The fifth plenary session of the 20th Central Committee of the Communist Party of China mentioned the need to tap domestic demand and further deepen reform and opening-up. This focus highlights a key aspect of China's economy: its large domestic market is becoming more open and innovative.
That transformation is crucial not only for China's growth but also for the global economy, offering "development dividends", "cooperation dividends" and "innovation dividends".
China's market of more than 1.4 billion people has considerable growth potential. As the economy upgrades and people's needs change, services are poised to become a major driver of consumption and investment.
By 2030, services are expected to constitute more than 50 percent of household consumption, up from 46.1 percent in 2025, while producer services are expected to account for a larger share of GDP. This shift could create new markets worth trillions of yuan and strengthen the case for opening up the services sector.
An innovative and more open Chinese market also creates opportunities beyond China's borders. It is changing how economies participate in regional and global production networks. Rather than following the traditional "flying-geese" pattern, where one dominant country leads and others follow, economies at various development stages can participate in different segments of industry chains and benefit from coordinated upgrading.
In the first three quarters of 2026, equipment-manufacturing products accounted for nearly 90 percent of the increase in China's exports, while intermediate goods made up more than half of total exports. Meanwhile, between 2010 and 2025, China's imports of labor-intensive products from developing countries and least-developed countries grew by 3.5 times and 16 times respectively, widening export opportunities for these economies. The Chinese market has also become a key engine of economic growth in the Asia-Pacific, making a substantial contribution to the region's expanding GDP.
Artificial intelligence adds a new dimension to this market potential. China's vast market, growing AI capabilities and strengths in new energy and other emerging industries can reinforce each other.
Industries such as AI, robotics and innovative medicines are expected to reach an enormous market value by 2035. Chinese advances are also widening access to technology worldwide.
Over the past decade, China has helped reduce the average costs of wind power and photovoltaic power generation globally by 60 percent and 80 percent, respectively. In the first half of 2026, open-source Chinese large AI models accounted for 41 percent of global downloads.
These developments have significant implications for countries addressing energy constraints and pursuing digital transformation. China offers not just technologies but also AI training, practical applications and platforms for cooperation. The goal is to make AI benefits more accessible and inclusive.
China's next opportunity lies in turning its large consumer market into a stronger consumption-driven economy. In 2025, services accounted for 46.1 percent of household consumption in China, indicating room for growth. The auto industry illustrates the potential. Although China is one of the world's largest exporters of automobiles, its auto industry is primarily oriented toward domestic demand. In 2025, China exported only about 20 percent of the vehicles it produced, compared with 76 percent in Germany and about 50 percent in Japan.
This points to a broader lesson about opening-up. When China joined the World Trade Organization, some in the auto industry feared that lower tariffs and the removal of import quotas would severely damage domestic manufacturers. But while competition put pressure on manufacturers, it also encouraged industrial upgrading. The key is to look beyond short-term adjustments and recognize how an open market can strengthen competitiveness over time.
Expanding service consumption will be central to this transition. Demand for medical care, education, health and wellness, and cultural services is growing, while supply is insufficient in some areas. This creates opportunities for foreign providers, technologies and products. China's total trade in services is projected to reach $2.7 trillion by 2035, with imports accounting for $1.2 trillion to $1.5 trillion.
New breakthroughs in reform are crucial for shaping market expectations, and further deepening reform and opening-up will be the driving force for the sustained growth of China's huge domestic market. This requires prioritizing three key measures.
The foremost priority should be stabilizing business expectations, especially those of the private sector, for maintaining employment and stimulating consumption. Labor costs for small and medium enterprises should be lowered by increasing social security subsidies, while large state-owned enterprises should develop AI platforms and computing power that support SME upgrading.
Investing in people is equally vital for strengthening household consumption expectations. This involves deeper household registration reform to help millions of rural migrants gain urban residency and accelerate urbanization. It also requires significantly narrowing the gap in basic pension benefits between rural residents, urban residents and urban employees by 2030, establishing more uniform basic public services across urban and rural areas and regions, and building a social security system suited to flexible workers in the AI era.
It is also important to optimize income distribution for fostering sustained growth in China's large market. The targets should include increasing the share of labor remuneration in national income and the ratio of per capita disposable income to per capita GDP. Farmers should get more property rights and listed companies should raise payouts. AI skills training for low-skilled workers and a mechanism to regulate excess AI profits while rewarding companies that enhance efficiency without layoffs should follow.
The author is the chief researcher of the Hainan Institute for Free Trade Port Studies.
The views don't necessarily reflect those of China Daily.
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