China, five years on

CHINA will continue to deepen structural reforms, but it has not shifted away from its growth ambitions.

That, in a nutshell, was what is laid out in the proposals of the Central Committee of the Communist Party of China on formulating the 15th Five-Year Plan (2026–2030) for National Economic and Social Development China, published in late October.

The proposals reaffirm the goal of laying a solid foundation and advancing on all fronts toward the basic realisation of socialist modernisation by 2035.

The reference to attaining “moderately developed country” status implies that China’s per capita gross domestic product (GDP) could rise from the current US$13,500 to roughly US$20,000-US$30,000 within a decade.

This, in turn, points to an implied annual growth target of around 5% during the 15th Five-Year Plan period.

The proposals reaffirm China’s dual policy pillars of industrial technology upgrading and boosting domestic demand.

Notably, the proposals place “steady improvement in total factor productivity (TFP)” as the second-highest development objective – right after “maintaining economic growth within a reasonable range.”

This marks a significant shift, suggesting that TFP could become a new quantitative ­target under the 15th Five-Year Plan, serving as a key barometer of overall economic efficiency and the advancement of “new quality productive forces.”

China’s Industrial policies

The proposals further outline the key sectors that will receive focused policy support in the coming years, signalling clear priorities for industrial upgrading and technological self-reliance.

Eight traditional industries – mining, metallurgy, chemicals, light industry, textiles, machinery, shipbuilding, and construction – will undergo optimisation and upgrading, with an emphasis on high-end development, intelligent transformation, green transition, and industrial clustering.

Four emerging pillar industries – new energy, new materials, aerospace, and the low-altitude economy – are positioned to become new growth drivers, strengthening China’s competitiveness in strategic sectors.

Six future industries – quantum technology, biomanufacturing, hydrogen and fusion energy, brain-machine interfaces, embodied intelligence, and 6G mobile communications – will be cultivated to shape the next frontier of industrial innovation.

Meanwhile, six core technologies – integrated circuits, industrial mother machines, high-end instruments, foundational software, advanced materials, and biomanufacturing – have been designated for “extraordinary measures” to accelerate breakthroughs in critical areas of technological bottlenecks.

Lastly, the proposals emphasise comprehensive artificial intelligence empowerment across industry, culture, livelihoods, and governance – a cross-cutting initiative that will deeply integrate digital intelligence into China’s economic and social fabric.

Capital markets as new engine of household wealth

During the 15th Five-Year Plan period, household wealth composition is expected to undergo a structural shift – from a property-led model to one increasingly driven by capital markets.

Over the past decade, the real estate boom was the dominant source of wealth accumulation. However, as the property valuation system undergoes deep restructuring and its investment attributes weaken, this model has become unsustainable.

In response, households are actively seeking new directions for asset allocation.

Against a macro backdrop of moderate inflation, declining interest rates, and a neutral-to-accommodative monetary stance, financial assets are poised to become the new growth engine for household wealth.

The ongoing rebalancing of China’s growth model further supports this transformation, moving wealth creation away from “asset price dividends” toward “capital-market returns.”

At the same time, the ongoing institutional reforms are laying a stronger foundation for capital markets to evolve – from being primarily “financing markets” to “investment markets,” and ultimately “wealth markets.”

This transformation will not only reshape household portfolios but could also redefine local government financing models.

From land finance to equity-based finance

For decades, “land finance” – the monetisation of land resources – served as the backbone of the local fiscal system. Revenues from land-use rights underpinned infrastructure construction, urban development, and a vast network of related industries such as real estate, steel, and cement.

This model was indispensable during the phase of high-speed growth and rapid urbanisation.

However, as urbanisation matures and land sales slow, this one-off, front-loaded financing model is losing sustainability.

A new “equity-based fiscal model” is emerging, where local governments increasingly act as long-term shareholders – investing strategically in enterprises and sharing in their growth dividends.

The “Hefei Model” offers a successful example: by investing in companies such as BOE Technology and NIO, Hefei not only nurtured industrial clusters but also realised substantial financial gains, enabling the city to achieve a transformative leap forward.

Looking ahead, we expect the traditional land-finance model to fade more rapidly during the 15th Five-Year Plan period, giving way to an equity-based fiscal framework as the mainstream engine of local economic growth.

This shift signifies more than a mere fiscal adjustment – it reflects a fundamental transformation in China’s development paradigm, one that better aligns government objectives with shareholder interests.

The new Five-Year Plan is also expected to diminish the prevailing narrative that “China is uninvestable,” potentially opening up attractive opportunities for Asean investors seeking to diversify away from the increasingly crowded US markets.