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China's National People's Congress begins

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Growth target set at about 5%; debt, deficit to rise

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Premier Li Qiang notes international changes "unseen in a

century"

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Li pledges to "vigorously boost" sluggish consumption

By Antoni Slodkowski, Laurie Chen, Jing Xu and Eduardo

Baptista

BEIJING, March 5 (Reuters) - China kept its economic

growth target for this year unchanged at roughly 5%, committing

more fiscal resources than last year to mitigate the impact of

rising U.S. trade tariffs and global shifts that Premier Li

Qiang said were "unseen in a century."

The target, which confirms a December Reuters report, was

unveiled by Li at the opening of the annual meeting of the

National People's Congress (NPC), China's rubber-stamp

parliament.

"Changes unseen in a century are unfolding across the world

at a faster pace," Li said.

"An increasingly complex and severe external environment may

exert a greater impact on China in areas such as trade, science,

and technology."

An escalating trade war with U.S. President Donald Trump's

administration is threatening to crimp China's economic jewel,

its sprawling industrial complex, at a time when persistently

sluggish household demand and the unravelling of the debt-laden

property sector are leaving the economy increasingly vulnerable.

Trump has also dangled tariffs at a long list of countries,

including some which would consider themselves staunch U.S.

allies, threatening a decades-old global trade order that

Beijing has built its economic model around.

Pressure has been building on Chinese officials to introduce

policies that put more money into consumers' pockets to fend off

deflationary woes and reduce the world's second-largest

economy's reliance on exports and investment for growth.

Alex Loo, FX and macro strategist at TD Securities, said the

growth target seemed "like a tall task for policymakers given

the domestic challenges and external trade headwinds."

Li acknowledged "consumption, in particular, is sluggish,"

noting "pressures on job creation and income growth" and

promised to "vigorously boost" household demand.

China aims for a budget deficit of around 4% of gross

domestic product (GDP) in 2025, up from 3% in 2024, showed the

report, which promised a "special action plan" to stimulate

consumption.

Beijing plans to issue 1.3 trillion yuan ($179 billion) in

ultra-long special treasury bonds this year, up from 1 trillion

in 2024. Of these, 300 billion yuan will support a

recently-expanded consumer subsidy scheme for electric vehicles,

appliances and other goods.

Economists have been urging Beijing to engineer a long-term

restructuring of resource allocation in the economy with more

profound measures that reimagine its taxation, land and

financial systems to weave a stronger social safety net.

China's household spending is less than 40% of annual

economic output, some 20 percentage points below the global

average. Investment, by comparison, is 20 points above.

Li pledged to address the gap between supply and consumption

and implement fiscal reforms that improve local government

revenues and shift officials' incentives more towards expanding

household demand. No timeline was given for these measures.

Local governments will be allowed to issue 4.4 trillion yuan

in special debt, up from 3.9 trillion, Li said. Beijing also

plans to issue special debt of 500 billion yuan to re-capitalise

major state banks.

"It doesn't look like China wants to go overboard with

spending right away given the tariff threats as they potentially

want to save ammunition for ... later in the year," said Charu

Chanana, chief investment strategist at Saxo in Singapore.

INNOVATION DRIVE

China's 5% growth rate last year, which the government only

reached with a late stimulus push, was among the world's

fastest, but it was hardly felt at street level.

While China runs a trillion dollar annual trade surplus,

many of its people are complaining of unstable jobs and incomes

as their employers cut prices - and business costs - to stay

competitive in external markets.

Chinese producers, facing weak demand at home and harsher

conditions in the United States, where they sell more than $400

billion worth of goods annually, have no choice but to rush to

alternative export markets all at the same time.

They fear this would intensify price wars, squeeze their

profitability, and raise the risk that politicians in those new

markets will feel compelled to erect higher trade barriers

against Chinese goods to protect domestic industries.

Since Trump took office in January, his administration has

so far added an extra 20 percentage points on existing import

tariffs for Chinese goods, with the latest 10-point increment

having kicked in on Tuesday.

"We worry that they will add another 10% and then another

10%," said Dave Fong, who manufactures school bags, talking

teddy bears, stationery and consumer electronics in China.

"That's a big problem."

China on Tuesday retaliated against the fresh U.S. tariffs.

Since the pandemic, China has primarily placed its future

growth bets on what it calls "new productive forces" rather than

on its 1.4 billion consumers, pouring resources into advanced

manufacturing, hoping to close the technological gap with

geopolitical rivals.

Li pledged to continue supporting high-tech industries and

improve investment efficiency.

($1 = 7.2651 Chinese yuan renminbi)

(Additional reporting by Kevin Yao in Beijing and David Kirton

in Shenzhen; Writing by Marius Zaharia; Editing by Kim Coghill

and Shri Navaratnam)