijing every year. The national legislature, the National People’s Congress (NPC), and an advisory body known as the Chinese People’s Political Consultative Conference (CPPCC) both hold their separate annual meetings.Analysts have viewed the revision as a sign of official acknowledgement of the broader economic slowdown and the state aiming to prioritise quality. “The signal this target sends to the international community is clear that China is no longer pursuing growth speed alone,” said Zhang Ying, associate dean of the Guanghua School of Management at Peking University, in an interview with Xinhua, the state news agency. “This year’s target reflects China’s firm commitment to high-quality development.”Amit Kumar, Staff Research Analyst at the Indo-Pacific Studies Programme at the Takshashila Institution in Bengaluru, told The Indian Express: “It remains to be seen whether the leadership will go beyond the rhetoric to implement these measures.”In 2025, China recorded a growth rate of approximately 5.4% in Q1 (January to March), 5.2% in Q2, 4.8% in Q3 and 4.5% in Q4. The annual figure met the 5% target, but the deceleration over the year reflected the difficulty in sustaining the earlier pace of growth for the world’s largest manufacturer.Significance of Two SessionsThe two sessions see nearly 3,000 NPC deputies and over 2,100 CPPCC members from all parts of China (and the Special Administrative Regions of Hong Kong and Macao) congregate in Beijing for around 10 days.Members of the NPC are elected through numerous provincial and municipal elections, and selected by the military, for five-year terms. The NPC includes people who do not hold membership in the all-powerful Chinese Communist Party (CCP).Story continues below this adAn Expert Explains | China’s $1 trillion trade surplus as much ‘sign of imbalance as it is of strength’China’s Parliament is often described as a “rubber stamp” that lacks real power. This is largely true, though some efforts have periodically been made to institute greater openness. But it is the NPC’s Standing Committee, comprising around 150 members, which is more closely involved in lawmaking. The party often makes decisions beforehand and the NPC only ratifies them.The CPPCC, on the other hand, is a consultative body. It includes private individuals who may not always be members of the Communist Party. Its past delegates include movie star Jackie Chan and descendants of national leaders Mao Zedong and Deng Xiaoping.At the Two Sessions meeting, announcements are made for the year on government policy, military spending, growth projections, etc.With symptoms identified, why doubts persistStory continues below this adThis year, the meeting also saw the unveiling of the draft Five-Year Plan (FYP) for 2026-30. It comes as China faces several long-term domestic challenges, such as low birth rates (number of births per 1,000 people), deflationary pressures (low prices due to low demand within the economy), and “involution” (excess production that leads to producers reducing prices to unprofitable levels).The last challenge has become a buzzword for capturing the limits of China’s export-dependent economy. Kumar says that these problems are features of China’s investment-heavy system. The need to shift to consumption for driving growth was acknowledged at the Two Sessions, but this will be difficult to achieve.Also Read | Behind China’s $1 tn record trade surplus is a weak domestic demand and export dominanceKumar said, “There’s nothing concrete so far that the party has outlined to achieve a ‘notable increase in consumption’s share of the GDP,’ as the FYP draft put it. For domestic demand to become the main driver of the economy, consumption needs to at least account for about 50% of the GDP. Currently, its contribution is just around 40%.”Story continues below this adPeople in China consume less for two reasons, he said. “One, the household income as a share of national income in China is relatively low compared to the global average. Secondly, the lack of social security measures, compounded by hukou restrictions (the household registration system that regulates rural-to-urban migration) and deliberate financial repression by the state, forces the citizens to save more. None of the measures outlined so far seeks to address these issues.”To raise household incomes, policies can “ensure greater and better social security coverage, including bringing down the cost of education and healthcare.” But, correcting the investment-consumption imbalance would come at the cost of available capital for investment by enterprises, Kumar said. For the Communist Party, this presents “a difficult choice”.While the party has underlined that it will invest in people to boost consumption, substantive progress and a detailed strategy are missing so far.Also Read | Trump’s tariffs reduced China’s surplus with US — and made it the world’s headacheStory continues below this adThen there is the tax structure in China, which favours production over consumption, he said: “VAT and Corporate Income Tax — the two biggest sources of revenue for local governments — are both collected at the source of production. This incentivises local governments’ expenditure towards attracting more enterprises and investment… There’s no clear movement on (the party) reforming this structure either, even as this is a low-hanging fruit.”Despite the challenges, domestic consumption assumes greater importance amid the continued uncertainty in global trade and geopolitics. For countries like Germany and the United States, the massive surplus in bilateral trade in favour of China is seen as a major problem. Cheap goods from China have also hurt local industries and become a political issue in these nations.“The party has become serious over the last two years on involution. This is evident in the fact that overall industrial profits have turned positive after recording negative year-on-year growth in the last three years. The party is already withdrawing subsidies in the Electric Vehicles sector and will also phase out all forms of subsidies by 2027,” Kumar noted.Notably, the draft FYP spoke of “achieving greater self-reliance and strength in science and technology to develop new quality productive forces”. Chinese President Xi Jinping has emphasised this in the past, including a focus on fields like Artificial Intelligence (AI), green energy, and EVs.Story continues below this ad“In the draft recommendations for the 15th FYP, the party underscores the need to ensure equitable profit-sharing between places of production and consumption. If the party walks the talk on this front, and on reforming the tax structure, it will be a substantial step towards addressing both overcapacity and inflation. Alongside, this could also boost consumption,” Kumar said.