Spurring demand entails systematic, targeted efforts

Editor's note: China will take coordinated steps to stimulate domestic demand and deepen supply-side structural reform during the 15th Five-Year Plan (2026-30) period. China Business Journal spoke to Liu Wei, former president of Renmin University of China, on how domestic demand will be cultivated. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

To advance a "dual-circulation" development pattern, which takes the domestic market as the mainstay while allowing domestic and international markets to reinforce each other, China's domestic demand should be further boosted.

This means expanding demand and, more importantly, cultivating high-quality demand — effective investment and consumption backed by real purchasing power.

At the same time, the expansion of domestic demand should rest on the foundation of a unified national market. The domestic cycle cannot rely on fragmented, inward-looking local loops. It requires reform and a market economy that can ensure that new demand can effectively stimulate new supply.

The core of new supply is the development of a modern industrial system. This involves upgrading traditional industries through advanced technologies, expanding strategic emerging industries and developing future-oriented sectors. It also includes improving the quality and efficiency of the service sector, especially producer services, and strengthening modern infrastructure.

China is undergoing a profound structural shift in consumption. This is reflected in the steady decline of the Engel coefficient — the percentage of income spent on food — which has fallen below 30 percent in the past two years. According to United Nations standards, an Engel coefficient below 30 percent indicates a "wealthy" standard of living and less than 20 percent denotes an "extremely wealthy" stage.

Normally speaking, in the "wealthy" stage, consumption growth tends to shift. New preferences, consumption patterns and demands emerge rapidly. If supply and service providers fail to adapt, these new demands may not be fully realized, slowing the overall momentum of consumption growth.

Consumption mainly depends on income. Several factors continue to constrain income growth, which in turn restricts consumption. Urban residents generally enjoy higher income levels but experience slower growth, while rural residents see faster growth from a lower base. The income gap between urban and rural areas also dampens the overall propensity to consume, and the share of household income in primary distribution remains relatively low.

Boosting consumption therefore hinges on raising household incomes, which in turn depends on improving labor productivity so that income growth keeps pace with productivity gains. The emphasis on investing in both physical capital and human capital reflects the importance of enhancing workforce quality to support income growth.

In the short term, the most effective way to raise incomes is to ensure full and high-quality employment, which means enhancing human capital accumulation and addressing the contradiction between unemployment and vacancies.

China's current employment pressure mainly comes from structural mismatches. Addressing the problems requires greater investment in human capital to improve workers' competitiveness.

As a new wave of technological change reshapes the economy, enhancing the adaptability and competitiveness of workers has become increasingly urgent.

Only by achieving stable and high-quality employment can income expectations improve and consumer confidence be strengthened, enabling people to spend with greater willingness and security.