Open QuestionsDong Yu on why ‘every chapter’ of China’s 5-year plans boils down to income

Dong Yu has been executive vice-president of the China Institute for Development Planning at Tsinghua University since 2019. Before joining academia, he held senior positions in several of China’s major economic decision-making bodies, including the National Development and Reform Commission and the Office of the Central Financial and Economic Affairs Commission. He has been part of the teams that drafted several of the country’s economic blueprint documents, including the 11th, 12th and 13th five-year plans. In this interview, he discusses what might be included in the next five-year plan – China’s 15th – and how the country can continue down a path of sustainable progress. This interview first appeared in SCMP Plus. For other interviews in the Open Questions series, click here. Since 1953, China has drafted 14 five-year plans, with each assessed at the midpoint of their terms and after they are implemented. Overall, what has changed about these long-term plans over time? Have they achieved their intended goals? The five-year plan is receiving growing attention today. Once seen as a symbol of the planned economy, it in fact laid the foundation for economic development even before the reform and opening-up period began in 1978. When China was impoverished and weak, major projects were needed to build a base for the national economy, along with plans to help shape the emergence of various sectors from scratch. Of course, a few early plans fell short of their targets due to the complex domestic conditions of the time. But since the launch of reform and opening-up, China has largely succeeded in meeting the goals set out in each plan. I engaged in drafting work on these plans starting with the 11th, covering the period from 2006 to 2010. It was this edition which changed the word “plan” in the Chinese title, from jihua to guihua. While both can be translated as “plan” in English, they are semantically different in Chinese. Compared with jihua, guihua is more macroscopic and strategic, reflecting a transition in the national economic structure from a planned economy to a market economy. Looking at the implementation of the last four five-year plans, it’s clear that since the transition began, their targets have been met and the overall execution has been largely successful. The five-year time frame is unique because it bridges the gap between short-term cycles, such as quarterly or annual plans, and long-term visions spanning 15 or 20 years – a well balanced and practical time horizon. As a medium-term cycle, five years is more predictable and manageable. When setting goals, each five-year plan is backed by a comprehensive methodology to design targets. Choosing five years as the planning cycle reflects considerations of feasibility. Not all of the benchmarks included in five-year plans are fully achieved, but the majority are generally met and show good results. The indicators they cover, usually around 20, are categorised into different types – some are anticipatory while others are obligatory. Particularly in economic areas, many targets are set as anticipatory, reflecting expectations rather than strict requirements. Looking back, most of these anticipatory targets have been achieved, suggesting that they were set in a reasonable and realistic manner. So far, most of the 20 indicators under the 14th five-year plan are progressing well. Although the first half of this period has been marked by significant uncertainty, most targets are broadly on track. Only a very small number have encountered challenges. I believe these 20 indicators will show solid progress by year’s end, an achievement that is particularly remarkable given the challenges that have arisen over the course of the five-year period. The most important thing is not just the GDP target itself, but rather the signal it sends to the market As an anticipatory target in the plan, GDP growth is the metric that usually receives the most public attention. What do you think would be a reasonable economic growth rate for China from 2026 to 2030? Official and non-official institutions have made projections for China’s growth over the next five years. However, planning targets are not the same as forecasts. A target is not only based on technical calculations, but also takes into account how it shapes expectations. Some experts lean towards setting the average growth target for the 15th five-year plan period at 5 per cent. This view is currently widely shared. Based on past thinking, a moderately ambitious target would be a way to boost confidence and lift expectations across the board. In my view, the most important thing is not just the GDP target itself, but rather the signal it sends to the market and the way it is sent. This is no less significant than the specific number set for GDP growth. Beyond the numerical figure, the issue of growth depends largely on the strength of macroeconomic policies. In the past, macroeconomic policy was often set to address short-term issues. The Chinese authorities adjusted their policies dynamically through countercyclical and cross-cyclical measures as conditions changed. As a result, five-year plans usually do not go into great detail on this; it’s typically covered broadly under the “macroeconomic governance” section. My personal suggestion is that, given the current situation, we could consider sending some signals, such as committing to a certain level of macroeconomic policy support during an early phase of the 15th five-year plan, say the first two years. This would provide the market with greater predictability. Of course, this does not mean the policy stance would be rigid. Adjustments can still be made as circumstances evolve. Another key factor for the GDP target lies in the provincial economic powerhouses. The central government has consistently emphasised that these powerhouse provinces should “shoulder major responsibilities”. In recent years, some degree of economic divergence has been evident. Given the significant share these provinces contribute to the national economy – and the fact that they are directly exposed to the on-the-ground data in their planning processes – they are well positioned to set relatively clear and concrete targets. Therefore, if we could send a clear signal that during the 15th five-year plan period, the major economic provinces should generally be able to maintain GDP growth of 5 per cent or above, this would provide solid foundational support for the national GDP target. So what I’m saying is not about my personal prediction for the GDP growth target, but rather an expectation that during the formulation of the 15th five-year plan, we move beyond the traditional approach of focusing solely on that one number and instead think more strategically about macroeconomic steering and the signals we want to send to all sectors of the economy. I believe these major provinces will each set relatively confidence-boosting targets in their own plans. Provincial-level plans are typically released before the national plan. So if these provinces make their targets public ahead of the national announcement, we’ll have a clear sense of the baseline for growth over the next five years, even before the national target is set. Confidence does not come from just one number. What will be the biggest structural challenges facing China’s economic and social development in the next five years? What should be the top priorities? Generally speaking, these challenges involve the industrial structure, regional layout, urban-rural composition and demographics. Those working on planning typically analyse problems from multiple perspectives. Economic work does not focus on just one area; instead, it seeks to identify the core issues within each of these sectors. For example, the core issue with the industrial structure is how to make up for the weakening driving force from traditional sectors. The central government has recently emphasised the term “emerging pillar industries”, because traditional ones – especially real estate – have lost their previous pull on economic growth. Whether these new pillar industries can step up during the 15th five-year plan period and become the main drivers of growth will undoubtedly be the biggest challenge in industrial development. The focus of the 15th five-year plan will certainly be on developing “new-quality productive forces”, particularly the transition from old to new growth drivers. However, since emerging industries have not yet achieved scale, the key challenge will be the extent to which they can fill the gap left by traditional sectors. In terms of regional structure, traditional analysis usually focuses on balancing development between the eastern and western regions. However, regional planning has since become more refined. The key question is no longer whether central and western regions are developing in general, but whether specific growth poles – such as in the west – can be effectively activated. Can existing growth opportunities in these regions be sustained? Can new ones be cultivated? In terms of urban-rural structure, the pace of urbanisation has slowed compared to the past, but China’s urbanisation rate has reached 67 per cent, a historic milestone. Moving forward, whether public services can keep up with the influx of the rural population into cities will have a crucial impact on the economy, closely affecting areas such as the real estate market and consumer demand. The core issue ultimately lies in whether economic dynamism can be enhanced during the migration process. In terms of demographic structure, the key problem is that over the next five years, the number of college graduates will continue to hit record highs while the overall population declines. In some regions, the planning and allocation of public services and infrastructure will be directly affected by demographic changes. China has introduced new policies to encourage births, but it remains unclear how effective they will be. At the same time, with college graduates reaching record levels year after year, employment pressures will be one of the biggest challenges of the period. Some people see China’s five-year plans as a legacy of the planned economy era, but others view them as a unique institutional advantage. What do you think? Other countries, including the US, have begun to take actions suggesting a turn towards a similar style of industrial policy. How do you interpret this shift? In the past, when we interacted with Western officials visiting China, the five-year plan was always their biggest point of curiosity. In recent years, as China’s economy has continued to rise, many have shifted their views – from seeing the plan as a remnant of the planned economy to recognising its growing role in China’s journey towards a market economy and rapid development. We found that they generally understand the outcomes of the five-year plans, but they still lack a deep understanding of how the planning mechanism actually works. They are also curious about implementation, because execution is harder than planning. Many countries struggle with consistency and stability in carrying out long-term plans, but China has managed to maintain continuity largely due to its political system. For example, major projects listed in key initiatives require sustained investment over time. Some content of the five-year plan is actually supported by 10- or even 15-year dedicated programmes. This is a comprehensive, interconnected system. Nowadays, other countries are trying to learn from this model, but so far they mostly copy the form of the plans or isolated policies. The full process, from formulation to implementation, is unique and not easy to replicate. They might be able to achieve certain industrial successes to some extent, but the long-term outcomes remain to be seen. For any country or government, paying more attention to medium- and long-term issues and integrating them with short-term priorities is a responsible approach. When you focus on long-term development, you inevitably have to set aside some immediate gains, but you still need to do it. In this regard, China tends to take a longer-term view and does not fixate solely on short-term results. Can China become the world’s largest consumer market in the next five years? What is needed to achieve this goal? First of all, China is already a major consumer market. During the drafting of the 14th five-year plan, there were suggestions to make becoming the world’s largest consumer market a goal. At that time, the gap with the United States was narrow, and we thought it might happen quite soon. However, due to some complex factors – particularly exchange rate fluctuations – China did not achieve that during the 14th five-year plan period. In terms of actual purchasing power, China’s retail sales have already overtaken those of the United States, reaching 1.6 times the level of the US in 2024, according to data from the World Bank. Expanding the domestic consumer market should be a key goal of the 15th five-year plan. What matters is not merely discussing a target, but exploring our approach to macroeconomic regulation, particularly how to effectively boost consumption. While measures like cash vouchers or direct subsidies have proven effective in some countries, replicating them in a country of 1.4 billion people raises critical questions. How large a subsidy can the fiscal system afford? What scale of subsidies would actually stimulate consumption? Which groups should be targeted? These are highly complex issues. A policy that works in one country or region may not succeed elsewhere, as consumer behaviours vary widely, and there’s no guarantee that subsidies will be spent on consumption. When we discuss consumption, we should particularly avoid falling into purely academic debates. For example, domestic demand is often connected with consumption and investment. But why is consumption being emphasised now? In the past, investment played a major role in driving consumption; today’s renewed focus on consumption is sometimes interpreted as an implicit rejection of the investment-driven model. Macroeconomic regulation is not like a tug of war, where one side gains at the expense of the other, nor is it a single-choice question. You need both, and the essential element is reducing inefficient or ineffective investment. We must not ignore investment’s role in boosting consumption, especially as we are accelerating the development of new-quality productive forces. Today’s investment is tomorrow’s competitiveness. The United States places great emphasis on artificial intelligence (AI) investment. Research shows that, according to estimates by the US Bureau of Economic Analysis, capital expenditure in the field of AI has contributed more to economic growth than total consumer spending combined. While this calculation may not be entirely accurate, as it classifies software and information infrastructure as part of AI-related infrastructure investment, it highlights the significant role of AI in the economy. We should not neglect investment in this area, but further increase it. In other words, we must strike the right balance. Returning to consumption itself, both from the central government’s arrangements and from my own observation, I believe two areas are particularly important. One is service consumption, which has a relatively direct impact on employment and where many new forms of consumption are emerging, generating significant growth. Moreover, sectors such as catering and accommodation are closely tied to basic livelihoods. The second one is building more diversified consumption scenarios, as mentioned in last year’s central economic work conference. China is working on this now, but there are still many challenges that need to be addressed. We need to create consumption opportunities, not only for the working class but also for other income groups. This will be highly important in our next phase of work, and it may not necessarily depend on direct fiscal spending, but rather on removing restrictions that limit consumption. Now, various forms of consumption constraints and invisible barriers still exist across different areas. Experts have also suggested that in certain sectors, bolder steps could be taken – for instance, high-end medical services and premium tourism – so as to retain more spending within the country. When it comes to consumption policy, we could afford to be more open-minded. The key is to embrace this general guiding principle. Every sector should reflect on what unnecessary restrictions could be removed. I believe we can identify a number of measures that are relatively easy to implement and can yield quick, tangible results. Every chapter of the plan is, in one way or another, connected to household income You said previously that synchronised growth of residents’ incomes and the overall economy is likely to remain a priority in the coming five-year plan. Should China consider setting obligatory targets in this regard? For example, for consumption or household income growth? The household share of national income has been low for a long time. What can be done to help narrow this distribution gap? In the 14th five-year plan, the “synchronisation” of income and economic growth was not an obligatory target, but it carried implicit importance. For the 15th five-year plan, I believe it will be similar. In a market-oriented economy, while it’s a good intention to set specific targets, rigid mandates do not always align with market dynamics. However, in certain areas – such as cities designated by the central government as international consumption hubs – setting some concrete targets for boosting consumption could be encouraged. On the issue of income, the government could improve the distribution system and bolster the safety net for low-income populations. In the planning process, all work is fundamentally centred on promoting the growth of residents’ incomes, without setting a specific number as a target. Every chapter of the plan is, in one way or another, connected to household income. On income distribution, this is fundamentally a question of how to divide the economic “pie”. But I’ve always believed we shouldn’t only focus on slicing the pie; we must also think about how to make a bigger pie. Only when the pie grows larger does dividing it become easier. Therefore, issues related to income and consumption come down to how we can create a better environment for businesses and generate more jobs. Only in this way can incomes rise and consumption grow steadily. Focusing solely on consumption or income represents a narrow concept of economic policy. The broader and more meaningful understanding of economic policy is about creating a sound environment for development, in which businesses of all types can clearly see the growth opportunities fostered by government efforts. This is the core mission for the 15th five-year plan. In other words, the plan should enable enterprises across all sectors to see greater opportunities within their respective fields. Only then will they be willing to hire more workers, retain employees and ultimately drive incomes higher. The prerequisite for boosting consumption lies in increasing both current incomes and expectations about future income. With deflationary pressure and an ageing population, what measures do you think could be taken in the next five years to stabilise employment and shore up confidence? Among all macroeconomic challenges, one of the most difficult is how to stabilise employment and manage expectations. Today, we have placed expectations in a position of unprecedented importance, and much of our work now revolves around shaping these expectations. Accurately communicating policy signals and ensuring policy stability are both essential to helping all sectors form consistent and stable expectations. With global uncertainties on the rise, people inevitably feel a sense of insecurity. Therefore, we must strive to create a sense of economic security on multiple levels, starting with the implementation of policies concerning private enterprises and entrepreneurs. For many Chinese companies, if overseas orders cannot continue to grow – or begin to decline – their growth will be significantly affected. This means we need to make more effort in overseas markets. At the same time, there are growing concerns worldwide about China’s production capacity. How we can communicate with the global market has therefore become extremely important. We still need to pursue overseas markets, but the key lies in striking a balance with local interests, including generating jobs for local people and creating opportunities for local growth. During China’s economic development, growth in the coastal eastern regions has gradually driven development in the inland areas, allowing for a sharing of benefits. Today the outflow of China’s advanced manufacturing – as well as its growing investment and trade ties with overseas markets – can likewise extend these development dividends to other regions, bringing jobs and income growth. In the past, the spillover effects of developed economies contributed to China’s growth. Today, China, too, generates its own positive spillovers. In this process, Chinese enterprises can discover more opportunities in overseas markets, which in turn will help improve their expectations for the future. During the 15th five-year plan period, we need to not only unlock domestic consumption potential but also unleash overseas demand with efforts from the supply side. This will require more targeted and meticulous work. Some countries have complained that China has deliberately built up excess capacity to flood overseas markets. How can China convince them that they can benefit from the global expansion of its industries? This “overcapacity” is largely a mischaracterisation when viewed in the context of global supply and demand. Take new energy vehicles as an example: Chinese products have already far surpassed their competitors in both quality and value for money, yet their current sales volume and market share remain below what they should achieve due to various external barriers. To attribute China’s success in new energy vehicles solely to government subsidies is to overlook the significant innovation and effort behind it. Today, Chinese automakers are setting the pace, leading not only in technology but also frequently in design. If all the blame is placed on China, are other companies or governments really suggesting that people should just accept higher prices and lower-quality goods? All consumers want products that are both affordable and high quality. From this perspective, we should be on the same side as global consumers. We’re delivering benefits to consumers. This does not necessarily come at the cost of local jobs, since production cannot all happen within China. A significant part of the manufacturing process, along with raw materials and distribution, relies on overseas partners, creating a large number of jobs abroad. Along the way, it also helps train local engineers and technicians, opening up valuable opportunities for growth in those communities. For any ambitious countries or companies, shutting the door out of fear of competition with China makes progress impossible. Only by engaging with Chinese firms can their own industries improve their quality and competitiveness. They should encourage their businesses to engage in such competition. If they merely shut the door, the gap between their products and Chinese products will only continue to widen. Markets are always there, and consumers naturally prefer goods that are high in quality and low in price. Instead of resisting, countries should treat China as a competitor to accelerate their own domestic industrial upgrading. China will not miss the AI-driven industrial revolution. In fact, it may move faster and take the lead Which industries are expected to become China’s new engines of growth during the 15th five-year plan period? Which industries will be pivotal in the economic rivalry between China and the United States? How should the government provide support to them? In terms of new-quality productive forces, emerging industries have already reached a considerable scale, while future-oriented industries have not yet scaled up. However, their development is expected to accelerate in the next phase, such as robotics. Among emerging industries, some sectors have already taken a leading position, including new energy vehicles and high-end equipment. I expect that during the 15th five-year plan period, these industries will play a significantly larger role in the economy. For instance, biomedicine has shown encouraging progress this year. As for future-oriented industries, such as brain-computer interfaces and quantum technologies, the timing of breakthrough transformations remains uncertain. But we must at least be well prepared, including making the necessary investments. What we can do is prioritise resource allocation for these future industries in the first half of the 15th five-year plan period to ensure we do not miss development trends. China has a relatively comprehensive industrial system, and our biggest advantage is that all these innovations can find application scenarios within the country. Our strength lies in the industrial sector; specifically, in having the largest number of real-world application opportunities. Even if we remain relatively weak in certain areas of core technology development, as long as we have the application opportunities, we may be able to test, deploy and scale up innovations faster than others. When new technological trends first emerge, we shouldn’t rush to impose strict rules. Instead, by taking a wait-and-see approach, we should give nascent, future-oriented industries the breathing room they need to grow. Local governments are highly proactive in supporting new industries, actively discussing which can take root and thrive in their jurisdictions and conducting extensive analyses and forecasts on industrial development. This is one of China’s key strengths; there is widespread engagement and effort from top to bottom. Therefore, I believe that during the 15th five-year plan period, China will not miss the AI-driven industrial revolution. In fact, it may move faster and take the lead in certain fields. In terms of government support, China’s local governments are prioritising talent and start-ups, which will be shown in their regional five-year plans. Before DeepSeek launched, China had been highly skilled at scaling up, but much less so at creating them from scratch. This explains why “involution” happened in China – we replicate really fast. Now, however, regions across the country are competing fiercely to attract talent. In this sense, China has become one of the most promising places in the world for start-ups and entrepreneurship. With proactive local governments and the world’s largest annual supply of STEM [science, technology, engineering and mathematics] workers, China is poised for another wave of explosive growth in industry and technology during the 15th five-year plan period. China has launched a wide campaign against “involution” – cutthroat competition that drives down prices and product quality – in several industries. Can this problem be fundamentally addressed through the five-year plan or other policy measures? Part of what we call involution is market-driven competition, and we do not need to see it as entirely negative. However, this intense competition can undermine small and medium-sized businesses, especially in sectors that are related to people’s livelihoods. Many of the measures introduced are not aimed at restricting platforms or specific companies, but at ensuring the sound development of the ecosystem by preventing excessive competition from eroding the growth prospects of smaller enterprises. This is what the government should do. As for involution itself, we need to clearly and precisely define what constitutes cutthroat competition that truly needs government intervention. Regulation should be limited to the smallest necessary scope and applied only when clearly needed; otherwise, market-based guidance should be the preferred approach. The current push against involution differs from the earlier supply-side reform. While the previous efforts mainly targeted state-owned and upstream industries, today’s efforts against involution are more focused on consumer-facing sectors. The government still wants companies to improve their awareness of healthy development and make their own decisions, rather than forcing them to make a change. As the world’s top exporter and second-largest economy, China is deeply affected by changes in global trade. With regional conflicts and tariff wars intensifying, has China’s “period of strategic opportunity” changed? How can institutional arrangements help mitigate growing external uncertainties? And how does the five-year plan reflect China’s long-standing principle of “focusing on its own priorities”? When analysing the development environment for the 15th five-year plan, we used to highlight three characteristics: complexity, severity and uncertainty. Now there’s a fourth: unpredictability. Uncertainty means we know something might happen, but not when or where. Unpredictability means challenges may arise that we haven’t even imagined; extreme, unforeseen scenarios. In other words, the environment facing the 15th five-year plan period will be the most complex in recent memory. The more uncertain the future feels, the more vital planning becomes. In both the world and China, there is a growing sense of confusion about what lies ahead. It is precisely in such moments that planning can provide much-needed stability and direction. Each five-year plan includes several key sections. For instance, both the 13th and 14th plans featured over 100 major initiatives, with the 14th plan’s 102 initiatives encompassing more than 5,000 projects. This illustrates how planning can offer a sense of certainty. I believe the 15th five-year plan will similarly include numerous initiatives, potentially involving thousands of projects. These projects offer clear investment opportunities for domestic companies and for foreign investors. At a time of global uncertainty, China’s economy remains a relatively safe haven. Some challenges cannot be ignored – such as certain foreign firms pulling out – but for multinational corporations, the Chinese market is the most advanced testing ground in the world. To withdraw today is to risk losing the global market in the future. Truly ambitious multinationals should actively engage in this arena and accelerate their own transformation and upgrading. Against the backdrop of the current technological revolution, we can actively welcome overseas start-ups to China. Many AI companies, for instance, have innovative technologies and ideas, while China uniquely offers real-world application scenarios that are unavailable elsewhere – providing them with valuable opportunities to test and refine their solutions. This, in turn, opens up new possibilities for international collaboration in the tech sector. We must recognise this trend, and provide more support for such cooperation.

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Drafter of earlier plans speaks on why China continues the tradition - and why other countries are now trying to emulate it

Drafter of earlier plans speaks on why China continues the tradition - and why other countries are now trying to emulate it