China on Thursday set its economic growth target for 2026 at 4.5% to 5%, which is the country's lowest annual growth target in decades.

Last year's target was around 5%. The lowered growth target comes as the government tries to address low domestic consumption and a flagging property market in 2026.

The announcement for the new growth target was made at the annual Two Sessions political gathering being held this week as Premier Li Qiang opened the National People's Congress (NPC), China's rubber-stamp parliament, on Thursday morning. 

The nearly 3,000-member NPC is a largely ceremonial body that endorses policies set by Chinese Communist Party (CCP) leaders.

At its closing session next week, the NPC is expected to sign off on the annual report and the 2026 budget, along with a five-year plan setting policy priorities until 2030.

While China expects growth below 5% this year, the government report said that it would "strive for even better results."

Why is China's growth slowing?

The CCP has repeatedly said the country's economic growth model must shift away from traditional drivers such as exports and manufacturing and towards consumption

"While recognizing our achievements, we are also clear-eyed about the difficulties and challenges we face," the report said.

China's economic development has been slowing down for years as the economy matures.

"The policymakers have been saying on many occasions that the quality of growth is more important than the speed of growth," Zhiwei Zhang, chief economist at Pinpoint Asset Management, wrote in a note quoted by the AFP news agency on Thursday. "The decision to cut the growth target for this year is a big step that signifies this shift of policy priority." 

Defense budget gets a boost

This year, China, which has the second largest military budget after the United States, has decided to increase its defense spending by 7%.

Beijing plans to spend 1.90 trillion yuan (€238 billion, $276 billion) on defense — around one-third of the US military budget.

"All these steps will boost our strategic ​capacity to safeguard China's sovereignty, security and development interests," Li said.

The announced Chinese military budget is slightly lower than last year's.

Since 2016, China has year-on-year increased its military budget by 6% to 7%.

The budget would finance military salary increases, training, drills around Taiwan, cyberwarfare capabilities and advanced equipment purchases, among other things, analysts told AFP.

Edited by: Sean Sinico