China's 4th plenum & 2026-30 plan: what to expect (1)

Yin Yanlin, former Deputy Director of the Central Financial & Economic Affairs Commission Office, flags three reform priorities: income distribution, fiscal & tax system, and investment system.

Editor's note: Ahead of the fourth plenum, this newsletter will run a special series mapping what to watch in the 15th Five-Year Plan and why it matters, to help stakeholders connect the dots on China's policy direction for the next five years.

This series opens with an informative interview between The Economic Observer经济观察报and Yin Yanlin 尹艳林, former Deputy Director of the Office of the Central Financial & Economic Affairs Commission. It's a long read, but well worth finishing.

Yin begins with "involution" (neijuan). At the macro level, he argues, the core problem is weak demand; and "involution" is a secondary, structural issue rooted in local governments' GDP- and revenue-driven incentives to shield duplicative capacity and block exit.

He also warns against one-size-fits-all "anti-involution": it is necessary to protect SMEs from non-competitive squeeze by industry leaders, and safeguard price advantages born of technological iteration.

On housing, he sees a needed breakthrough to revive demand: stabilizing the property market. That, he says, means dialing back administrative interference and clarifying the respective roles of the government and the market.

Finally, Yin flags three urgent reforms: income distribution (adjust PIT rates, expand special deductions, lower social-insurance contributions); the fiscal and tax system (clarify central-local spending and revenue powers); and the investment system.

With stronger macro policy and structural reforms, he expects average GDP growth above 5% during the 15th Five-Year Plan (2026–30).

Below is my translation of the full interview.

I. Avoid the generalization of "anti-involution"

Economic Observer: The 2023 Central Economic Work Conference flagged "overcapacity" in some sectors. This year, policy language has shifted to "take comprehensive steps to address rat race competition (anti-involution)." What does this shift signal?

Yin Yanlin: My reading is that the 2023 reference to "overcapacity" chiefly pointed to certain traditional sectors. With property in a cyclical downswing at the time, many related industries saw excess capacity.

By contrast, "anti-involution" mainly concerns emerging industries, such as photovoltaics, new-energy vehicles, and so on, focusing on the unreasonable price wars that appeared after 2024. The causes differ markedly from traditional overcapacity and are more complex.

The move from "overcapacity in some sectors" to "anti-involution" reflects a recalibration of the industries, issues, and priorities under policy attention.

Economic Observer: This year, it feels as if nearly every sector is talking about "anti-involution," even parts of finance. Does every industry need it?

Yin Yanlin: This generalization runs against the central authorities' intent. "Involution" began as an internet term, but in today's policy context "anti-involution" has quite specific behavioral and sectoral targets.

It is about reining in vicious price wars in certain sectors. Not all industries, and certainly not all price competition, count as "involution." Even where improper price competition does occur, we still need to analyze causes and impacts; no one-size-fits-all bans, and definitely no wrong-headed fixes in the name of "anti-involution."

How should we do it? The key lies in: in accordance with the law and regulations. Behaviors must be governed strictly by the Anti-Unfair Competition Law, the Price Law, and the Anti-Monopoly Law, avoiding a return to administrative controls.

Market competition underpins how the market mechanism works, and price competition is its primary expression. Whether the rivalry is on quality or efficiency, in the end it shows up in prices. "High quality" must ultimately be validated by "premium pricing" in the market.

Today's more “involution-prone” arenas are mostly emerging industries and the internet sector, where private firms predominate. I worry that some localities or industries distort "anti-involution" into "anti-platform-economy" or a posture against private enterprise. It is necessary to uphold basic market rules and prevent "anti-involution" from expanding to the point that it undermines normal competition.

Economic Observer: In some areas, departments or industry associations have convened a handful of leading firms to "coordinate" capacity and prices. Are there risks there?

Yin Yanlin: Experience shows administrative interference in capacity and prices seldom works well. Except where laws and regulations explicitly provide otherwise, governments cannot truly distinguish what is reasonable price competition and what is advanced capacity.

Right now, some departments are drafting rectification plans for key industries. Such plans may be necessary to address immediate issues, but the "in accordance with the law and regulations" principle still applies.

Two cautions are crucial. First, avoid harming the interests of small and medium-sized enterprises (SMEs); do not let a few industry leaders eliminate SMEs through non-competitive means. Second, protect technological progress by safeguarding price advantages that arise from real innovation.

Many "involution-affected" emerging sectors are still in periods of rapid technological change. Innovation lifts efficiency and lowers costs; those advantages should translate, via price competition, into market share, which is a "reward" for innovators. If price and capacity patterns are "locked in", efficiency gains will be muted and incentives to innovate will suffer.

In traditional sectors, where progress is slower, the downsides of administrative interference may take longer to surface. In emerging fields, the fallout can show up fast.

Moreover, traditional industries mainly serve domestic demand, where market space is more predictable. Emerging sectors play in global markets with far less predictable scale, making capacity even harder to "plan" through administrative or quasi-administrative means. In this sense, today's "anti-involution" is more complex than the supply-side structural reforms of 2016.

So for normal price competition, let's watch more and rush less, and leave as much as possible to market clearing.

Economic Observer: Judging by some moves, though, there seems to be an appetite for quick fixes to "involution."

Yin Yanlin: That will be difficult. In particular, the notion of "raising prices by cutting capacity" may have some short-term effect in a few sectors, but it cannot resolve macro-level problems. In an environment of weak aggregate demand, it is unrealistic to expect a generalized rebound in prices simply by compressing capacity.

Macro control has priorities. From a macro lens, insufficient demand is the main contradiction; "involution" is a secondary, structural issue. The principal task now is to shore up demand. Misreading "anti-involution" can have side effects. For example, overly rapid capacity cuts may hit the labor market.

Economic Observer: This round's hot spots for "involution" are largely in private-firm-dominated emerging sectors. In the past, market failures are associated more with SOE-heavy industries. Why are private sectors seeing similar issues now, and why hasn't the market cleared them out?

Yin Yanlin: The crux lies with local governments. Given their reliance on GDP and fiscal revenues, some localities go to great lengths to protect duplicative capacity and, when gluts occur, to obstruct exit within their jurisdictions.

Many projects were not purely market decisions by firms; naturally, market exit becomes hard. Take new-energy vehicles (NEV). For local governments, launching an NEV project may be necessary, but the nationwide result was projects blooming everywhere, and "involution."

This is a special situation China hadn't fully anticipated. It shows the micro foundations remain incomplete and market-economy institutions have a way to go. If China doesn't address non-market logics, capacity problems will recur — from real estate yesterday, to semiconductors and renewables, and now the early signs in artificial intelligence.

Economic Observer: Why has local intervention in markets seemed to strengthen in recent years, with a larger presence in development?

Yin Yanlin: From technology and fixing weak links to public services, local governments have been tasked with more. To deliver, they have sought "handles," strengthening local SOEs — which then loom larger. This raises the question of how local governments can better perform their functions, and how to guide private firms into technology and major-project participation.

Things are changing, though. There's growing recognition that "government alone is not enough". Real innovation and emerging-industry development depend on markets, and on private enterprise. The rise of Hangzhou's "Six Little Dragons," in particular, has nudged thinking in science-and-technology agencies and government management alike. Innovation needs markets, and it needs private firms.

II. Property market as the "breakthrough" to uplift macroeconomy

Economic Observer: A year ago on September 24, a series of incremental policies were introduced. But the marginal effects appear to be waning in recent months. Is it time for a new round of incremental measures?

Yin Yanlin: Despite 5.3% real GDP growth in the first half, showing resilience, low prices have kept nominal growth below expectations. When nominal trails real, firms and households feel it. Investment and consumption have slowed, unemployment has ticked up, and stabilizing housing has become harder. All this points to a still-tight macro setting. I would suggest stepping up macro policy.

We have a policy "toolbox," and we're continually refreshing it. The room to act is there — it's a matter of timing and resolve. We may save more "rounds" for next year — after all, it is the opening year of the "15th Five-Year Plan."

Economic Observer: Why has weak demand persisted?

Yin Yanlin: Partly because of the "scarring effect" from the pandemic. The two renewals — large-scale equipment upgrading and trade-ins for consumer durables — did lift demand last year, but their marginal effect is fading. Some localities have also reduced consumer-voucher programs because they strain local budgets, and trade-in programs cannot be expanded indefinitely.

In the short run, the most direct way to spur spending is to loosen consumption constraints so higher-income households spend more, thereby lifting others' incomes. Even if we could mobilize just 10% of the roughly 70 trillion yuan increase in household deposits in recent years, that's about 7 trillion yuan of demand — no small sum, comparable to multiple rounds of ultra-long special sovereign bonds.

Economic Observer: Investment also matters for demand. Some economists argue it is more immediately effective than consumption support; others warn of low marginal returns and mounting local debt. Where do you stand?

Yin Yanlin: I have long called for a "new round of large-scale investment." Investment still matters greatly for China's economy. If last year's fiscal resources used to swap local implicit debt had instead gone into investment, the growth impulse might have been stronger.

Debt swaps mainly address liquidity. They do shave interest burdens and extend maturities, but not by much — roughly 600 billion yuan in interest relief. That said, swaps can bolster local willingness and capacity to invest.

Next, it is necessary to form a virtuous cycle between investment and consumption. Two levers stand out. First, urbanization — especially accelerating the conversion of migrant workers into urban residents — which can mobilize both investment and consumption. Second, stabilizing the housing market.

Within fixed-asset investment, real estate is the major drag. To lift investment, it is necessary to first steady property investment. And because property strongly catalyses consumption, it should serve as a crucial bridge between the two.

But current property policies are not strong enough. The improvements from the policy package in Sept. 24 last year were partial, not comprehensive, and their effects have largely played out.

Economic Observer: Housing investment has yet to bottom out; prices in some cities have been volatile. What more can be done to steady the market?

Yin Yanlin: We first need a shift in mindset. The central government has made clear that "the supply-and-demand balance in the property market has fundamentally changed," meaning the market has moved from overheated demand to insufficient demand.

Accordingly, the policy toolbox should shift from "curbing price increases" to "supporting reasonable price increases." In practice, the toolbox still contains far more curbs than supports, and even the "supports" are mostly about removing restrictions.

We need a directional reset. If everyone expects that "home prices can only fall," that expectation will reinforce itself, making stabilization harder and even thwarting a basic goal of "stopping the decline."

We also need to refresh our understanding of housing. Speculation must be curbed, of course. But property remains a key household asset class, and its financial attributes should not be ignored.

In 2021, at the industry's peak, commercial-housing sales area was about 1.8 billion square meters; today they are down to 800–900 million. But 900 million is not a "normal" steady-state demand level. Several short-term factors have depressed sales: (1) slower income growth sapping purchasing power, holding back both first-home and upgrade demand; and (2) weaker price expectations, with some cities’ policies not adjusted in time, dampening investment demand. In fact, even allowing for anti-speculation measures and demographic shifts, China's annual commercial-housing sales area should still exceed 1.0 billion square meters.

As a new development model takes shape, the government is able to better curb speculation (for example, via tax tools), while allowing normal investment attributes to function.

Economic Observer: What might that "new model" look like? Will it be dominated by affordable housing?

Yin Yanlin: The old "three highs" — high turnover, high inventories, high leverage — are over. What replaces them still needs exploration.

To me, one key is reducing administrative intervention. Real estate has been a heavily "administered" arena for years. The new model should clarify the roles of government and market, which is a major sticking point today.

Overall, the property market is part of a high-standard socialist market-economy system, not something apart from it. The market should play the decisive role in allocating resources, with government playing a better — not a bigger — role. We will, of course, strengthen housing security, but housing will not be provided mainly by the government.

From an institution-building perspective, some current regulatory approaches in property market even clash with the drive to build a unified national market. For instance, fragmented, city-by-city territorial regulation runs counter to the basic requirements of a unified market.

From this angle, it is also necessary to reduce administrative interventions and let factors flow more freely. Among those interventions, the household-registration (hukou) system has an outsized impact on housing. We need deeper decoupling of property from hukou, especially policy adjustments in a few mega-cities.

Economic Observer: Some have proposed a central purchasing-and-reserves company to buy housing on a large scale and stabilize prices. Is that feasible?

Yin Yanlin: It would be difficult. First, the sums involved would be enormous. Second, operationally, agreeing on prices would be very hard.

Economic Observer: Many people also care about the capital market. How do you view the past year's efforts to stabilize it?

Yin Yanlin: There are likely three aims. First, to channel more support to sci-tech innovators — capital markets have been vital for innovative-drug firms, for example. Second, to lift confidence and reset expectations. Third, to harness wealth effects. But wealth effects require a stable, long-term uptrend; even then, gains do not automatically flow into consumption or investment.

Equity gains create a possibility — a channel and a direction. In that sense, shoring up the stock market still matters.

From a macro perspective, though, it is not sufficient. I would argue stabilizing housing is even more essential. Property's pull on investment and consumption is stronger and more direct, and it more effectively repairs local public finances and the balance sheets of households and firms. We need a breakthrough to revive demand; housing may be it.

That implies further cuts in the reserve-requirement ratio and policy rates to lower mortgage costs, and faster removal of assorted housing constraints in mega-cities so the market can "stop falling," with positive spillovers.

There is some urgency here. The "consumption–income" negative feedback loop has become more pronounced, which further weakens home-buying capacity and suppresses consumption willingness.

On this point, some economists may be the more realistic. Chinese households' heavy allocation to property is a long-run rational choice; it should not be dismissed as "excessive."

Economic Observer: Urbanization and housing are closely linked. Today, rural residents' willingness to settle in cities seems to have cooled. Is there still substantial room for urbanization?

Yin Yanlin: Most jobs remain urban currently, and city life still attracts the young. At the micro level, young people seeking better lives will continue flowing from villages to towns, and from small to large cities.

At the macro level, many once thought a 70% urbanization rate was roughly the ceiling. Global trends suggest it can surpass that line. The path may be bumpy, but the trend continues.

As long as urbanization proceeds, growth has momentum: urban construction will pull along many industries, especially traditional ones, which still make up about 80% of manufacturing — and services also need sustained urbanization.

To advance urbanization, two tasks matter. First, safeguard rural residents' rights in the countryside, including land-use, homestead rights, and ideally create mechanisms that make rural rights an "initial accumulation" and financial cushion for their settling in cities. Second, further decouple basic urban public services from hukou and tie them to the resident population. Cities under 3 million residents already have policy requirements here and have done relatively well. But the large and mega-cities that matter most for urbanization still have substantial room to improve. If these reforms land, continued urbanization will inject significant momentum into the economy.

Economic Observer: If these measures are implemented, what growth rate can China sustain during the next five years?

Yin Yanlin: I think growth can be above 5 percent. The current pressure mainly reflects insufficient demand — meaning potential is still there. Once the demand gap is addressed, potential can be realized.

Economic Observer: What kind of five years will the "15th Five-Year Plan" be? What are the main tasks?

Yin Yanlin: It will be a period with heavier development tasks. This is evident from the central authorities' designation of it as a "key period for consolidating the foundation and making an all-out push." During the "15th Five-Year Plan," development in many fields needs to reach a new level, laying a solid foundation for the "16th Five-Year Plan" to successfully achieve the goal of "basically realizing socialist modernization."

III. Reform need not mean "pain"

Economic Observer: You have stressed reform repeatedly, including in your book "Deep-Level Reform." How should we understand reform's significance now?

Yin Yanlin: The economy's internal circulation has lost momentum. As we discussed, the "consumption–income–consumption" loop is shrinking. In such a situation, the economy alone struggles to break the loop; we need external force, and reform is that key "variable."

Take consumption. The key is to raise incomes and restore a positive "consumption–income–consumption" loop. But right now, without consumption it is hard to raise incomes, and without incomes it is hard to expand consumption — a negative cycle that requires external force to break.

There are two paths to higher incomes. One is to use incremental policies to activate markets, expand spending, lift growth, and thereby raise incomes. The other is income-distribution reform to increase labor's share.

The latter has a different focus from stimulus: it is about resetting the distribution among government, enterprises, and households, something that demands real resolve.

For example, cutting personal income-tax (PIT) rates would directly raise take-home pay. During the pandemic, the Chinese government cut taxes and fees for SMEs by over 2 trillion yuan; now it could consider a comparable effort to lower PIT rates and expand special deductions. Any fiscal pressure from tax relief could be cushioned by bond issuance.

Two years ago at the Chinese People's Political Consultative Conference (CPPCC), I suggested the top 45% PIT bracket could be lowered; it burdens not only the very high-income but parts of the upper-middle-income group. In addition, reforms to the social-security system, such as adjusting pension contribution rates, can also boost take-home pay. Of course, raising the minimum wage would help too, but given firms' widespread pressures, it is harder to implement right now.

Economic Observer: Social-security contributions have been in the spotlight. Some argue rates are too high. How do we balance sustainability with current burdens?

Yin Yanlin: One major challenge dates back to the (social security) system's inception, when some state-owned enterprise (SOE) workers were brought in under "deemed contributions视同缴费" rather than paying in cash, creating funding gaps possibly on the order of trillions of yuan.

For years, the government coped mainly by broadening the contribution base, which kept rates from falling. With flexible employment up and new job creation slower, a pension system built on enterprise-employee contributions is hitting a coverage ceiling, and the "newcomers pay for retirees" model faces sustainability stress.

Experts have recently proposed larger transfers of state capital to the Social Security Fund. The Fund is a national reserve to support social-security outlays during population-ageing peaks; its sources include budget appropriations, state-capital transfers, investment returns, and other State Council-approved channels.

At a September 17 press conference, State-owned Assets Supervision and Administration Commission of the State Council (SASAC) noted that central SOEs had transferred 1.2 trillion yuan in equity to the Fund between 2021-25. This shows state-capital transfer is just one source, mainly for contingencies, not designed to fill legacy gaps.

To lower contribution rates and raise take-home pay now, it is necessary to take unconventional steps. If the government can seize the current low-rate window and fill the gap at one go via special sovereign bonds, that could be a more workable solution. If SOEs could proactively sell down some holdings to help fill it, so much the better.

Economic Observer: Some say reforms are "pressure-induced" — challenges make consensus easier. Others say reforms work best in a supportive macro environment. How do you see this?

Yin Yanlin: Some reform directions have been discussed for years but struggled to gain consensus when growth was strong. With growth under pressure, urgency has risen and consensus has become clearer; reform may move faster. For example, local support for cultural-tourism and live-performance markets has grown notably in recent years, with much better service awareness, which is an instance of pressure catalyzing reform.

But reforms that touch on vested interests, especially those affecting many people, face strong headwinds when the economy is under strain. The recent debate about "mandatory social-security contributions" is one example.

So the key is balance: prioritize reforms that are both urgent and necessary within a controllable scope.

Economic Observer: Can you give an example?

Yin Yanlin: Easing private-sector investment and overhauling the investment system.

Economic Observer: In recent years, private investment has been weak while SOE investment has carried more weight. Is it urgent to change this?

Yin Yanlin: Private firms are not unwilling; they lack investable avenues. State capital follows the "three concentrations" (concentrating toward vital industries and key fields tied to national security and the economy's lifelines; toward public services, emergency capacity, and public-interest areas; and toward forward-looking strategic emerging industries). Areas outside those should be left more to private capital.

This is a window for proactive reform: SOEs are currently operating reasonably well and are not facing the late-1990s "three-year turnaround" predicament. But if no adjustments are made, operating pressures on SOEs will keep increasing. July data show that while private firms' profits are still growing, SOE profits have fallen sharply, indicating that problems in economic circulation have moved upstream from the end market upstream (where SOEs are predominant). If the corresponding reforms are not advanced, there could be widespread losses among SOEs.

Act while the window is open. If we wait until losses force our hand, we will be more passive.

Real estate offers a cautionary tale. Central SOEs were once told to shed property businesses, yet many property-centric SOEs kept them. When the sector turned, private firms were hit first, but state firms ended up in trouble too.

To make private firms both willing and able to invest, we need stronger investment-system reform, especially in services. Many service segments remain quasi-public in character. Apart from tourism and a few more market-oriented niches, medical care, education, and culture are still led by public institutions. How to attract private capital into these areas should be a focus for the next stage.

There are also many sectors where returns are relatively clear, where there are no explicit restrictions and equity participation is even explicitly encouraged, yet private enterprises show limited interest in entering. Why is that? This question also needs to be clarified.

Economic Observer: What other reforms are both urgent and well-suited to the present?

Yin Yanlin: At least three. We've discussed two, namely income-distribution and investment-system reforms. The third is fiscal-system reform to better align central-local relations, clarify local spending responsibilities and revenue authority, and strengthen local own-source revenue.

In the past, land revenues were once a major source of income for local governments, which also led to their reliance on the real estate market. After real estate investment declined, non-tax revenues rose sharply, and phenomena such as "offshore fishing", or profit-driven enforcement, appeared.

At present, tax-system reforms, such as consumption tax reform, are needed to provide local governments with a more stable revenue base. At the same time, the functions and powers of local governments should be further clarified, specifying which responsibilities belong to the central government and which to local governments; for responsibilities that belong to the central government, the central treasury should underwrite them and they should not be left to localities.

These three directions should be priorities over the next five years — and they already appear on the central reform roadmap. The last year Third Plenum set out 300-plus reform tasks to be completed by 2029. That implies a period of intensive rollout, spanning innovation-system reform, talent-development reform, and more.

Economic Observer: Compared with the early reform-and-opening period, how have today's directions and approaches changed? Why do some feel reform less tangibly now?

Yin Yanlin: Progress has been notable. On one hand, reforms are broader, no longer confined to the economy. On the other, they are more systemic, emphasizing overall coherence rather than the old, easier-to-grasp "single-item" reforms.

For example, the ongoing effort to build a unified national market is a more systemic, overall reform that truly touches the core of establishing a market economy system. This is because building a unified national market shifts the focus back to government conduct, and the relationship between government and the market is the core issue of economic system reform.

The basic principles for advancing the unified national market — "five unifications and one opening-up" (namely, unified foundational market institutions, unified market infrastructure, unified standards for government conduct, unified market regulation and enforcement, unified factor and resource markets, and a continued opening-up domestically and internationally) — include, as a very important aspect, unifying the standards for government conduct. At present, building the unified national market has achieved results, for example by cleaning up preferential tax enclaves used for investment promotion and by establishing and strengthening the fair-competition review system.

Economic Observer: People have high expectations for reform but also worry about “reform pain.” How should short-term and medium- to long-term policies be balanced?

Yin Yanlin: When analyzing macro policy, we should not mix up long-term issues with short-term ones. The "pain" we feel at present does not come from reform, but from insufficient demand, which is the salient contradiction. The effects of structural reform will only be delivered in the medium to long term.

What needs to be addressed now is the problem of insufficient aggregate demand, and the macro policies, especially monetary policy, need to be stronger. Monetary policy should pay more attention to the aggregate, with the core focus on prices. We should step up incremental policy measures: where a rate cut is warranted, cut rates, and push real interest rates to keep moving down. At present, real interest rates are still too high; we should be prepared for them to move toward "1%."

This will certainly pose challenges to the banking system, but if insufficient demand persists, the pressure on the banking system will only grow. If cutting rates proves infeasible, we can also consider a China-style "quantitative easing," under which the People's Bank of China would purchase government bonds in the open market to release liquidity more effectively.