Strengthening domestic demand central to China's new five-year plan

With China's Central Economic Work Conference now in the rearview mirror, leaders worldwide will watch closely as the country transitions from its 14th Five-Year Plan into the 15th beginning in 2026. The conference, held in Beijing from Dec 10 to 11, serves as a forum to iron out the details of the coming year's economic goals.

China is expected to maintain its “dual circulation model" of focusing on strong domestic demand while seizing external opportunities through trade as it aims for around 5 percent economic growth.

China's exports encountered headwinds when US President Trump imposed “Liberation Day" tariffs, but the nation's economic resilience helped sustain its export momentum as other nations increasingly viewed the world's second largest economy as a stable and reliable trading partner.

Strong ties with Belt and Road partners, the expansion of BRICS, and participation in the Regional Comprehensive Economic Partnership have all supported export growth outside the US. Even traditional US allies, such as Australia and several European countries, saw a surge in Chinese imports, with China's exports to the EU increasing by 14.8 percent.

The concept of “non-US exports" has gathered momentum. While shipments to the US fell nearly 29 percent year-on-year in November, robust growth in other markets lifted total exports by 5.9 percent – leading to China's trade surplus topping $1 trillion for the first time. Still, Chinese exporters face challenges ahead, particularly given Europe's sluggish economic growth, with the UK barely growing and EU expected to expand only 1.4 percent in 2025.

Against this backdrop, strengthening domestic demand — consisting of household consumption, business investment, and government expenditure — is expected to be a central theme. Short-term stimulus must be balanced with long-term structural reforms, as the property-driven investment model has largely run its course.

A key task will be determining how and when to restructure demand toward household spending, supported by the growth of consumer-oriented industries. This will require supply-side upgrades in sectors ranging from electronics to sporting goods, with deeper integration of AI. Demand will also be stimulated through measures such as discount vouchers or tax rebates.

Compared to advanced Western economies, a notable difference lies in the relatively low share of services consumption in China. Policies that promote travel, tourism, and dining service will be important. They will need to be supported by a stronger service sector labor supply and encouraging labor mobility.

The government's expenditure will also play a vital role. Expansionary fiscal policies are expected to target areas that meet growing social needs, including healthcare, childcare, elder care, and education — investments that can lift workforce productivity and align with the goal of “investing in people".

The IMF raised its forecast for China's economic growth to 5 percent in 2025 and 4.5 percent in 2026 — upgrades of 0.2 and 0.3 percentage point, respectively, from its October outlook — driven by solid exports and fiscal stimulus. In a global environment of slow growth, a 5 percent growth rate would be the envy of many Western economies, particularly as China continues to push forward with structural reforms while managing external headwinds.

Colin Speakman is an economist from the UK and an international educator specializing in China. The opinions expressed here are those of the writer and do not necessarily represent the views of China Daily and China Daily website.

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