More consumption, more circulation

The objectives for the financial sector in China's 15th Five-Year Plan (2026-30) may be "ambitious". They aim to keep markets, credit and innovation but prevent runaway asset inflation and debt-led consumption, and ensure that finance does not drift away from social utility.

The tone was set at the Central Economic Work Conference in December 2025. China wants to stimulate domestic demand and consumption. But unlike Western economies, where financial deepening means larger balance sheets, higher leverage, and ever-expanding asset pools, China is determined to ensure that "more consumption" leads to more "circulation" and the system remains anchored to the real economy and to households.

This is where the "velocity of money" matters. If money is applied actively to productive activities, the system can support consumption and services without needing a continuous expansion of the balance sheet. But if circulation slows down, money pools into assets and leads to inflation that any economy would want to avoid.

The CEWC itself is prioritizing the removal of "unreasonable restrictions" in consumption, unlocking service consumption and advancing an "AI Plus" initiative to raise productivity and shape credit allocation.

At its January 2026 work conference, the People's Bank of China reinforced this direction. Even while advocating a looser monetary policy, it emphasized "high-quality economic development" and a "reasonable rebound in prices" as key objectives. The bank said it will target refinancing tools toward services consumption and will not allow liquidity to leak into the asset markets.

The same logic underpins the joint action plan for promoting the high-quality development of digital finance. It has set a concrete target: by the end of 2027, "a financial system highly compatible with the development of the digital economy" should be "essentially established". The plan pushes data governance, digital transformation of institutions and consumer protection. The e-CNY is also positioned as a potential pillar of this architecture to create universal access.

This is China treating consumer finance as economic infrastructure: payments, data, and rails that increase participation and potentially raise velocity, while tightening oversight through "function-based and penetrating regulation". The CEWC has signaled a preference for income-anchored consumption rather than purely debt-anchored consumption. The consumption push is being operationalized with fiscal-financial coordination to channel credit into key consumption sectors such as elder care, tourism, digital services and green industries.

The National Development and Reform Commission and the Ministry of Finance are clear about where the interest subsidies should be applied: a 500 billion yuan ($71.9 billion) investment guarantee plan to support small and medium enterprises. A continuing trade-in subsidy program backed by special treasury bond funding was announced in December 2025.

The Ministry of Finance is also directing its own spending toward improving the efficiency of transfer payments, refining expenditure structures and coordinating fiscal and financial policy. It links fiscal support to longer-term capacity via investment in "new quality productive forces" and talent development, while accelerating efforts to resolve hidden debt risks and curb new increases. Very clearly, China is trying to expand consumption while tightening the screws on the debt machinery that tends to fuel inflation.

A key challenge is institutional behavior. China's top financial regulator wants to reduce disorderly competition and has urged banks and insurers to focus on core businesses and differentiated development. But will the institutions toe this line?

After all, commercial banks focus on net interest margin and balance-sheet expansion, asset managers chase assets under management growth and relative performance while markets thrive on repricing and exit. These logics don't align with a system that wants high participation, controlled speculation and higher velocity.

But the bargain on offer is quite attractive: fewer catastrophic crashes, fewer existential shocks and a policy environment that rewards alignment. Though resistance from some institutions should not be dismissed, the best institutions rarely sabotage reform.

China may also need institutions the West is not familiar with: hybrid entities that behave like financial utilities, credit infrastructure or transaction-first platforms. Their incentives will not be profit maximization. Instead, they may have caps on upsides and tighter behavioral constraints. In return, they will have stable funding, regulatory certainty, guaranteed volume, preferred access to policy tools and reduced tail risk.

All this will need the overlay of medium to long-term capital, the fuel that greases the financial system. Here, China's securities regulator released an action plan to increase the scale and proportion of index investing, a system that does not rely on mania, but on long-duration compounding and predictable governance. This has to attract foreign capital as well, not to fund the ecosystem but to validate it.

China's 15th Five-Year Plan for the financial sector may prove that the capital can be redesigned to circulate rather than accumulate, that consumer finance can expand without turning households into leveraged balance sheets and that institutions can be incentivized to serve flow rather than hoarding. It will be the blueprint of a system that engenders broader participation, higher-quality growth, controllable inflation dynamics and a financial sector that deepens the economy without eating it.

The author is the founder of The Asian Banker and The Banking Academy, author of The Great Transition – the personalization of finance is here and of a forthcoming book Building the AI Bank.

The views don't necessarily reflect those of China Daily.

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