MNI INTERVIEW: China Would Accept Lower Growth If Yuan Strong

Beijing will tolerate slower growth over the next five years as it pursues economic restructuring, calculating that a gradually appreciating yuan will help achieve its goal of doubling its 2020 per capita GDP by 2035, a high-level policy advisor told MNI.

The economy can meet its 2035 goal if it maintains average annual growth of 4.17% over the next decade, said Liu Qiao, dean of Guanghua School of Management at Peking University, noting that GDP expanded at an average annual rate of 5.4% during the previous Five-Year Plan period (2021–2025).

“Some estimates suggest that less than 4.17% [GDP growth] is needed should the yuan appreciate 1% every year,” Liu added.

Beijing’s most significant adjustment in the 15th Five-Year Plan is the absence of a numerical GDP growth target, instead emphasising keeping growth within an appropriate range, with annual rates determined by prevailing conditions. Liu said this marks a shift away from a policymaking approach focused primarily on headline GDP. 

The 4.5-5% range set for 2026 could serve as a benchmark for the next five years, he predicted, with greater flexibility helping avoid a return to the old growth model reliant on heavy government-led stimulus. (See MNI EM INTERVIEW: China To Grow At 5%+ Over Next Five Years)

PEOPLE-FOCUSED

Alongside a strong emphasis on developing “new quality productive forces,” including AI and high-end manufacturing, the plan also prioritises addressing structural challenges such as weak domestic demand through enhanced social welfare.

This reflects a shift from “investing in physical assets” to “investing in people,” with spending on education, healthcare and elderly care increasingly viewed by policymakers as growth-enhancing investments. Such spending could also, in the long run, lift total factor productivity, which has grown by less than 2% annually over the past decade, Liu said, adding that around 2% TFP growth would be consistent with GDP growth of about 5%.

“Despite major economies all betting on AI, we should not overlook whether those fundamental and public sectors are dragging down the efficiency of the overall economy,” he warned.

China retains ample fiscal space to increase spending in these underinvested areas, thanks to its record of fiscal discipline, Liu said, adding that the ratio of outstanding central government debt to GDP is only around 25%. 

PERFORMANCE APPRAISAL

Liu said the transition would require a more multi-dimensional evaluation system for local governments and officials, whose promotion prospects have traditionally been closely tied to GDP performance. He suggested incorporating indicators such as disposable income growth, consumption rates and public satisfaction.

He also noted that, over time, China could consider shifting from an expenditure-based GDP accounting framework to an income-based approach, though statistical challenges remain.

REAL ESTATE

Liu urged authorities to take more decisive action to stabilise the real-estate sector, citing the government’s support for equity markets from September 2024, which helped push the benchmark Shanghai Composite Index up by more than 40%. “Authorities did not actually spend much, but their clear policy stance greatly boosted investor confidence,” he said.

While the drag on the broader economy from property has eased, the sector still accounts for around 60% of household wealth and continues to shape consumption behaviour and economic expectations, Liu noted.

He urged increased liquidity support, including the creation of funds to accelerate local
government purchases of unsold housing for conversion into affordable rental housing or long-term rental apartments. A CNY600 billion fund — backed by local governments, state-owned enterprises, policy banks and social capital — could cover major first- and second-tier cities and acquire around 42 million square metres of housing, equivalent to about 6% of newly-built unsold inventory, said Liu. This would meet the living demands of 1.4 million people, accounting for 10% of the annual increase in “new citizens” migrating to major cities, he added.