China Sets Historically Low Target Amid Iran Oil Disruption

Tariffs? Inflation? Sinking popularity polls?

Whatever the justification for the U.S. attack on Iran, it has been an excellent distraction from the domestic quagmire that U.S. president Donald Trump and his administration find themselves stuck in.

It is also not lost on China that the Iran attack cuts off a supply of cheap oil. It also comes two months after U.S. forces toppled and seized President Nicolás Maduro in Venezuela.

So, while the Iran and Venezuela attacks dramatically raise the stakes in terms of a Chinese invasion of Taiwan, the U.S. actions also threaten China’s economic engine.

Combined 17% of China’s Oil

Iran sends 87% of its oil to China, a figure that stands at 55% for Venezuela. The two countries combined supplied 17% of China’s oil last year, according to data from the think tank Kpler.

Although the numbers were prepared ahead of the war in Iran, China has now set its lowest growth target in 35 years. The world’s second-largest economy is targeting growth of 4.5% to 5.0% in 2026, a forecast it invariably meets.

Chinese Premier Li Qiang delivered the forecast as part of his 35-page work report to China’s legislature, the National People’s Congress, which began its annual meeting on Thursday.

Lowest Forecast Since 1991

That is the lowest forecast since 1991. China set a target of “around 5.0%” for both 2024 and 2025. Surprise, surprise, in a command economy known for “massaging” the data where necessary, the number for real growth came in at 5.0% each of those two years.

The takeaway is that China anticipates an official slowdown, with business owners reporting that the economy has been lackluster for several years, essentially since the sharp rebound after the costly, ultimately futile effort to stamp out COVID-19.

This week’s meetings lay out the priorities for China’s $20.3 trillion economy, with plenty of top-down agenda setting. The lower target allows the government to push structural reform and leaves little room for heavy stimulus, analysts say.

New Five-Year Plan

This year is significant since the Chinese Communist Party is unveiling its 15^th five-year plan, for 2026-30. It has submitted the draft outline to China’s congress for approval.

Li today told China’s legislature that the 14^th five-year plan succeeded in hitting 20 major targets, 17 “strategic tasks” and 102 major projects. The period averaged annual economic growth of 5.4%. The next plan likewise has 20 main indicators, a set of strategic tasks, and 109 major projects across six areas of focus, Li said.

Li nodded toward “external shocks and challenges” that are intertwined with “domestic difficulties and tough policy choices,” making the economic gains of 2025 hard-won. 

“Rarely in many years have we encountered such a grave and complex landscape,” he said.

Xi’s Purges Lead to Lower Delegate Count

While the NPC and surrounding events are heavily choreographed, the mood music this year is subdued. It’s also worth noting that there are fewer delegates to the NPC than in previous years thanks to President Xi Jinping’s purges for “corruption.”

Xi has recently targeted the military, removing nine delegates from the armed forces without warning last week. Xi has ousted five out of the six top commanders who sat on the Central Military Commission in 2023, and 23 out of 30 top generals.

“The purges are a demonstration of Mr. Xi’s extraordinary power, but have also created a leadership vacuum across the military,” The New York Times wrote in an analysis piece that had an interesting graphic depicting how few top military leaders remain.

The 2,765 delegates present at this year’s NPC represents the smallest number this century, with 113 last-minute absentees. The NPC’s decision-making Standing Committee removed 19 officials just days before the legislature convened.

While officials who have been officially removed are often cited for “serious violations of discipline and law,” Communist-speak for corruption, Xi is also weeding out any potential challengers to his power. He may be feeling vulnerable due to China’s growth slowdown, with the death cycle in China’s property markets continuing, dealing a heavy blow to consumer confidence.

Rebuttal to 'Peak China' Narrative?

China’s lower growth target is pragmatic and a “powerful rebuttal to the ‘Peak China’ narrative,” according to an editorial in the state-owned English-language Global Times newspaper, often used to communicate China’s domestic and foreign policy for an international audience. China will be a “source of certainty” in an increasingly volatile world, the editors stated.

China is also seeking to target “high-quality” growth in tech, green industries and advanced manufacturing. Another major goal is to stimulate domestic consumption, to skew away from an over-reliance on exports. One of the goals of the next five-year plan is to double per-capita income by 2035, from 2020.

China hit a record trade surplus of $1.19 trillion in 2025, despite the ongoing tensions over tariffs with the United States. Beijing played a calculated game, dragging out negotiations and imposing payback tariffs on key materials such as rare-earth minerals, while directing importers to stop shipments of U.S. goods such as soybeans. Exports to the United States fell 20% but rose 8.4% to the European Union, 13.4% to Southeast Asia and 25.8% to Africa.

China Stocks Ease After Target

Chinese stocks were muted in their rebound on Thursday. The Hang Seng in Hong Kong had been trading up as much as 1.9%, but pared gains after the target’s announcement, ending the day up a modest 0.3%. The CSI 300 of the largest listings in Shanghai and Shenzhen rose 1.0% but also lost ground in the afternoon. Those boosts were modest compared with the 1.9% rebound on Thursday in Tokyo.

Mainland investors sold a record $3.5 billion in Hong Kong stocks on Thursday, through a mechanism that allows flows between open-market Hong Kong and the walled-off stock markets in mainland China. While Hong Kong is now in the red for the year to the tune of 3.9%, mainland stocks are still up 1.0% year to date. 

Markets seem to be shaking off the oil-supply disruption in the Middle East. Conflict never quite has the market impact that you might expect, investors swiftly returning to profit and loss columns despite the terrible human cost.

In Asia, the market response has been most dramatic in oil-importing nations such as South Korea and Japan. We’ve seen a selloff in this year’s top performers, with the South Korean market down 18.9% from the start of Iran attacks on Saturday through Wednesday’s close.

Almost all Asian markets are on Thursday following through from Wednesday's Wall Street rally. Seoul stocks have been particularly volatile, with the Kospi bouncing back 9.6% today. Electronics, chemicals and financials are leading the rally, but the gains are broad among companies that sold off earlier this week.

State-owned electric utility Korea Electric Power (KEPCO) (KR:015760) is, for instance, up 14.7% on Thursday. The company, which generates some 96% of South Korea’s electricity, last week disappointed on earnings, but also faces sharply higher oil prices. There were also double-digit gains for the market heavyweights, chipmakers SK Hynix (KR:000660), up 10.8%, and Samsung Electronics (KR:005930), up 11.3%.

Carmaker Hyundai Motor HYMTF (KR:005380) is up 9.4% on Thursday to undo some of its 25.9% selloff from Friday through Wednesday’s close. It is still up 83.6% year to date, investors lapping up its pivot into artificial intelligence and robotics, including an R&D partnership with Nvidia  (NVDA) . 

Hyundai Motor has a controlling stake in Boston Dynamics, which is moving from the prototype phase to full-scale production of its all-electric humanoid Atlas robots, with a plan to make 30,000 per year by 2028, at first for use in Hyundai car factories but eventually also for other industrial uses and potentially even in homes. 

At the time of publication, McMillan was long NVDA.