China’s economic strength and competitiveness will continue to strengthen over the next five years

The Chinese government has set the GDP growth target at around 4.5 to 5 percent for 2026, slightly lower than in the past five years, as the country’s focus has shifted toward qualitative development instead of quantitative expansion. However, it will still make a large contribution to global economic growth.

The main driving forces of the economy will be the development of high-quality industries, such as advanced semiconductors (including cutting-edge chips), robotics, artificial intelligence-driven manufacturing, new materials, new energy, aerospace, maritime equipment, biotechnology and low-carbon green technology. Investment in these industries will remain at a high level, while policies to stimulate domestic consumption will be strengthened. There is a consensus at home and abroad that China’s industrial policy facilitating the manufacturing sector is very effective and should enable the country to meet this year’s growth target.

Western commentators on Chinese economic development often focus on the structural imbalance between investment and domestic consumption, which leads to a deflationary tendency that makes the Chinese economy more dependent on international markets at a time when geopolitical confrontations and economic protectionism are on the rise. This may make China’s export growth difficult to sustain in the future.

In the past four years, owing to high inflation in the United States and the appreciation of the US dollar, China’s economic growth has been faster in real terms. Yet in nominal terms and at current market exchange rates, China’s GDP as a share of that of the US dropped from 75.5 percent in 2021 to 63.3 percent in 2025. China’s share of global GDP also declined from 19 percent to 17 percent, measured in current dollar terms.

According to the latest estimates by the International Monetary Fund, measured in purchasing power parity terms in 2025, China’s GDP reached $40.7 trillion, exceeding the US figure of $30.5 trillion.

During 2021-25, the US had rather high inflation and its annual average consumer price index growth rate was 4.46 percent. High inflation forced the US Federal Reserve to raise interest rates dramatically from 1.5-1.75 percent in June 2022 to 5.25-5.5 percent in July 2023. Hiking interest rates caused the US dollar exchange rate to jump to a 10-year high, with the dollar index rising from 98 points in June 2022 to 114 points in September 2022.

During this period, China did not experience inflation and its average annual CPI growth rate was 0.66 percent, well below the target rate of 2 percent. The renminbi exchange rate depreciated from 6.5 yuan per dollar to 7.2 yuan per dollar, owing to the US dollar’s appreciation against most currencies.

While the Chinese economy remains strong, this does not negate the need to tackle the structural imbalance. The Chinese government has already outlined policy measures, including employment promotion, improvements in government expenditure on social insurance and increasing household incomes, to promote domestic consumption in the 15th Five-Year Plan (2026-30).

There will be special programs to stimulate consumption of digital products, green products, healthcare, culture and tourism. The Chinese government will also make efforts to dismantle local and regional barriers to create a unified domestic market to promote service sector consumption. Culturally, Asian people tend to save more than Western people. The savings ratio is higher in China than in many non-Asian countries. This makes boosting consumption a difficult task. But with promoting consumption as a policy target of the 15th Five-Year Plan, there will be an obvious increase in consumption in the future.

The structural imbalance issue will be solved in the coming years not only because domestic consumption will grow faster with Chinese government policy facilitation, but also because of the further opening measures the Chinese government is pursuing. Maintaining a large trade surplus is not a policy target of the Chinese government. China has launched the China International Import Expo to enhance imports. The rapid growth of the Chinese trade surplus in recent years is mainly caused by the growing demand for Chinese products stimulated by overseas governments’ expansionary fiscal and monetary policies and domestic high inflation. Chinese products are more competitive and attractive even though high tariffs have pushed up prices. The Chinese government is aware that a large trade surplus is not sustainable and may lead to more complaints and protectionist measures from trading partners. It is adjusting its trade policies to simultaneously promote exports and encourage imports. That the trade balance was highlighted in this year’s Government Work Report is an important indication. Therefore, imports will increase and trade will be gradually balanced. This will create more opportunities for trade partners to access the Chinese market.

Foreign investment used to play an important role in the growth of China’s exports and economy. Western observers have exaggerated the outflow of foreign capital from China in recent years. However, even if some foreign companies’ profit margins are lower than before, most of them are still making profits in China.

China remains one of the most attractive destinations for foreign investment and its inflow of foreign direct investment has ranked second in the world in the past five years, just behind that of the US. In the next five years, foreign investment in the manufacturing sector may decrease, but it will increase in the service sector as China opens up its service industries further.

Even if denominated in US dollar, Western observers admit that China’s share of the global economy may be set for a rebound. There is no reason to take a pessimistic view of Chinese economic development. The 15th Five-Year Plan will guide the Chinese economy to grow stronger and healthier. The Chinese economy remains on course to become the largest in the world both in PPP terms and in nominal terms, regardless of currency metrics, sooner or later.

The author is a senior researcher of international economics at the Shanghai Academy of Social Sciences and the honorary president of the Shanghai Institute for European Studies.

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.