China lowers growth target to 7%, stocks sink

BEIJING — China plans an economic growth rate of about 7% in 2015, marking its weakest expansion since 1990 and a further slowing of the world's second largest economy.

Premier Li Keqiang said Thursday the target growth rate "is appropriate in terms of the need to grow and upgrade our economy." It follows months of official promotion of a "new normal" of slower growth than in the past three decades of mostly double-digit expansion.

In 2014, GDP growth was 7.4%, just below the official target of 7.5%.

The news drove Asian markets lower Thursday, with the Shanghai Composite index dropping 1% and Hong Kong's Hang Seng Index falling 1.1%. Japan's Nikkei 225 bucked the trend, climbing 0.3%.

Analysts said markets had mostly factored the new GDP growth target into prices but the news would still affect Asian trading.

The target is "an enviable number no doubt for most major economies," said Nicholas Teo at CMC Markets in Singapore. "For China, however, this would represent a slowdown that will be felt domestically even as the country continues to readjust and reposition itself for this next phase of economic reform."

While the U.S. and other major economies may fear a Chinese slowdown, authorities here stress a new focus on quality over quantity as they seek more sustainable development and attempt to restructure the economy by boosting domestic consumption, reducing its reliance on both government investment and state-owned heavy industry.

Inside Beijing's Great Hall of the People, Premier Li gave a "State of the Union"-style address at the start of the annual session of China's legislature — the National People's Congress, which functions under the firm control of the ruling Communist Party. The meeting draws 3,000 hand-picked delegates from across China, including several billionaires from private business.

"The downward pressure on China's economy is intensifying," Li said.

Citing cited "deep-seated problems" in China's economy, he added, "The difficulties we are facing this year could be bigger than last year. The new year is a crucial year for deepening all-round reforms."

In recent weeks, surveys of U.S. and other foreign companies in China found mounting dissatisfaction about the difficulties of doing business there, and a feeling of being less welcome than before. Li pledged Thursday to open the service and manufacturing sectors more by cutting the number of industries in which foreign investment is still restricted in half.

Despite trimming the GDP growth rate, military spending will grow 10.1% in 2015, according to a draft budget released Thursday. The People's Liberation Army, with 2.3 million personnel, is already the world's largest standing military.

Outpacing China's slowing economy, the hike underscores Beijing's commitment to modernize its armed forces and taking on a more global role. The 10.1% jump, down from the 12.2% increase in 2014, will represent the lowest in the past five years, the official Xinhua News Agency reported. The Pentagon has previously estimated China's actual spending could be up to 50% more than the declared total.

The increase will bring China's military budget to $145 billion, the second-highest worldwide, but still far behind the USA's annual expenditure. Last month, the White House proposed a $534 billion Pentagon budget for fiscal year 2016 with an additional $50 billion in funds for its war and training efforts in Afghanistan, Iraq and Syria.

As a big country, China needs an army able to safeguard its national security and people, Congress spokeswoman Fu Ying said Wednesday.

"Lagging behind leaves one vulnerable to attacks. That is a lesson we have learned from history," Fu said.

Fu described China's military policy as defensive in nature, but the continued double-digit budget increase will concern Japan, Taiwan and other regional neighbors who regard China's expanding military and its growing assertiveness over territorial disputes with unease.

The increased budget could fund key Chinese projects such as new submarines, stealth fighters and a second aircraft carrier.

China's submarines now outnumber those of the U.S. fleet, although their quality is inferior, U.S. Navy Vice Adm. Joseph Mulloy told U.S. lawmakers last month, according to Reuters. China has been expanding the geographic areas where the subs operate, he added.

Contributing: The Associated Press