Ex-NDRC official's comprehensive outlook on China's 2026-30 plan

on growth, demand and supply

This piece presents policy recommendations from Yang Weimin, a former DG-level official, on China's 15th Five-Year Plan (2026-30).

Yang Weimin 杨伟民 joined the former Development and Planning Department of State Development Planning Commission of China in 1989, and later held Deputy Secretary-General and Secretary-General of the National Development and Reform Commission (NDRC).

In 2011, he was appointed Deputy Director of the Office of the Central Financial and Economic Affairs Commission, the executive body of the highest economic decision-making body of Communist Party of China (CPC).

The NDRC and the Central Financial and Economic Affairs Commission are two most powerful economic planning bodies in China, each led by different authorities. The NDRC, under the State Council, is widely regarded as the most influential government ministry. It directs policy on strategic industries, approves major investments and mergers, and controls the pricing of goods ranging from liquor to petrol. Its sweeping powers have earned it the nickname "the little State Council."

The Central Financial and Economic Affairs Commission is CPC's highest-level economic decision-making body, with President Xi Jinping at its helm.

In December 2024, Yang addressed the 21st China Mergers & Acquisitions Annual Conference, where he discussed key aspects that should be considered in China's 2026-30 plan, focusing on the fundamental issues of growth, demand, and supply.

The draft of China's 15th Five-Year Plan (2026-30) is expected to be released later this year, followed by review at the "two sessions" next spring. This pivotal document will chart the nation's strategic course for the next five years.

Yang has been involved in the formulation of China's Five-Year Plans from 1996 to 2025. His recommendations focus on three fundamental issues: growth, demand, and supply.

On Growth:

He believes that China is currently in an economic downturn and suggests setting a target slightly higher than the predicted rate, around 5%, to guide expectations and enhance confidence.

On Demand:

Yang argues that if the 2026-30 plan targets an average annual growth rate of 5%, it may ultimately require a greater reliance on sustained expansion in household consumption—an area where China still has considerable potential for growth. If, over the course of two five-year plans (2026-35), China can increase the share of household consumption to over 50%, it will significantly strengthen the foundation of its future economy, ensuring greater stability.

On Supply:

As demand shifts toward household consumption during 2026-30, consumer-oriented industries will see greater growth. If demand-side policies focus on expanding household consumption, supply-side policies must also adjust accordingly, prioritizing the development of consumer-driven sectors:

1. Industries with high net imports;

2. Education, healthcare, wellness, sports, elderly care, and culture;

3. Mid-to-high-end consumer goods and services.

Moreover, Yang emphasizes that innovation is unpredictable and requires continuous trial and error. The government's role is to ease market access and minimize intervention in innovative services. He suggests creating a negative list for the service sector, regulating only specific areas, while allowing free innovation in others.

Yang's speech was first published in December 2024 on the WeChat blog of the China Mergers & Acquisitions Association and was later republished last month on the WeChat blog of the Institute for China Sustainable Urbanization at Tsinghua University.

And I would like to express my gratitude to Tom Hancock for kindly recommending this thorough and well-structured piece, as I would have otherwise missed it.

Please note this translation is my own and has not been reviewed by Mr. Yang.

杨伟民：编制“十五五”规划需要深入研究“增长、需求、供给”三个基本问题

Yang Weimin: In-Depth Research on "Growth, Demand, and Supply" Is Essential for Formulating the 15th Five-Year Plan

I. Growth: How to Set Economic Growth Targets?

The economic growth target is a core indicator in national planning. Since the 11th Five-Year Plan (2006-10), growth target has been classified as "anticipatory targets (预期性指标)." The achievement of anticipatory targets depends primarily on the autonomous actions of market players; and the government's responsibility is to foster a favorable macroeconomic, institutional, and market environment, adjust the direction and intensity of macro policy as needed, and use a mix of tools to guide resource allocation.

When setting growth targets during the planning, the general approach is as follows:

• During economic upswings, targets may be set slightly below projections to prevent local governments from overstimulating growth, straining resources and the environment.

• During downturns, targets may be set slightly above projections to boost market confidence and steer expectations.

Therefore, anticipatory target is not about forecasting some values. During a downturn, an anticipatory target should be slightly above forecasts, acting as a "stretch goal"—one that requires extra policy effort, reform, and hard work to achieve. Importantly, such goals are grounded in reality and consistent with the economy's potential growth rate, rather than being unrealistic.

Looking ahead to 2026–30, China has the underlying conditions to sustain medium or moderately higher growth, at least not falling below the actual growth achieved during 2021-25. These conditions include:

1. A Complete Modern Industrial System: China boasts the most comprehensive manufacturing system in the world, accounting for 30% of global manufacturing value-added. The country's production capacity exceeds domestic demand, so as long as demand exists, growth can be sustained.

2. Abundant Talent Resources: While China's working-age population is now shrinking and the country's demographic advantage is gradually waning, there are still over 10 million college graduates entering the workforce each year. This group, while facing employment pressure, represents a source of innovation.

3. Convenient Infrastructure: China's extensive and well-established highway and high-speed rail networks provide a level of infrastructure unmatched globally.

4. A Vast Potential Market: Today, the market is one of the most scarce resources. With a population of over 1.4 billion, China offers a vast domestic market and is also the world's second-largest import market.

5. Numerous Market Entities: There are over 56 million private enterprises in China, reflecting both the scale and dynamism of this group. In addition, the number of self-employed businesses nationwide has reached about 120 million.

At the same time, China faces several longstanding structural challenges. In my view, these structural problems also represent untapped potential and structural dividends for future growth.

For example, there are roughly 300 million people, mostly rural migrants, living outside their official household registration areas. Most lack stable and well-equipped housing in the cities where they work—they do have a place to live, but not necessarily quality housing. This points to significant underlying demand in China's real estate sector. The first stage of China's real estate boom solved the "housing shortage" problem, but significant structural gaps remain: some cities face oversupply, while others still lack sufficient housing; there is an excess of old, poorly maintained, and small homes, but a shortage of high-quality housing.

There is also ample room for reform and improvement in China's economic governance and institution. If reforms are implemented and governance improved, market players will greatly energized. To translate these underlying conditions into real, tangible growth, it is essential to step up efforts in policy, reform, and implementation.

The 2024 Central Economic Work Conference set the tone for 2025—calling for a more proactive fiscal policy and a moderately accommodative monetary policy, deploying a coordinated policy mix. There will be increased coordination between fiscal, monetary, employment, industrial, regional, trade, environmental, and regulatory policies, as well as further reforms and opening-up. For the first time, the Conference placed regulatory policy alongside macro policy and called for their alignment and coordination. These policy orientations and intensities are expected to continue into next five-year period, and will likely form the basic direction for macroeconomic policy, at least in its early years.

In short, during 2026-30, China is well-positioned to achieve growth that is moderately higher than, or at least not below, that of 2021-25. Of course, this growth should be high-quality, featuring a more optimized economic structure, technological progress, greater efficiency, and reduced intensity of carbon and pollutant emissions. Therefore, in drafting the 15th Five-Year Plan (2026-30), it is important to conduct in-depth research on economic growth and set more ambitious anticipatory targets, which will help guide expectations and boost confidence.

II. Demand: Where Will the Demand to Sustain Economic Growth Come From?

If China aims for an average annual growth rate of 5% during 2026-30, the key question then is: where will this demand come from? Having participated in drafting six Five-Year Plans (1996-2025), and having served as Director-General of the Planning Department at the National Development and Reform Commission, I can say that, previous planning cycles placed less emphasis on the demand side, focusing instead on production, supply, and investment. There was little in-depth research into where the productive capacity created by investment would ultimately be absorbed and what the final sources of demand would be.

Of course, at particular stages, this was not a pressing problem for China. At that time, the main challenge in many sectors was insufficient supply. For example, China's 2001-05 Plan aimed to increase per capita urban living space to 22 square meters (~237 square feet) at a time when housing supply was severely lacking.

Whereas the main constraint in the past was supply shortages, today's primary challenge has shifted to insufficient domestic demand. In 2023, China's net exports amounted to 2.7 trillion yuan (~USD 372 billion), indicating that total domestic supply exceeded total domestic demand by that margin. The basic pattern of China's economy has long been one where domestic supply outpaces demand, with the gap made up by net exports. This supply-demand imbalance has two key implications.

First, as long as there is demand, economic growth is not a problem, since production capacity is already in place and can be mobilized whenever needed. Second, this also means that economic growth is highly dependent on external demand, with exports driving much of China's marginal economic growth.

This is especially true for manufacturing, where exports have consistently accounted for 40–50% of demand from 2002 to 2020 (42% in 2020), and similarly high rates in 2021 and 2022. In 2023, of China's 33 trillion yuan in manufacturing value-added, 14 trillion (42%) was export-driven.

Consequently, fluctuations in external demand inevitably affect the domestic economy. During 2010–20, this was less of an issue because the real estate sector was a strong driver of growth. But now, with the property market in a prolonged downturn , China's growth has become more dependent on changes in exports.

That's why China's 2024 Central Economic Work Conference introduced a new emphasis: China must better coordinate total supply and demand, and ensure the smooth circulation of the national economy. If export performance in 2025 is less robust than in 2024, this could impact China's economic cycle.

To sustain a 5% annual growth rate during 2026-30, China will need an additional 38 trillion yuan in GDP, or in other words, 38 trillion yuan in new demand. Where could this increase in demand come from?

First, exports. Over 2019–24, China's net exports grew by an average of 30% annually. Exports will continue to be an important driver of demand during 2026-30. However, it is unrealistic to expect net exports to keep growing at 30% annually. Thus, more of the new demand will need to come from domestic sources.

Second, investment. China's investment growth has slowed from 20% during 2000-10 to about 10% during 2010-20—and, since 2015, to below 10%. Since then, growth in total investment, real estate investment, and private investment has all dropped below 10%. Over 2021-24, growth rates for total investment, real estate investment, and private investment have all dropped to around 5%, with infrastructure and manufacturing investment occasionally exceeding 5% in certain years.

During 2026-30, there is still considerable room for investment growth , but just how much remains uncertain. Real estate investment may return to positive growth, but is unlikely to reach the heights of the past. For example, office buildings—important part of real estate and a carrier for producer services—are now facing higher vacancy rates in many regions.

Infrastructure investment has potential, but many areas offer low returns and lack sufficient cash flow, requiring debt financing—such as urban underground utilities, water networks, flood controls, farmland improvement, and ecological restoration. Local governments' heavy debt burdens make it difficult to sustain the high rates of investment growth seen over the past 10 or 20 years, as most local investment is debt-driven.

Manufacturing investment by the private sector has a chance to maintain faster growth, but this depends on both supply-side innovation and whether external and domestic demand can actually deliver enough growth. Since investment in manufacturing is essentially about building the next cycle's productive capacity, it must be matched by new sources of demand to be profitable. The reason private investment is now contracting is that high-return investment opportunities are increasingly hard to find.

In short, while there is considerable potential for investment during 2026-30, it will not spur economic growth as immediately or dramatically as the demand-stimulus measures of 1998 and 2008. The 2024 Central Economic Work Conference emphasized improving investment efficiency—a very important signal.

Third, government consumption. China's final consumption is made up of household and government spending, in a rough 7:3 ratio. Over the past 20 years, the share of government consumption has risen while the share of household consumption has declined. The increase in government spending has both boosted public services and contributed to rising public administration expenses. In 2020, total government consumption was 17 trillion yuan, of which 6 trillion went to education and healthcare, and 7 trillion to public administration—mostly personnel costs, which account for 82% of that total. Over the past decade, public administration employment in urban areas has grown by over 4 million, the fastest among all sectors. Therefore, during 2026-30, government spending should be rebalanced—increasing investment in public services while curbing spending on public administration.

Fourth, household consumption. After considering the above, it is likely that the bulk of the additional 38 trillion yuan in demand will have to come from sustained expansion of household consumption, which indeed has significant room to grow. The reasons are as follows.

First, the overall consumption rate (household consumption as a share of GDP) fell from 48% in 2001 to 39% in 2023—a drop of 7 percentage points in 20 years.

Second, the consumption rate per capita (the share of per capita disposable income spent on consumption) fell from 77.6% in 2004 to 66.5% in 2023—a drop of 11 percentage points.

This deserves close study. Is it simply a case of diminishing marginal propensity to consume? For China, that's not the main explanation; out of 1.4 billion Chinese people, only about 400 million belong to the middle-income group, while many have yet to reach the income threshold where marginal consumption propensity falls off. So is the cause precautionary savings, mortgage pressure, or something else? It is likely a mix of factors.

Third, by different income groups, the largest segment—the low-income population—holds the greatest potential for consumption growth. If we assume a 90% consumption rate for this group, their average annual consumption expenditure is only 8,293 yuan (about 700 yuan per month), leaving much room for increase. The main reason for insufficient household consumption is that the low-income population is very large, and their per capita spending is too low—ultimately, this comes down to low incomes. Addressing this is key to expanding household consumption.

The 2024 Central Economic Work Conference called for raising incomes and reducing burdens for low- and middle-income groups, appropriately increasing basic pensions for retirees, boosting basic pension payments for rural and urban residents, and increasing government subsidies for healthcare insurance—all of which will enhance the consumption capacity of residents, especially those on low incomes.

In summary, during 2026-30, China should continue to implement the central policy direction to make economic development rely more on domestic demand, especially consumption, as the main engine of growth. Household consumption should become the primary driver of demand-led growth. Therefore, while China continues to pursue its goal of becoming a manufacturing powerhouse during next five years, it should also set its sights on becoming a nation strong in improving people's livelihoods. If, over the next decade, household consumption can be raised above 50% of GDP, China's economic fundamentals will become much more solid for the future.

III. Supply: What Adjustments Are Needed in Industrial Development?

During 2010-20, what drove China's economic growth from the supply side are mainly three categories of industries: First, finance, real estate, and construction together accounted for 26.5% of economic growth; second, manufacturing contributed 19.2%; third, government-related sectors, including public administration, education, healthcare, and other public facilities and services, accounted for a combined 12%. Altogether, these three categories drove 58% of China's supply-side economic growth. Due to insufficient granular industry data, a detailed analysis of sectoral contributions and structural shifts during 2021-25 remains challenging. However, on a broad level, the most notable trends have been a rising share for manufacturing and a declining share for real estate, reflecting the recent challenges in exports, manufacturing, and the real estate market.

Looking ahead to 2026-30, a key question is which industries would generate the additional 38 trillion yuan in GDP. From national to local planning, three principles are consistently emphasized: upgrading and transforming traditional industries, vigorously developing emerging industries, and fostering future-oriented industries. While this framework is logical and meaningful, it can sometimes lead to insufficient attention to demand - so it is vital, when planning for industrial development, to carefully consider where demand will come from. Even if the direction of future demand is not completely clear, it must not be overlooked.

On top of these three principles, I believe industrial development can be viewed from both the supply and demand sides. There are essentially two paths for any industry: First, supply creates demand, meaning innovation brings about entirely new products or services, generating new demand where none existed before. Second, demand drives supply, where existing products or services are expanded in response to market needs. In other words, production is scaled according to demand.

From the perspective of "demand drives supply": what industries should be prioritized during 2026-30? As aggregate demand is likely to shift increasingly toward household consumption in the next five years, this transition will naturally stimulate growth in consumer-oriented industries. Consequently, if demand-side policies aim to expand household consumption, supply-side strategies must also undergo corresponding adjustments, placing greater emphasis on actively developing consumption-driven sectors.

First, develop industries with significant net imports. While total domestic supply exceeds total domestic demand, a number of consumer industries are actually net importers - for example, pharmaceuticals, cosmetics, culture, and tourism.

Second, proactively develop education, healthcare, fitness, sports, elderly care, and cultural industries. In these sectors, where public services coexist with non-public services, the government cannot shoulder all responsibilities alone. Instead, it should support the development of non-public service offerings - multi-tiered, diversified, and differentiated options in education, medical care, childbirth support, senior care, and cultural services - to better meet the varied demands of different consumer groups.

Third, develop mid-to-high-end consumer goods and services, such as luxury products, high-quality housing, premium sports and cultural experiences, and other goods and services tailored to high-income groups.

From the perspective of "supply creates demand": innovation serves as a key driver for creating new demand. Developing new quality productive forces fundamentally relies on leveraging scientific and technological innovation to stimulate fresh market demands. Innovation should be understood in its broadest sense: while sci-tech innovation represents its core pillar, cultural creativity equally constitutes innovation, exemplified by how high-quality film and television productions create their own demand. This dynamic characterizes many consumer-oriented service industries. In most service industries, supply and demand happen simultaneously, often in the same space; as the provider offers the service, the consumer is consuming it.

It is difficult to plan the specific fields in which technological innovation will occur, just as it is challenging to anticipate which consumer services will see the most supply-side innovation. This exploration requires the initiative and trial and error of countless businesses and entrepreneurs. The government's role should be to relax market access, avoid restricting or excessively intervening in service innovation. China's over 56 million private enterprises and 120 million self-employed businesses are the true engines of service innovation. Policymakers could consider a "negative list" for the service sector, only specifying areas that require regulation, and allowing all other domains to flourish freely.

In summary, during 2026-30, China should adopt a more holistic industrial development strategy: upgrade and transform traditional industries, vigorously promote emerging industries, foster future-oriented industries, and proactively develop consumer-oriented sectors. By deliberately highlighting consumer industries rather than treating them as just a subset of traditional sectors, all levels of government, including regulatory authorities, can place greater emphasis on their development. Aligning supply-side policies with demand-side ones will help encourage innovation in technology, branding, land use, finance, taxation, and other areas to support the growth of consumer-driven industries.