China's Economic Pivot Under Pressure as Leaders Map Five-Year Plan

China's highly choreographed "Two Sessions" parliamentary meetingsare set to convene March 4-5, where the Communist Party will unveil its economic and strategic blueprint for 2026-2030: the 15th Five-Year Plan.

The economic, technological, and military agendas outlined during the National People's Congress (NPC) and the Chinese People's Political Consultative Conference (CPPCC) are expected to profoundly influence global geopolitics.

President Xi Jinping (習近平) faces critical steering decisions against a backdrop of severe domestic headwinds—including a collapsing property market and deflationary pressures—alongside a volatile international landscape marked by the escalating U.S.-Iran conflict and incoming U.S. President Donald Trump's planned visit to China later this month.

Analysis from international observers highlights several key areas to watch during the meetings, from technological self-reliance and economic growth targets to local government debt and ongoing military purges.

The "Two Sessions"refer to the annual gatherings of the NPC and the CPPCC, a tradition dating back to 1959.

The NPC is the Communist Party's 3,000-member legislative body. It is widely regarded as a "rubber stamp" parliament, having never rejected a bill presented by the party leadership. The CPPCC is an advisory body with no real political authority, though its diverse membership—which includes corporate executives, scholars, and celebrities—often proposes unconventional policy ideas regarding social and demographic issues.

Five-year plans represent the core governance blueprints of the Communist Party, a system initiated by Mao Zedong (毛澤東) in 1953 to outline key national objectives. In October 2025, the Party Central Committee released draft recommendations for the 15th Five-Year Plan, with the final document set for formal approval at this year's Two Sessions.

Xi has repeatedly emphasized "high-level technological self-reliance and self-strengthening" as the nation's primary task. Against the backdrop of intense U.S.-China tech competition, China's research and development spending reached $780 billion in 2023—double its 2015 level—and is projected to surpass the United States within the next few years.

However, analysts warn that the Two Sessions increasingly function as a "showcase" for achievements rather than a forum for outlining specific policy pathways. National University of Singapore Professor Wu Muluan suggests the meetings may highlight visible successes in areas like robotics, rather than detailing how Beijing plans to advance critical, foundational sectors like artificial intelligence.

Furthermore, it remains unclear how Beijing will transition its economic model from investment-driven growth toward domestic consumption. The 15th Five-Year Plan calls for "substantially increasing household spending rates," but a persistently slumping property market poses a major obstacle. Morgan Stanley economists expect China to continue directing the bulk of its resources toward high-technology sectors rather than directly subsidizing citizens to boost consumption.

The most closely watched element for global markets will be Premier Li Qiang's (李強) government work report on March 5, which will reveal the 2026 economic growth target and supporting fiscal policies.

Observers speculate that Beijing may abandon its rigid national GDP target of "around 5%," opting instead for a range between 4.5% and 5%. According to state media statistics, among the nation's 31 provincial-level regions, 18 have lowered their local GDP targets for 2026. Guangdong province, China's most populous and economically powerful region, set a target range of 4.5% to 5%.

Despite achieving 5.5% export-driven growth last year—resulting in an unprecedented $1.2 trillion trade surplus—a looming crisis threatens China's massive manufacturing sector. Capital Economics notes that China's industrial "overcapacity" in 2026 has reached historic highs.

While Xi and Trump agreed to suspend various retaliatory trade measures for one year during their October meeting, the Trump administration is reportedly preparing to deploy Section 301 tariffs. If China's massive manufacturing capacity loses its primary overseas export outlets, the domestic economic fallout would be severe.

The Two Sessions will also approve the annual government budget. To stimulate the economy, economists predict China will maintain last year's official budget deficit target of 4% of GDP. However, this figure masks a much deeper problem.

The International Monetary Fund estimates that when factoring in Local Government Financing Vehicles (LGFVs)—off-balance-sheet tools used to circumvent official borrowing limits—China's expanded deficit reaches 14%.

To prevent a debt explosion, the Finance Ministry launched an initiative in 2024 to replace LGFV borrowing with official local government debt by 2027, aiming to eliminate approximately 10 trillion yuan ($1.4 trillion) in hidden debt. Yet, according to Fitch data, even if the replacement plan succeeds, LGFVs still face another 24 trillion yuan ($3.3 trillion) in unresolved debt.

Defense budgets will face intense scrutiny amid geopolitical tensions. Last year, China’s defense spending grew by 7.2% year-on-year to 1.78 trillion yuan ($248 billion), outpacing the overall economic growth target. Analysts are watching closely to see if Beijing maintains this trend of prioritizing military modernization despite mounting fiscal pressures.

The Two Sessions also serve as a public showcase for Communist Party power transitions and purges. Observers closely monitor who attends and who is absent to gauge the latest political dynamics.

According to Xinhua data, the current NPC has 2,878 representatives—99 fewer than when initially appointed. Many lost their positions due to "corruption," including nine People's Liberation Army (PLA) representatives in the latest wave of removals.

Notably absent from recent removal lists are fallen PLA generals Zhang Youxia (張又俠) and Liu Zhenli (劉振立), who were stripped of their Central Military Commission vice chairman positions in January. Their continued, unexplained status has confused external observers. Experts note that as the PLA’s centennial approaches in 2027, ongoing military purges and preparedness will continue to dominate the leadership's focus. （Related： Washington Draws a Hard Line: Taiwan Must Pass $38.5B Defense Budget ｜ Latest ）