China will target economic growth of about 5 per cent this year, a rate described as “ambitious” by analysts, as the world’s second-largest economy battles challenges ranging from a property slowdown to weak investor confidence.

Premier Li Qiang, President Xi Jinping’s number two, announced a budget deficit of 3 per cent of gross domestic product and Rmb1tn ($138.9bn) in special government bonds in his first “work report” to the annual meeting of China’s rubber-stamp parliament on Tuesday.

“The foundation for the continuous recovery and improvement of our country’s economy is still not solid, with insufficient demand, overcapacity in some industries, weak societal expectations and many lingering risks,” Li told the nearly 3,000 delegates crowded into the Great Hall of the People in Beijing.

Investors are watching this year’s “Two Sessions” of the National People’s Congress, the country’s parliament, and the Chinese People’s Political Consultative Conference, the top advisory body, for clues as to how Xi plans to tackle the slowing economy.

The premier’s work report is the meeting’s keynote speech, laying out the party’s most important annual economic goals and setting the tone for policymakers for the rest of the year.

China will target an unemployment rate of 5.5 per cent and inflation of 3 per cent for 2024, Li said. But the country faces persistent deflation, with consumer prices falling at the fastest annual rate in 15 years in January.

Beijing’s military budget will increase 7.2 per cent, matching last year’s rate of rise. China has strengthened its military activities around Taiwan in recent years, and Li on Tuesday said Beijing would “resolutely oppose separatist activities aimed at Taiwan independence” and “unswervingly advance the great cause of the motherland’s reunification”.

The targets set on Tuesday were widely in line with market expectations. China’s official economic growth targets have been trending lower over the past decade as policymakers have sought to unwind the country’s debt-fuelled growth model.

But analysts cautioned that the 2024 target — which is the same as last year’s goal — would be harder to achieve than in 2023, when growth, which came in at 5.2 per cent, was flattered by a low base effect during the pandemic.

“We expect a moderate level of policy support, but given a less favourable base effect, pervasively downbeat sentiment, and property market weakness remaining an overhang, reaching 5 per cent growth this year may be more difficult,” ING greater China chief economist Lynn Song said in a note ahead of the work report.

In Hong Kong, the Hang Seng China Enterprises index of large and liquid Chinese stocks fell as much as 2.3 per cent, while the CSI 300 index of Shanghai- and Shenzhen-listed companies fell 0.4 per cent in early trading.

There are also concerns that domestic demand remains too weak after the coronavirus pandemic and that more stimulus is needed to drive stronger growth.

Zhang Zhiwei, president of Pinpoint Asset Management, a Chinese hedge fund, said more fiscal firepower was needed to combat deflationary pressures, but Beijing was attempting to stabilise economic growth while containing leverage. “This makes the fiscal policy a delicate balancing act,” he said.

In addition to the new central government special bond issuance, Li promised a slightly higher quota for special local government bonds of Rmb3.9tn, compared with Rmb3.8tn last year.

Xi and his advisers have stressed the need to invest in advanced manufacturing and largely eschewed handouts to households, other than a mooted scheme to help consumers trade in home appliances and cars.

The government will also propose a subsidy to upgrade business equipment, which analysts believe could help boost domestic demand.

Additional reporting by Wenjie Ding and Nian Liu in Beijing