China’s Reduced Growth Target Signals Economic Headwinds and Potential Impact on Indonesia

Jakarta, Indonesia – China has recently announced its lowest economic growth target in three decades, a move that could significantly impact the Indonesian economy. The announcement came during the annual “Two Sessions,” comprising meetings of the National People’s Congress (NPC) and the Chinese People’s Political Consultative Conference (CPPCC), key political events where China outlines its economic policies and development priorities.

Lowered Growth Target Reflects Domestic and Global Challenges

Chinese Premier Li Qiang announced a Gross Domestic Product (GDP) growth target of around 4.5% to 5% for 2026, the lowest target since 1991 and a reduction from previous projections [CNBC]. This adjustment signals a recognition of persistent economic pressures within China, including weak domestic demand and a prolonged slump in the real estate sector [CNBC]. The government similarly highlighted concerns about local government debt burdens.

External factors also contribute to the lowered target. Increasing global uncertainty, geopolitical tensions and trade issues pose risks to China’s economic outlook. The Chinese government is preparing for potential economic policies to address tariffs from the United States [CNBC].

Implications for Indonesia: Trade and Investment

Given China’s position as Indonesia’s largest trading partner, the slowdown in the Chinese economy is a significant concern for Indonesia. In 2025, China accounted for approximately 24% of Indonesia’s total non-oil and gas exports, totaling US$64.82 billion [CNBC]. A slowdown in China’s growth is likely to reduce demand for Indonesian export goods, particularly commodities and intermediate products used in Chinese industrial activities.

Beyond trade, China has become a major foreign investor in Indonesia, particularly in downstream industries, manufacturing, and natural resource projects. Chinese investment in Indonesia reached US$7.5 billion in 2025 [CNBC]. While still substantial, this represents a decrease from US$8.1 billion in 2024. A slower Chinese economy could lead to more cautious capital expenditure and potentially restrain the pace of investment expansion in Indonesia.

Potential Economic Impact: A Calculated Slowdown

Economists estimate that a 1% slowdown in China’s economy could reduce Indonesia’s economic growth by approximately 0.3% [CNBC]. This highlights the interconnectedness of the two economies and the potential for spillover effects. The reduction in China’s growth target signals increased risks to Indonesian exports, commodity prices, and investment flows.

The “Two Sessions” and China’s Political Landscape

The annual meetings of the NPC and CPPCC, collectively known as the “Two Sessions,” are carefully choreographed political events that reveal China’s priorities [BBC]. The NPC, while functioning as a rubber-stamp parliament, approves decisions made by the Communist Party, including laws, constitutional amendments, and state budgets [BBC]. This year’s sessions also saw a reduced number of delegates, attributed to China’s ongoing anti-corruption campaign [CNBC].

The meetings also provided details of a new five-year development plan, the 15th in China’s modern history, with a focus on achieving technological self-sufficiency [CNBC].