Commentary: Can China grow from within?

There is now only one engine capable of sustaining growth at the scale Beijing requires, says economics professor and author Keyu Jin.

Read a summary of this article on FAST.
Get bite-sized news via a new
cards interface. Give it a try.
Click here to return to FAST Tap here to return to FAST
FAST

LONDON: China manifests a striking paradox. It is among the world’s most dynamic technological powers, producing breakthroughs in artificial intelligence, electric vehicles and advanced manufacturing at an accelerating pace, yet economic growth continues to slow.

The reason is no mystery. As the government’s latest Five-Year Plan (2026 to 2030) recognises, China is experiencing a structural transition, not a cyclical slowdown. The old model is giving way to a new one, which has yet to take hold.

This transition is about more than economics. It reflects a deeper objective: strategic autonomy. The question is no longer simply whether China can grow, but whether it can grow on its own terms.

A system that depends heavily on external demand, foreign capital or imported technology is inherently exposed – a reality that recent energy shocks have thrown into sharp relief. So, the 15th Five-Year Plan aims to reduce structural dependencies.

CNA Games

Guess Word
Crack the word, one row at a time

Buzzword
Create words using the given letters

Mini Sudoku
Tiny puzzle, mighty brain teaser

Mini Crossword
Small grid, big challenge

Word Search
Spot as many words as you can
Show More
Show Less

The investment-driven and export-led model that powered Chinese growth for decades was highly effective at scaling up supply, delivering extraordinary results through a time of rapid globalisation, favourable demographics, surging urbanisation and a property boom. But it was inadequate at raising demand and welfare – and it has now reached its limits.

While advanced technology sectors are strategically vital, their macroeconomic weight is limited. High-end manufacturing, for example, accounted for roughly 6 per cent of GDP last year and contributes relatively little to local government revenues compared to the property sector it is meant to replace.

SERVICE CONSUMPTION IS LAGGING

There is now only one engine capable of sustaining growth at the scale China requires: consumption. For a country that has managed to overcome powerful constraints to innovation – a record exemplified by Huawei’s resilience and the rise of leading AI players like DeepSeek – getting households to consume more might not seem like a difficult task.

But given that underconsumption has long been embedded in the Chinese system, it might be the toughest challenge China has faced.

The gap between China’s current consumption levels and global norms implies trillions of dollars in unrealised demand. The divergence is particularly pronounced in services.

Whereas China’s real consumption stands at roughly 50 per cent to 80 per cent of US levels – broadly consistent with a middle-income OECD economy – service consumption lags significantly behind, falling short of developed economy levels by an estimated 15 to 20 percentage points.

The 15th Five-Year Plan marks the Chinese government’s most concerted effort yet to address this imbalance – though results will take time to emerge. At its core is a new doctrine: boosting domestic demand by investing in people.

Start with pensions. As it stands, social support in China is distributed unevenly, with rural pensions averaging only around US$35 per month – less than 7 per cent of urban retirees’ benefits. But rural pensions are set to rise to about US$85 per month within three years and to some US$140 per month within five years. Some estimates suggest that this change alone could ultimately lift consumption by 5 to 10 percentage points of GDP.

But this is just a first step. Given the constraints on consumption – weak income expectations, high precautionary savings and lingering balance-sheet pressures – persuading Chinese households to spend will depend less on delivering short-term stimulus than on improving the distribution of income, security and opportunity across the economy. This is why China will have to shift the focus of its investments from physical capital to people.

Recognising this, the 15th Five-Year Plan aims to expand the scope of free education and increase the number of years of compulsory school attendance, lower childcare costs and scale up vocational training.

Moreover, it sets the stage for reforms to the hukou (household registration) system that would more fully integrate migrant workers into urban welfare systems. And it will seek to unlock household wealth and stabilise living costs through rural land reform, improved public housing and urban renewal initiatives.

For households to feel secure enough to spend on the necessary scale, opportunities for broader wealth accumulation are also essential. As of 2025, China’s stock market capitalisation stood at roughly 100 trillion yuan (US$14.5 trillion) – about 77 per cent of GDP. That is well below the 100 per cent to 120 per cent ratio typical of mature markets.

A STRUCTURAL AND STRATEGIC IMPERATIVE

Expanding China’s capital markets is not only a financial imperative, but also a structural and strategic one, as it is essential to reducing reliance on external capital.

Capital markets channel savings into more productive sectors – particularly services and high-tech industries – and give households opportunities to invest their savings and participate in sustainable wealth creation. They are thus vital to enable a shift from property-based to financial wealth and from investment-led growth to consumption-driven demand.

But, as the 15th Five-Year Plan also recognises, expanding China’s capital markets will require deep institutional reforms to improve initial public offering systems, strengthen corporate governance, encourage dividends and buybacks, and mobilise “patient capital” from pension funds and insurers. Meanwhile, gradual financial opening and greater foreign participation will enhance market depth and integration.

It remains to be seen whether these policies will translate into meaningfully higher consumption in the near term. But they do represent a departure from previous five-year plans, which treated consumption as secondary to more traditional growth engines like investment and exports. This reflects changing external conditions, which have made reliance on others – for demand, technology, capital or energy – synonymous with vulnerability.

At a time of intensifying geopolitical volatility and global fragmentation, China’s embrace of a consumption-led model is not only about rebalancing growth, but also about anchoring it more firmly at home. Strong domestic demand offers a degree of insulation from external shocks, and together with developed capital markets, it can go a long way toward strengthening autonomy.

In this sense, the trajectory is clear. China aims to recreate, in its own way, the conditions that some privileged economies have long enjoyed: the ability to grow from within.

Keyu Jin is Professor of Economics at the Hong Kong University of Science and Technology and the author of The New China Playbook: Beyond Socialism and Capitalism. This commentary first appeared on Project Syndicate.

Newsletter

Week in Review

Subscribe to our Chief Editor’s Week in Review

Our chief editor shares analysis and picks of the week's biggest news every Saturday.

Newsletter

Morning Brief

Subscribe to CNA’s Morning Brief

An automated curation of our top stories to start your day.

Sign up for our newsletters

Get our pick of top stories and thought-provoking articles in your inbox

Subscribe here

Get the CNA app

Stay updated with notifications for breaking news and our best stories

Download here

Get WhatsApp alerts

Join our channel for the top reads for the day on your preferred chat app

Join here