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The Fourth Plenary Session of the 20^th Central Committee of the Communist Party of China was held in Beijing from Monday to Thursday. The post-meeting communique indicates that the 15^th Five-Year Plan (2026–2030) will maintain the strategic directions previously signaled to the markets.

The session reaffirmed the goal of raising China’s per capita GDP to “moderately developed” levels by 2035. Key priorities include:

• Boosting domestic demand through jobs, income, and social support.
• Developing new-quality productive forces and enhancing technological self-reliance.
• Proactively managing local government debt risks.

Achieving a “moderately developed” status

The Fourth Plenum reaffirmed China’s aspiration to reach a moderately developed status by 2035. With per capita income at about US$13,400 in 2024, this target implies an average real growth rate of about 4.5% annually over the next decade. The upcoming five-year plan marks a transition toward balanced, productivity- and consumption-driven growth.

Strengthening domestic demand

The Plenum stressed the need to “ensure livelihood protection” and “stabilize and expand employment,” especially for key demographic groups, alongside strengthening wage and social support. This renewed focus on consumption-led growth reflects policymakers’ recognition that private spending remains the economy’s weakest link.

Retail sales momentum has slowed since mid-year, with discretionary spending softening despite policy incentives. Housing market weakness and labour-market uncertainty continue to weigh on sentiment. As property investment and exports face headwinds, domestic consumption must take on a larger role in sustaining growth. The potential is significant—household consumption currently accounts for just 40% of GDP, below the global average of around 56%.

The Plenum signals stronger fiscal and credit support for jobs, income growth, and consumer confidence, positioning domestic demand as a central pillar of the next growth phase.

Advancing “new-quality productive forces” and technological self-reliance

Echoing the call to “greatly enhance self-reliance and strength in science and technology,” the next five-year plan will prioritize innovation-led industrial upgrading. New-quality productive forces—focused on advanced manufacturing, digital transformation, and frontier technologies—define China’s structural strategy.

Robotics, AI, semiconductors, and new energy technologies are expected to remain key focal points. From Jan-Aug, industrial robot output rose nearly 30% yoy, while service robots increased 19%. Our estimates suggest that semiconductor manufacturing value will expand at a CAGR of 13.8% during 2023–2028, outpacing the global average, while the AI market could reach US$26.5 billion.

These measures reduce external dependence, strengthen domestic innovation ecosystems, and mitigate demographic headwinds by boosting productivity. With 21% of the population aged 60 or above—a share expected to exceed 30% by 2035—labour shortages will intensify. Phased retirement-age reform, along with measures to support fertility, childcare, and eldercare, will help slow workforce contraction.

We estimate that demographic pressures could reduce long-term GDP growth by around 0.4 percentage points annually, underscoring the need for productivity-enhancing reforms and human capital development to sustain economic vitality (see “China 2025-40 Outlook –Tech and policy foundation”, 9 April 2025).

Managing local government debt risks

The Plenum’s commitment to “proactively resolving local government debt risks” signals a determined shift toward greater fiscal discipline and sustainability. Prolonged property downturns have eroded land-sale revenues—historically a key source of income—prompting local governments to rely heavily on financing vehicles (LGFVs), blurring the lines between public and corporate debt.

We estimate that combined local and LGFV debt reached around 88% of GDP as of August 2025, up from 70% in 2020. Regulators have tightened borrowing controls, expanded debt-swap programs, and strengthened oversight. Institutionalizing a transparent, rules-based fiscal framework will be crucial to safeguard financial stability and sustain public investment in strategic sectors.

Addressing overcapacity through “anti-involution”

Although the Plenum did not explicitly reference the anti-involution campaign, its essence is embedded in the directive to “promote virtuous interaction between supply and demand and strengthen the domestic circulation’s internal dynamism.” The focus is on optimizing supply, curbing inefficient investment, and preventing excessive competition that misallocates resources.

Sectors such as automobiles, chemicals, and heavy industries still face overinvestment relative to demand. Addressing this is not merely a supply-side adjustment but also a critical demand stabilizer. Rationalizing production and capacity utilization can ease deflationary pressures, improve profitability, and restore confidence across the industrial chain.

Conclusion

The Fourth Plenum’s policy blueprint reflects policymakers’ determination to transition toward high-quality, resilient, and innovation-led growth. The final version of the 15^th Five-Year Plan will be released during next year’s “two sessions” and implemented thereafter.

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