The macroeconomic implications of China's next five-year plan...
More active fiscal policy and monetary policy anticipated for the next decade
One of China’s top economists argues that Beijing will need to maintain expansive fiscal and monetary policy over the next decade, in order to successfully achieve its long-term development goals.
These goals include doubling China’s GDP by 2035 compared to 2020 levels, and achieving mid-tier developed economy status by the end of the upcoming decade-long period.
What’s a five-year plan?
The five-year plan is an innovation of Russia's Soviet Union, that was first launched in 1928 under the rule of Joseph Stalin.
It was subsequently adopted by China in the 1950s under Mao Zedong, as the Communist Party sought to assiduously emulate the planned economy developed by the Soviets.
Despite the Communist Party's mounting embrace of private enterprise and the power of markets over the past four decades, the five-year plan continues to play an extremely important role in China's economic policy-making.
Xi Jinping recently declared that the five-year plans are the secret to China's long-term economic success.
"The scientific formulation and continued implementation of five-year plans are an important experience of the party in running the country and implementing governance, and is also a major political advantage of Socialism with Chinese characteristics," Xi wrote, according to a collation of his recent statements published by Qiushi - the Communist Party's theoretical journal - on 16 June, 2025. (用中长期规划指导经济社会发展是我们党治国理政的一种重要方式).
The 15th Five-year Plan (2026 - 2030)
2025 marks the end of the 14th Five-year Plan, with research and discussion for the 15th Five-year Plan (2026 - 2030) already kicking off in earnest.
The 15th Five-year Plan is considered especially important by Chinese economists, as it arrives at the potential turning point for China's economic eclipse of the US, as well as the worsening of relations between the two powers.
Domestic economists also highlight the critical role the 15th Five Year Plan will play in China achieving its key long-term economic goals for 2035.
These goals include:
China achieving a doubling of its GDP by 2035 compared to 2020. This will "set the foundations for modernisation in quantitative terms."
China achieving a "high-quality level of development," which will "set the foundations for modernisation in qualitative terms."
China joining the ranks of mid-tier developed economies.
China will need to maintain 4.8% growth from 2026 - 2030
Liao Qun (廖群), chief economist at Sino Group and senior researcher at the Chongyang Institute for Financial Studies, Renmin University, argues that these goals will entail active macroeconomic measures to sustain the necessary levels of growth.
In a recent opinion piece (廖群：关于“十五五”规划的一些宏观思考), Liao notes that if China is intent upon achieving its goal of doubling GDP during the period from 2020 - 2035, then it will need to maintain an average growth rate of 4.73% during the entire fifteen-year period.
Given China is expected to achieve 5% growth in 2025, then the average annual growth rate for the period from 2021 to 2025 is 5.3%.
This means average annual growth for the decade long period between now and 2035 will need to remain at 4.55% at a bare minimum, in order for Beijing to achieve its goal of doubling GDP.
The ability of China to achieve this growth rate has come under question, however, given the difficulty of maintaining such increases as the scale of its economy expands.
China already reached the end of its double-digit growth in 2010 - a year which is considered the turning point for the economy’s GDP curve since the start of the reform and opening era in 1978.
Real GDP growth stood at 10.6% in 2010, before easing to 8.0% for the period from 2011 - 2015.
It further fell to 6.1% during the period from 2016 - 2020, and is expected to ease to 5.3% for the period from 2021 -2025.
The slope of China’s GDP curve is set to further compress and flatten with the passage of time, with the period from 2021 to 2035 expected to see a steady diminution in growth rates.
Liao estimates that in order to achieve Beijing’s 2035 goal, it's reasonable for China's five-year plans to set real growth rates at 4.8%for 2026 - 2030, and and 4.3% for 2031 - 2035.
Achieving mid-tier developed economy status by 2035
The long-term goal of becoming a "mid-tier developed nation" by 2035 is inextricably tied to China's targets for GDP increase.
Liao notes that this goal will mean surpassing the minimum threshold for the per capita GDP of developed economies, set at USD$23,380 by the IMF in 2024, and expected to rise to $24,000 in 2025.
Based on nominal growth of 2.5% (1.5% real growth plus 1% inflation), this minimum threshold is on track to rise to $30,722 by 2035.
However, if China succeeds in doubling its GDP by 2035, and the GDP deflator remains at zero, then in 2035 China's per capita GDP will be just $20,818 - 48% short of the target level.
For this reason, Liao argues that China will be hard-pressed to join the ranks of developed nations via a doubling of its economic output alone.
He argues that China will need to make adjustments to exchange rate policy to abet a rise in the value of its official currency, if it wants to achieve developed economy status by the decade's end.
"We will also need to see appreciation of the renminbi and a rise in the GDP deflator, to remove the 48% gap and join the ranks [of mid-tier developed economies],” he writes.
China's macroeconomic policy for the next decade
Liao stresses the need to maintain highly active fiscal and monetary policy over the upcoming decade, if China wants to achieve its GDP and economic development goals.
He identifies excess supply and inadequate demand as the chief problems besetting the Chinese economy at present, acting as a major constraint on growth.
"This challenge creates a lack of vigour for economic expansion, and makes it difficult for actual GDP growth to achieve its potential," Liao writes.
It also leads to anaemic levels of inflation, leaving nominal GDP growth at an even lower level than actual gains in output.
Fiscal policy
Liao is an advocate of even more active fiscal policy during the upcoming five-year plan.
He considers this to be an effective means of dealing with the challenges of shoring up domestic demand, as well as reducing supply in areas of excess.
"Fiscal policy should become more active in a pragmatic manner," he writes.
To this end, he calls for the "sustainable," large-scale issuance of government bonds, and hikes to China's deficit ratio.
According to Liao, China's government debt-to-GDP ratio is still markedly lower than those of other countries - even when the hidden debts of local authorities are included.
He sees fiscal policy playing an especially active role in three key areas:
i) Lifting household incomes.
ii) Subsidies for consumption and capital equipment upgrades.
iii) Infrastructure investment.
Income distribution
"We should use fiscal channels to fundamentally raise the incomes of low and medium-level households," he writes.
"These households are the main demographic where China's consumption is inadequate...raising their incomes will obtain pronounced marginal policy effects."
Instead of one-off subsidies, Liao wants China to pursue a "fundamental" increase in household incomes.
This will be achieved via continuous secondary income allocations, in the form of government transfer payments and tax adjustments.
Consumption and capital equipment subsidies
The Two New (两新) policies are a pair of initiatives launched over a year ago, to providing subsidies for the upgrade of capital equipment and durable consumer goods.
Liao says the original goal of these policies was to deal with the problem of severe oversupply relative to lacklustre demand.
He advocates their continued adoption and expansion, as a complement to fiscal policies that make structural adjustments to Chinese income distribution.
"The Two New policies have definitely been an effective medicine, and are a necessary path to pursue as external demand confronts huge challenges," he writes.
"The strength of implementation should undergo large-scale increase on last year's foundation, to form an economic wave across all regions and industries nationwide.
"This is the area where fiscal policy must act....the use of large -scale subsidies to encourage households to upgrade [their durable goods] and the modernization of capital equipment.”
Infrastructure
In addition to income restructuring and consumer subsidies, Liao argues that China needs to maintain its long-standing high levels of infrastructure investment.
He disagrees vehemently with the notion that infrastructure investment has completely run its course as a rational form of expenditure in the Chinese economy.
"We must understand that China's infrastructure investment still has great room for expansion and major economic significance," Liao writes.
"The belief that China's infrastructure investment potential is already exhausted is without reason."
He points to huge demand for new forms of infrastructure that will accompany paradigm-changing technological developments, including 5G stations, 6G networks, big data centres, and the power and network installations needed for AI innovations, as well as renewable energy facilities.
Forecasts from the CF40 Research Group indicate that China will need a further 31 trillion yuan in public investment over the next five years.
Monetary policy
China's monetary policy is viewed as having further room for long-term loosening, given the economy's ongoing struggle with deflationary pressure.
"Low levels of inflation, are the fundamental basis for loose monetary policy," Liao writes.
He argues that reversing deflation and driving expansion in the GDP deflator should be the goals for Chinese monetary policy over the next decade.
Monetary policy should also support adjustments to wealth distributions that increase domestic demand in the form of consumption.
"Structural [monetary policy] should vigorously strengthen credit and financial inclusion support for low and medium-income households, micro, small and medium-sized enterprises and hi-tech and emerging industries, as well as the "two new" policies," Liao writes.
A heterodox proposal for deposit rates
When it comes to deposit rates, Liao's recommendation runs against the grain of established economic wisdom on China.
Low deposit rates are generally considered the culprit for deep problems in the Chinese economy - chief amongst them weak consumption, given frugal households have long been deprived of adequate returns on their savings.
The low returns on deposits are also considered a key contributor to grassroots speculative investment, which drove a bubble in the Chinese property market.
Liao argues, however, that further reducing deposit rates could be the most effective for spurring growth in consumption ahead.
"The interest rates on savings deposits should be further lowered to address the lack of household willingness to consume," he writes.
"In order to increase the consumption demand of households and the investment demand of enterprises, we should not hesitate to adopt the low-interest monetary policy of developed economies, and adjust the bank interest rate to a sufficiently low level - even close to the zero level, when necessary."