Hardest policy of all

Social investment as outlined in China’s 15th Five-Year Plan is the strategic infrastructure for the 21st century

China’s 2026 two sessions of the National People’s Congress and the National Committee of the Chinese People’s Political Consultative Conference sent a signal that much of the world missed. Amid the usual attention to GDP targets and industrial policy, the 15th Five-Year Plan (2026-30) has quietly elevated “investing in people”, social security, demographic resilience and human capital to the level of a strategic priority. Most foreign commentary dismissed this as boilerplate. It was anything but.

The most critical challenge for China’s long-term development may not be external factors such as the United States’ tariffs, semiconductor export controls or intensifying strategic pressure. It lies in domestic demographic shifts hiding in plain sight: the decline of fertility, the rapid aging of the population and the growing strain on the social foundations of long-term development. Most commentary treats social policy as a secondary matter, something to be addressed after the hard business of geopolitical competition is settled. But the 15th Five-Year Plan’s social investments are redefining social infrastructure for national resilience in an era of systemic competition, technological disruption and demographic transition.

The focus on human capital differs fundamentally from 20th-century welfare that was designed to compensate citizens for market risk: unemployment insurance, pensions and healthcare as safety nets against the shocks of industrial capitalism. What China’s 15th Five-Year Plan envisions is something different: a productive social infrastructure that generates the human capital, adaptive capacity and domestic demand on which a nation’s true competitiveness depends. Education, healthcare and social security are the strategic investments in the workforce, the consumer base and the innovative capacity that will determine whether a nation thrives or stagnates in the age of artificial intelligence and an aging population.

The cautionary evidence is already available. Japan’s three decades of demographic stagnation indicate the complex challenges a nation must navigate while restructuring its labor markets and care economy. The US’ experience since the 1980s demonstrates how the erosion of social investment, rising inequality and a hollowed-out middle class can undermine domestic cohesion. These are grave lessons to draw from.

China is navigating a significant demographic transition. Births fell by 17 percent in 2025, to just 7.92 million, less than half the number recorded in 2016. The total fertility rate is around 1, by World Bank estimates, among the lowest in the world. The population shrank by 3.4 million last year, and the working-age cohort has been contracting since 2012. On some projections, China’s working-age population could fall by roughly 240 million by 2050. By mid-century, roughly 30 percent of China’s population could be 65 or older, implying an even larger above-60 population. Successfully managing this demographic shift to maintain long-term growth will be a key societal undertaking.

The instinct of many governments confronting this challenge is to throw money at the problem: baby bonuses, tax breaks, subsidized childcare. The results, in China and elsewhere, have been negligible. Cash transfers do not work when the underlying institutional structure forces young people into a binary choice between career and family. As comparative evidence from French, Scandinavian and German post-2007 reforms suggests, comprehensive institutional architecture such as universal early childhood education, flexible labor markets, shared parental leave and public care systems can allow citizens to combine productive work with family life. The goal is not merely to raise birth rates. It is to build a society whose members can simultaneously contribute to economic output, raise the next generation and sustain the consumer demand that drives innovation and industrial upgrading.

This reframing, from compensatory welfare to productive social investment, also transforms how we understand the 15th Five-Year Plan’s emphasis on expanding domestic demand. The goal is not simply “sustaining consumption”. It is to shape a high-quality domestic market that can drive innovation, upgrade supply chains and reduce external dependency. When households have income security, affordable healthcare and confidence in their children’s future, they spend, invest and take entrepreneurial risks. Social infrastructure and market dynamism become complementary.

This is where the full significance of the two sessions’ signals becomes clear. The 15th Five-Year Plan integrates physical and human capital investment. Its emphasis on income growth for low-income groups, its strategic national response to population aging and its commitment to high-quality development and new quality productive forces are the components of what might be called systemic adaptive capacity, that is, a society’s ability to withstand long-term strategic competition, technological shocks and industrial transitions without fracturing. Building this capacity is the 21st-century equivalent of what postwar welfare states achieved in the 20th century, but the instrument is forward-looking investment in human potential, not backward-looking compensation for market failure.

But recognition is not the same as execution. The most critical challenge China faces is not the design of individual policies but their integration. Automation and artificial intelligence can partially compensate for a shrinking workforce, but only if they are accompanied by massive investment in worker retraining and lifelong education. Pension reform is urgently necessary to address the fiscal pressures of rapid aging, but it must not undermine the consumer confidence that Beijing is simultaneously trying to build. Industrial policy aimed at technological self-reliance requires not just engineering talent but a broader ecosystem of social trust, institutional credibility and citizen well-being that sustains public support for long-term investments.

Nations cannot sustain strategic ambitions on brittle social foundations. Military power, technological prowess and economic scale are all necessary but insufficient conditions for durable influence. What distinguishes the states that thrive in periods of systemic competition is their capacity to build adaptive social infrastructure, not as charity, not as a political concession, but as the productive foundation on which everything else depends.

China’s 15th Five-Year Plan represents an ambitious attempt to build precisely this kind of infrastructure. Whether it will succeed depends on execution: on whether the vision of “investing in people” translates into the deep institutional reforms required in labor markets, in the care economy, in the relationship between work and family life, and in the distribution of opportunity across regions and generations. The stakes are not merely domestic. In a world where the foundations are shifting, the quality of a nation’s social infrastructure may prove to be its most durable competitive advantage. Social policy is not soft policy. It is, and has always been, the hardest policy of all.

The author is an associate professor at the School of Public Policy and Management at Tsinghua University.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.