In a week marked by significant economic discussions, China’s leaders have outlined their plan to transform the world’s second-largest economy amidst mounting internal and external challenges. The meetings of China’s rubber-stamp legislature concluded with a unanimous approval of the government’s work report and budget, underlining the high stakes for Xi Jinping’s administration as they navigate a complex economic landscape.
The report noted a critical need for reform to address various domestic issues ranging from the repercussions of a deepening real estate crisis, soaring local government debt, to waning consumer confidence. A substantial contributing factor to the economic turmoil is identified as President Donald Trump’s recent escalation of tariffs on Chinese imports, further tightening the pressure on China’s economy. These tariffs have risen to 20%, coupled with threats of expanded controls on U.S. investments in China, thereby intensifying the predicament for Chinese policymakers.
Recent data reflecting a notable drop in China’s consumer prices to a 13-month low highlights the ongoing deflationary pressures—an alarming indicator for an economy that relies heavily on consumer spending. Against this backdrop, Premier Li Qiang reaffirmed a growth target of approximately 5%, demonstrating a commitment to confronting economic challenges with resolve.
Artificial intelligence has emerged as a focal point of this year’s legislative gathering, driven by China’s ambitions to become a technological leader. The success of the private tech firm DeepSeek’s large language model, which rivals similar American technologies despite stringent U.S. restrictions, has galvanized initiatives to bolster AI and other futuristic industries, with a state-backed fund projected to attract nearly 1 trillion yuan over two decades.
The government’s work report emphasized fostering emerging industries, enhancing domestic talent, and increasing research and development—a strategic move to achieve technological self-sufficiency amidst U.S. restrictions.
Moreover, to support the ambitious growth target, immediate measures seek to stimulate domestic demand. This includes raising the budget deficit to an unprecedented 4% of GDP to facilitate government spending aimed at reviving consumer confidence and economic activity, especially vital given the potential impact of U.S. trade tensions.