In March 2026, Chinese Premier Li Qiang included the “Consumer Price Index (CPI)” in the annual government work report, publicly acknowledging the existence of deflation for the first time. At the same time, the Chinese authorities lowered the GDP growth target from 5% to 4.5%-5%, marking the first time since 1991 that the growth target has been set below 5%. Analysts believe that this shift signifies the end of an era in which the Chinese government’s political tasks were centered around GDP growth rates.
According to Jing Ge, a research assistant at the Jack D. Gordon Institute at Florida International University, lowering the GDP target alone is not sufficient to alleviate deflationary pressures. China’s GDP growth mainly relies on trade surpluses. Last year, China’s total trade volume exceeded $6.5 trillion, with goods and services net exports contributing a growth rate of 1.6% to the GDP.
The Vice Chairman of the Foreign Affairs Committee of the Chinese People’s Political Consultative Conference, Huang Bingnan, stated that China’s foreign trade grew by 8.2% year-on-year in January this year. This means that even with the official growth target adjusted to 4.5%-5%, it would only exacerbate deflation rather than alleviate it. In fact, excluding the trade surplus, China’s GDP growth rate was only 3.4% last year. To achieve a 4.5% growth this year, output must continue to rise rather than fall. In this sense, deflationary pressures can only be alleviated if the GDP growth rate is lower than 3.4%.
Currently, the official rhetoric in China focuses primarily on high-tech industries. According to the 2026 Chinese budget report, technology spending saw the highest annual growth rate at 10%. The report emphasizes the key development areas in quantum technology, artificial intelligence, and related fields.
The “Fifteenth Plan” of the Chinese government also introduced two important innovation indicators: the number of high-value invention patents per ten thousand people is expected to increase from 16 in 2025 to 22 in 2030, and the proportion of GDP from core digital economy industries is to rise from 10.5% in 2025 to 12.5% in 2030. The authorities claim that this transformation represents a shift from high-speed growth to high-quality development. However, the economic reality behind this transformation reveals that traditional manufacturing industries still play a crucial role in easing deflationary pressures.
In 2021, the Chinese real estate industry began to collapse, leading to an economic downturn. Data from the Rhodium Group shows that the total size of China’s real estate industry declined from $2.9 trillion in 2023 to $2.15 trillion in 2025, a reduction of nearly $800 billion in just two years.
Real estate is closely tied to local land finances in China. The collapse of the real estate market weakens local government fiscal revenues, leading to a decrease in income and constraining large-scale infrastructure spending by local governments. This, in turn, resulted in a slowdown in infrastructure construction in China after 2023. The scale decreased from $760 billion in 2023 to $650 billion in 2025, a decrease of $110 billion in just two years, dragging down GDP by around $900 billion.
In 2023, China’s major emerging technology industries, such as solar energy, batteries, new energy vehicles, robots, and artificial intelligence, collectively generated approximately $820 billion in GDP. By 2025, this figure had risen to $980 billion, an increase of $160 billion in two years. However, this growth is far from sufficient to offset the losses caused by the downturn in the real estate market and its ripple effects. At best, it can only compensate for the decline in infrastructure investment due to the real estate market slump. This implies that China still heavily relies on manufacturing exports to counter the economic contraction in the real estate market.
China’s exports increased from $3.38 trillion in 2023 to $3.77 trillion in 2025, a $400 billion increase over two years. The high-tech industry accounted for only $34 billion of this increase, with the majority coming from the so-called “new three industries” – electric vehicles, lithium-ion batteries, and solar power cells/photovoltaic components. The export value of these three industries grew by 8.5%, from $154.39 billion in 2023 to $189.34 billion in 2025. The remaining 91.5% of the growth came from low-cost small commodities, especially through China’s cross-border e-commerce channels. According to the Chinese National Bureau of Statistics, China’s cross-border e-commerce exports increased from $267.99 billion in 2023 to $317.52 billion in 2025, growing by around $48 billion over two years.
This highlights the core contradiction in China’s current economic narrative: while the Chinese government continues to view high-tech and new energy industries as the future engines of economic growth, these industries alone are still insufficient to address China’s deflationary problems. Despite China’s vigorous development of advanced technology, the current economic growth model still heavily relies on traditional manufacturing exports, rather than the high-tech industries that the government champions.
Due to the dumping of Chinese products, many countries globally have begun to take measures to restrict Chinese exports. Therefore, in the future, China’s reliance on traditional manufacturing exports will also face challenges.