China’s Government Report is all about buying room on growth while prioritizing self-reliance

In the first Government Work Report of the 15th Five Year Plan period, China lowered its growth target from "around 5%" to "4.5-5%", reflecting a cautious stance on stimulus and a shift in policy priorities away from GDP growth to self-reliance.The lower growth target points to the government’s concern about the economy, even after the tailwind on exports from removing the IEEPA tariffs. Still, the uncertainty about energy due to the war in Iran the weakening investment and consumption data in China explain the caution. The other issue is the nominal GDP growth if deflation stays, which has been the case in the past three years. In 2025, nominal GDP growth stood at 4% in 2025 given the 1% negative growth of the GDP deflator. To reflate the economy, a large stimulus would be needed. But this is what is unveiled in government report with an unchanged fiscal deficit target of 4% of GDP.Instead, the priority is self-reliance, both economically and militarily. Innovation is supported with more expenditure on research and development, of at least 7% of GDP and mostly in industrial upgrade (new quality productive forces). Despite the slower military expenditure growth rate at 7% in 2026 (7.2% in 2025), China’s defense expenditure in defense will continue to grow as a percentage of GDP. Both R&D and defense expenditure will leave less room for others.We see firm commitment through central government budget and ultra-long special treasury bonds for investment and infrastructure. With an unchanged fiscal deficit ratio, the trends can crowd out the room for welfare and consumption related expenditure. It also explains why other sectors, such as real estate, renewables, and finance, are not high on the agenda.All in all, China is buying some room from its growth target without attempting to change its growth model, which remains highly dependent on China’s industrial upgrade and exports.