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China Next 5 Year Plan Explained: On Monday, the Central Committee of the Communist Party of China (CPC) gathered in Beijing for its annual meeting. The meeting, which will end on Thursday (October 23), has already seen Xi Jinping, China’s President and General Secretary of the CPC Central Committee, speak on the proposals for the 15th five-year plan that will run from 2026 to 2030.
However, some other plans have not delivered results as hoped. Back in 2010, a report titled ‘China 2030’, jointly written by Chinese authorities and the World Bank, targeted an increase in consumption such that it would form 66 per cent of the GDP by 2030 on the back of higher household expenditure. That has not happened – as per World Bank data, it stood at 56.8 per cent in 2023.
Latest data shows consumption remains an issue despite a shift in policy. Data released Monday showed China’s real GDP growth rate slowed to 4.8 per cent in July-September as per capita consumption rose 3.4 per cent from a year ago, down from 5.2 per cent in the first two quarters.
While the Chinese economy can reach its 2025 target of 5 per cent real growth by expanding by 4.5 per cent in the final quarter of the year, it is the growth rate without adjusting for prices that will be of concern to the government. At 3.7 per cent, China’s nominal GDP growth rate in July-September was lower than the real growth rate for the 10th quarter in a row.
Hunt for consumption
India knows a thing or two about weak nominal growth – even though real growth surged to a five-quarter high of 7.8 per cent in April-June, nominal GDP growth was at a three-quarter low of 8.8 per cent – and weak consumption demand. It is no surprise then that Indian income and indirect tax rates have been cut this year, at a time when overseas demand for goods could take a hit due to the US’ tariff war.
China has also aggressively looked to support consumption. In July, a new child support allowance was revealed, under which families would get an annual grant of 3,600 yuan (around Rs 45,000 or $500) per child until it was three years old. Preschool education is being made free, while a new consumer loan subsidy programme has been launched, among other measures.
“In essence, domestic consumption comes down to the issue of resource distribution,” ANZ Economist Vicky Xiao Zhou and Senior China Strategist Zhaopeng Xing wrote in a note on Tuesday. “Policy objectives should focus on directing more resources toward households or individuals with a higher marginal propensity to consume. China has room to improve income distribution through equal employment and government transfer. We expect (the) 15th Five-Year Plan is a continuation of existing initiatives, including retirement age reforms, childcare subsidies, and high school education reform, while introducing more detailed approaches to enhance policy execution.”
The demographic challenge
As can be gleaned from some of the measures announced so far, the Chinese government is trying to solve a key problem: demographics. The population is getting older and smaller, and neither bodes well for consumption – retired people usually spend less than the working young, while a smaller population naturally means a smaller pool of consumers.
For China, the demographic shock has been stronger than the US’ tariff war, according to Bai Chong-En, Dean of the School of Economics and Management at Beijing’s Tsinghua University.
“I often compare two tables published by the United Nations: one is the 2019 population projection of China and the other is the 2022 population projection. They are very different. In the 2019 one, it was expected that the Chinese population would peak and then decline. But in the 2022 projection, it peaked much earlier and the decline is much stronger… With a growing population, the demand for housing will be stronger. But suddenly, there is this change. That’s part of the reason why the Chinese real estate market is not doing well,” Bai told The Indian Express earlier this month.
According to the United Nations’ World Population Prospects 2024 report, the median age of China last year was 39.6 years, higher than the US’ 38.3. India, which overtook China to become the world’s most populous country in 2023, had a median age of 28.4 years in 2024.
Planning for future
Rebalancing the Chinese economy is far easier said than done. The 13th Five-Year Plan spanning the years 2016 to 2020 had a consumption focus, although the first Trump administration’s supply-chain and tech restrictions resulted in the 14th plan placing an emphasis on manufacturing and tech self-reliance. Since then, anti-involution has become the buzzword, with excess capacity and investments in certain sectors – and the price competition that ensues – following the real estate meltdown that began in 2020 being discouraged.
There is little doubt now that pushing hard on consumption is a priority for the Chinese government; the problem is convincing households to spend. For a country that has one of the highest savings rates in the world – according to ANZ, gross national savings and household savings stood at 43 per cent and 25 per cent in 2024, respectively – this is going to be no easy task, especially with an aging population.
