Why China is still struggling to ‘invest in people’

As 2026 dawns, China has signalled a renewed crusade: persuading its citizens to spend more, for their own benefit and for the country’s. Yet history offers a cautionary tale. China’s leaders have long harboured an ambivalent relationship with consumption as a growth engine, instead favouring production and investment. This time, though, the signals suggest a deeper resolve. The gravity of this pivot is underscored by Qiushi, the Communist Party’s flagship publication, which last month published an article based on President Xi Jinping’s remarks on consumption from 2015 to 2025. Xi was quoted as saying that insufficient domestic demand is the most prominent challenge facing the economy, and that boosting consumption is not “a temporary fix but a strategic choice”. His remarks come as China’s leadership puts the finishing touches to the next five-year plan, in which expanding domestic demand concerns “not only economic stability but also economic security”. In another sign that Beijing aims to make household consumption a strategic imperative, leaders have begun promoting a phrase in economic policy statements: “investment in people”, as opposed to only investing in capital, such as infrastructure and property. At last month’s Central Economic Work Conference, top leaders called for investment in both physical assets and human capital. It has now become a buzzword in official media, heralding potential seismic shifts in economic philosophy. To grasp the weight, we need to rewind to 1949. Since the People’s Republic’s founding, policymakers have often prioritised production over livelihoods and investment over consumption. This imbalance peaked during the four decades of reform and opening-up, catapulting China to become the world’s second-largest economy. Yet, for many, gains in national strength and economic growth haven’t improved their daily lives. Many still face inadequate access to healthcare, education and job opportunities. Sensing public discontent, leaders promoted the slogan “putting the people first” in the 2000s. But old habits die hard. Efforts to improve livelihoods have been incremental, with rhetoric outpacing action. Despite the rhetoric, economic planners have consistently steered the economy using the traditional growth engines of infrastructure investment and exports. Modern airports, world-class highways and bridges evoke awe. On December 26, the high-speed rail network hit a milestone: 50,000km of operational track, eclipsing the rest of the world combined. The latest stretch, a 299km line from ancient Xian to revolutionary Yanan – the Communist Party base in the 1930s and 40s – exemplifies this engineering zeal. But there is only so much more infrastructure China can build; returns on such investment have been declining and most high-speed rail routes operate at a loss. Robust exports have also propelled growth. In November, as the world’s largest trading power, China crossed a historic milestone: its goods trade surplus exceeded US$1 trillion for the first time. But rising friction with major trading partners means exports supported by large tax rebates are unsustainable. It is against this backdrop that China’s renewed emphasis on investing in people should be viewed. The fact that leaders are finally stressing investment in human capital, after decades of prioritising production, shows how deeply entrenched the prevailing philosophy has been and how hard it is to change. Indeed, the administration has sought to focus on human capital investment for at least a decade now. Yet, when it comes to actual priorities, infrastructure still dominates, with leaders urging that new projects planned for this year should start as early as possible. As in previous years, the government has again promised to boost household incomes by various means, but concrete measures remain scarce. For decades, China’s leaders have looked to massive consumption potential as a new growth driver, citing a 400-million-strong – and growing – middle class. But over the past five years, many of these people have cut spending, giving rise to the phrase “consumer downgrading”. The downturn in real estate prices has dealt a heavy blow to confidence, with over 60 per cent of household wealth tied up in property. Pensions, healthcare and unemployment buffers remain threadbare, stoking hoarding over spending. Last year, household savings reached a record 163 trillion yuan (US$23.2 trillion), up from 151 trillion yuan in 2024. There are solutions. First, China could signal a further injection of state-owned equity into the social security fund to bolster pensions and confidence, following the previous transfer of 10 per cent of state-owned assets between 2017 and 2019. By the end of 2024, non-financial state-owned capital stood at 109.4 trillion yuan. Another 10 per cent would go a long way towards addressing potential pension shortfalls as the population ages. Second, China could become the world’s largest importer, having been the largest exporter of goods since 2009. Internationally, it would reduce tensions with major trading partners; domestically, boosting imports would extend beyond goods to include technology, talent and capital inflows, fostering innovation and productivity. More importantly, hundreds of billions spent on tax rebates and subsidies for exports could be put to better use, improving areas such as elderly care and preschool education. Third, pledges to remove barriers and restrictions to spur consumption must be acted on. Beijing, Shanghai and Shenzhen still maintain restrictions that limit purchases of residential property or cars. No one anticipates overnight miracles. Consumption’s share of gross domestic product hovers at 39 per cent, compared with 70 per cent in advanced economies. Structural knots, such as demographic challenges and inequality, defy quick untangling. But without upending the creed of “production and investment first, livelihoods and consumption second”, pledges to invest in people will breed only scepticism.

Why China is still struggling to ‘invest in people’

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}To boost demand, Beijing must upend its long-held mantra of production over livelihoods and investment over consumption

To boost demand, Beijing must upend its long-held mantra of production over livelihoods and investment over consumption