China needs consumption target

MORE THAN TECH ASCENDANCY, CHINESE LEADERS SHOULD FOCUS ON RAISING HOUSEHOLD CONSUMPTION

- STEPHEN S ROACH Faculty member, Yale University, and former Chairman, Morgan Stanley Asia

HE CHINESE PLANNING seasonisin full swing.Ahead of the formal release of the 15th Five-Year Plan (running from 2026 to 2030) in March 2026, early signs coming out of the just-completed Fourth Plenum of the Communist Party of China suggest that it will be more of the same: a focus on continuing China’s extraordinary industrial and technological ascendancy, driven by what Chinese President Xi Jinping has called “new productive forces”.

Thatwould bea mistake in the following sense: China’s techno-industrial prowess is so well established that it is unnecessary to dwell on the obvious. The planning exercise should instead aim to tackle the country’s most dauting challenge:along-awaited consumer-led rebalancing. To that end, the 15th Five-Year Plan should set an explicit target of boosting household consumption asa share of GDP from its latest reading of nearly 40% to 50% by 2035.

By now, the debate over rebalancing has dragged on for decades. It was first raised in March 2007 by former Premier Wen Jiabao as the second of his nowfamous“fouruns’”—unstable, unbalanced, uncoordinated,and unsustainable—that, he argued, jeopardised the seemingly strong Chinese economy. Of coutse, “unbalanced” is onlyan elliptical reference to the Chinese consumer. But in the context ofall fouruns, it raises what has since become the most important structural issue for the Chinese economy: the need to find new soutces of growth.

While Chinese authorities have been especially adept at addressing the first ‘un’ (instability),as demonstrated during the global financial crisis of 2008-09 and the Covid-19 pandemic, the fourth “un” iswhere the rubber meets the road forthe political promise of Xi’s Chinese Dream.