China shifts to high gear with new economic model

As a global powerhouse, China's economy garners significant attention. When property investment weakens, infrastructure spending slows down or retail sales fall short, some observers proclaim that China's growth is losing steam.

While these indicators matter, it's crucial to take a more holistic perspective as China rebalances its development approach. We should ask whether new sources of growth can enhance productivity, increase incomes and strengthen confidence.

Recent data reveal a transformation that monthly numbers can miss.

Despite trade tensions and global uncertainty, China's economy grew by 4.7 percent in the first half of 2026.

The engines of this growth have changed. China is shifting its focus from property to "high-quality growth" sectors such as technology, innovation and services.

This transition is evident across various industries. In July, the value-added of high-tech manufacturing grew by 16.9 percent year-on-year.

Advanced manufacturing not only increases productivity on a per-factory basis, but also invigorates the broader economy.

Enhanced batteries improve transportation and energy systems, industrial robots increase the output of traditional manufacturers, and digital tools enable smaller businesses to reduce costs, improve quality and reach customers more easily.

Even so, China cannot ignore challenges in traditional sectors.

The property market needs to stabilize, unfinished homes need to be delivered and local financial risks must be managed. However, reverting to the old development model is neither practical nor appropriate.

The next step should be to connect industrial upgrading more closely with people's daily lives.

Retail sales of services grew by 5 percent in the first seven months of 2026, reflecting evolving domestic demand.

Consumption goes beyond goods to include healthcare, tourism, culture, education, elderly care and digital services. These sectors can create many jobs and turn growth into household income.

The interplay between services, jobs and consumption deserves more attention. A stronger consumer economy cannot rely solely on sales campaigns.

Households spend more when they feel secure about jobs, income, housing costs and access to healthcare and education.

A stronger social safety net and enhanced public services are therefore part of economic policy, not only social policy. They can give families confidence to spend more.

Business confidence matters just as much. Private companies are central to jobs, innovation and trade, but they invest only when they can plan beyond the next quarter.

Business owners need stable rules, fair market access, clear protection of property and contracts, and timely payment.

Confidence grows when stable policies shape real business decisions, not just make headlines.

The unified national market can play a key role. Removing local barriers, unnecessary permits and unfair purchasing rules would help productive companies grow across provinces.

This would guide investment toward efficient businesses instead of protecting weaker local players. China's new development model must give private companies room to compete as well as encourage technological advancement.

Macroeconomic policy plays an important role, especially when inflation remains low.

But support should be focused rather than relying on broad credit expansion.

Public spending can be more impactful when it supports household income, childcare and elderly care, improves city services and renews older neighborhoods. Such spending not only supports demand today but also lays stronger foundations for tomorrow.

China's close ties with the global economy are another asset. Trade is robust because China has manufacturing scale and agile companies. Openness should remain central to the next phase of reform.

Easier access to service sectors, clearer standards, stronger intellectual property protection and more opportunities for foreign companies will reinforce China's role as a production base and a major market.

Green and digital products from China can reduce the modernization costs for other economies.

Chinese investment abroad can also build local supply chains, create jobs and support technology partnerships.

Such a transformation will not follow a linear path. Advanced sectors may grow while traditional industries face pressure, and some regions will adjust faster than others.

What matters is whether productivity, household income, business confidence and openness improve in tandem.

China boasts significant advantages: a huge domestic market, extensive industrial supply chains, modern infrastructure, a large pool of engineers and unmatched ability to implement policies. Its role in global finance is also growing.

While these strengths do not ensure automatic success, they give the country the tools to manage change. They also allow China to combine scale with speed, a mix that few other economies can match.

Transitioning to a new economic model may feel slower than following a familiar path, but it can lead to a more balanced and resilient economy.

China's task is to turn innovation into productivity, productivity into income, and income into confidence.

Recent evidence shows that this new engine is taking shape.

The next step is to make sure that its gains reach more companies, workers and families.

If China can do that, the economy will not just grow but also become stronger and more resilient.

The author is founder and CEO of Gao Feng Advisory Co, a strategy and management consulting firm with roots in China.

The views don't necessarily reflect those of China Daily.

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