China on Thursday vowed to deepen investment in high-tech industries and scientific innovation, framing them as essential to bolstering national security and self-reliance amid rising geopolitical tensions and an intensifying rivalry with the US.

At the opening of the annual parliament meeting, Premier Li Qiang praised China’s ability to withstand US President Donald Trump’s tariff hikes, but said “multilateralism and free trade are under severe threat” and announced 7% increases in the defence budget and in research and development.

Li acknowledged an “acute” imbalance between strong supply and weak demand, subdued market expectations, and ongoing risks from a persistent property-sector downturn and high local government debt.

These challenges have pushed Beijing to set a slightly lower growth target of 4.5%–5% for this year, down from last year’s 5%, which was met largely through a one‑fifth surge in its trade surplus to a record $1.2 trillion.

China’s 15th five-year plan, as widely expected, pledged investments in innovation and industrial upgrading, as well as a “notable” – but unspecified – increase in household consumption as a share of economic output.

The combination of a lower growth target and higher outlays on research and strategic industries underscores Beijing’s bet that technological upgrading- not consumption – will drive its next phase of development despite growing structural pressures.

Last year’s trade punches with the Trump administration, which briefly escalated to embargo-like conditions of triple-digit tariffs, also showed the importance of its supply chain dominance as leverage.

“China’s government remains laser-focused on spurring technological breakthroughs and high-tech investment,” said Fred Neumann, chief Asia economist at HSBC. “In part, this is motivated by competition with the United States for control over the technologies of the future.”

“Many international observers may be left disappointed, therefore, by slower progress in rebalancing the economy away from investment towards consumption.”

China invests 20 percentage points of GDP more than the global average, while its households spend roughly 20 points less – a state-controlled, debt-driven development model that creates industrial overcapacity and fuels trade tensions abroad and deflationary pressures at home.

“The rebalancing challenge that China faces, and that will take years to achieve, is implicitly acknowledged by a weaker growth target for the coming year,” Neumann added.

The five-year plan aims to raise the value-added of “core digital economy industries” to 12.5% of GDP and roll out new policies for an integrated national data market and establish a system for AI security risk prevention.

These goals reflect President Xi Jinping’s vision of developing “new productive forces” to escape the middle-income trap, counter the demographic downturn, and enhance national security by insulating China from US export controls.

China pledged support for “breakthrough” developments across a range of industries, from farm seeds and biomedicine to areas at the cutting-edge of science, such as machine-brain interfaces. State-owned enterprises were urged to create demand for made-in-China technology like semiconductors and drones.

But the five-year plan also lists new ambitions in areas China already dominates. While accounting for 85% of the electric vehicle charging stations in the world, China aims to double their number within three years.

In AI, Beijing promised to build out “hyper-scale” computing clusters supported by cheap and abundant electricity.

“Beijing is trying to manage a ‘controlled glide’ in growth while building a new economy based on technology rather than property,” said Andy Ji, Asian FX & rates analyst at ITC Markets.

“It is a high-stakes rebalancing where the government is betting the house on AI and advanced manufacturing.”

Steady stimulus plans

Economists say a lower growth target allows Beijing to experiment with adjustments to industrial overcapacity, which could lead to some factory closures and job losses, but cautioned that this did not mean a departure from its production-focused growth model.

The US Supreme Court’s decision to strike down some of Trump’s tariffs and expectations that a meeting between the two countries’ presidents later in March could stabilise relations in the short term, bode well for such adjustments.

“The bigger context here is the China-US competition, but this year is the trade truce,” said Dan Wang, China director at Eurasia Group.

“It seems that China is taking advantage of this year to do some structural reform, which is the right direction for the economy in the long term, but it also means in the short term, the job market pressure is way higher.”

In terms of stimulus, China plans a budget deficit of 4.0% of GDP and has set special debt issuance quotas at 1.3 trillion yuan ($188.5 billion) for the central government and 4.4 trillion yuan for local authorities – all unchanged from last year.

China pledged to raise minimum monthly pensions by 20 yuan per person and basic medical insurance subsidies for rural, non-working people by 24 yuan – marginal, rather than structural, moves. It said it wants to increase education spending, subsidise childcare and reform public hospitals, acknowledging the demographic downturn.

Yuan Yuwei, fund manager at Trinity Synergy Investment, warned that China’s growth and policy aims for this year, prepared at the end of 2025, do not take into account the US-Israeli attacks in Iran.

“That’s very negative to China, which counts the Strait of Hormuz as a crucial trade route,” said Yuan.

($1 = 6.8969 Chinese yuan renminbi)