As 2025 gradually draws to a close, although a series of economic and trade agreements have recently been reached between the United States and China, and China has made new concessions in imports of U.S. agricultural products, the overall stance of the U.S. government and the specific statements from high-ranking officials suggest that there has been no substantial shift in the U.S. approach to economic pressure on China. The external and internal pressures on China’s economy remain significant.
While the communiqué from the Fourth Plenary Session of the 20th Central Committee highlighted principles such as "expanding domestic demand" and "improving living standards while increasing consumer spending", it also emphasized strengthening the foundation of the real economy. The communiqué stressed maintaining a focus on the real economy, prioritizing the directions of smart, green, and integrated development. It called for maintaining a reasonable share of manufacturing and building a modern industrial system centered on advanced manufacturing. At the same time, it also underlined the importance of optimizing and upgrading traditional industries while fostering and growing emerging and future industries. Additionally, it emphasized the idea of fostering new demand through new supply and promoting consumption and investment.
Based on these official statements, China’s future plans will likely continue to focus on high-tech manufacturing, maintaining a policy orientation centered on the upgrading of production, especially in the manufacturing sector. This is not only a result of economic structural inertia but also an inevitable consequence of geopolitical competition. Therefore, the country’s economic development over the next five years will likely remain centered around industrial upgrading and the strategy of becoming a manufacturing powerhouse. However, under the dual pressures of external competition and internal consumption weakness, the production-oriented development model may be facing a historic challenge of rebalancing.
First of all, external competitive pressures have strengthened the production-centered economic orientation. Over the past few decades, China’s economic growth has been highly reliant on the expansion of the production side. Manufacturing has not only been the pillar of employment and tax revenue but also the material foundation of the country’s competitiveness. Today, this model has been further reinforced by changes in the international landscape.
As U.S.-China strategic competition intensifies, particularly with the gradual deepening of regional geopolitical tensions, the ongoing tariff threats from the Trump administration, and the escalating sanctions on Russian oil products, the global industrial chain is accelerating its fragmentation. For China, this situation necessitates maintaining “control and substitutability” in key areas. This strategic imperative has directly driven the country to concentrate more resources on technological research and development as well as high-end manufacturing. Chinese official commentary has repeatedly emphasized that the world is undergoing a “historic transformation not seen in a century”, with a combination of technological revolution and great power competition, and it is a world which China must secure the "strategic high ground" in the global technological race.
A prominent Singaporean scholar has also emphasized that manufacturing remains the core of hard power. When conflict arises, it is not the service sector but manufacturing that determines the fate of a nation. This assessment has almost become a policy consensus. Whether electric vehicles, photovoltaic equipment, or new energy technologies, China now holds a global leading edge in most segments of these industrial chains. Policymakers are naturally inclined to continue strengthening this direction in order to maintain an upper hand in geopolitical competition.
Yet, the result of this strategic reinforcement is the relative marginalization of consumption and people’s livelihoods in resource allocation. In the upcoming 15th Five-Year Plan, while terms like “promoting consumption” and “expanding domestic demand” will still be mentioned, the actual policy focus is likely to remain on the supply side. High-tech manufacturing, advanced materials, artificial intelligence, new energy, and other sectors will continue to receive tax reductions, credit incentives, and financial support. In contrast, policies aimed at improving residents' consumption capacity, such as income distribution, social security, and public services, are likely to still lack substantial breakthroughs. The country’s strategic choice, that is, prioritizing the reinforcement of the supply side and stabilizing the security of industrial chains, has been almost inevitable under international competitive pressure. However, at the same time, this has also perpetuated the structural pattern of production being prioritized while consumption lags.
Secondly, weak domestic demand is becoming a major constraint on the continued development of the manufacturing sector. If the key term for China's economic miracle over the past twenty years was "production surplus supporting growth", the current key term has shifted to "insufficient demand stifling vitality". Beneath the seemingly stable 5% growth rate, deflationary pressure, debt risks, and sluggish consumption have created a real and multifaceted dilemma.
In the past two years, China’s Producer Price Index (PPI) has continued to show negative growth, and the downward price trend has spread from industry to retail. Executives at food delivery platform Meituan previously disclosed that the average dining price has fallen back to levels close to 2015. According to platform data, in the third quarter of 2025, per capita spending on all categories of dining dropped by 12% year-on-year, with new store openings experiencing a decline of 18%. Fast food set meals have dropped from the RMB 35 range to RMB 25, while snack items have stabilized at under RMB 15. This clear trend of consumption downgrade reflects the dual pressures of slower income growth and a more conservative consumer mindset.
Meanwhile, the shrinkage of real estate wealth has weakened expectations for household assets, the psychological impact left by the COVID-19 pandemic has reduced consumer confidence, and the inadequacy of the social security system has forced residents to maintain high savings rates. The result is that, even with policy stimuli such as consumption vouchers, subsidies for replacing old products with new ones, and childcare allowances, it is still difficult to stimulate substantial demand. Some analysts point out that even though the 15th Five-Year Plan may mention social welfare in the policy framework, the shift from deflation to reflation remains difficult to achieve.
Structurally, China's imbalance between production and consumption has become increasingly evident. In 2024, China's share of global manufacturing reached 31.6%, maintaining its position as the world's leader for the fifteenth consecutive year. However, analysts, based on data from the country’s National Bureau of Statistics, point out that in 2024, China's total personal consumption amounted to about USD 5.53 trillion, which accounts for less than 10% of global personal consumption expenditure. On a per capita basis, it is also less than 60% of the global average. While the accuracy of this calculation is still open to debate, it reveals that China, as the world's largest manufacturer, is not one of the world's major consumer markets. This supply-demand mismatch leads to overcapacity, frequent price wars, declining corporate profits, and ultimately undermines the sustainability of industrial upgrading. In other words, the stronger the production system, the greater its dependence on stable demand. However, long-term weakness on the demand side will, in turn, weaken the growth potential of the production side, creating a "strong production, weak consumption" structural tug-of-war.
Insufficient consumption is not just an economic issue, but also a signal that reveals a structural imbalance in wealth distribution. The growth model in China of the past has favored resources flowing toward enterprises and government sectors, rather than common households. While this approach drove investment and output in the short term, it has weakened the growth foundation of the income side in the long term. An economy lacking strong consumer demand, even with an advanced manufacturing sector, cannot establish a stable domestic circulation. Therefore, leading production capacity does not automatically translate into economic vitality, unless policies can facilitate a greater flow of wealth back to households, making consumption the true driving force in the economic growth chain instead of a passive endpoint.
The key to future transformation lies in shifting from a "production-driven" model to a "consumption-driven" one. This means there is a need to rebuild income and confidence. The true turning point for China's economy in the future may not necessarily come from external shocks, but from the inevitable internal structural adjustments. When external demand is no longer sufficient to support overall goals, China must rely on domestic demand through the expansion of household income and consumption to sustain economic vitality. At that point, reforms in income distribution, social security, and public services will become crucial pivot points for structural transformation.
Current policies will continue to follow a high-quality development path centered on manufacturing. This phase is unavoidable, as international competition remains fierce, and China must maintain its technological and industrial chain advantages. However, at the same time, without rebuilding the consumption foundation at the institutional level, even high-quality manufacturing will lose its internal momentum. Therefore, finding a reasonable policy balance between the two is essential.
This balance signifies a reallocation of resources. The future growth of the country cannot rely solely on investment and exports; it must also depend on the sustained growth of household incomes. Increasing the share of labor compensation, improving social security, reducing the burden of education and healthcare, and expanding the middle-income group are fundamental ways to stimulate consumption. It also involves modernizing the consumption structure. With the aging population and the widespread adoption of the digital economy, new areas of consumption such as healthcare, elderly care, smart services, and green home products will become new growth engines. Finally, there needs to be a shift in policy mindset, in that consumption should be viewed as the "source" of growth, not just the "result" of it. Only by ensuring that the fruits of production flow back to households and making households the core drivers of innovation and consumption can the internal circulation of the economy truly align. This not only involves a rebalancing at the economic level, but also a necessary shift in the nation's overall strategic focus, as the expansion of consumption can, in turn, strengthen the production system, thereby providing a more stable and sustainable market foundation for the upgrading of manufacturing.
Historically, the practical victories of socialist revolutions took place in countries that were economically and politically relatively underdeveloped, such as Tsarist Russia. As a result, the new regimes in these countries, upon their establishment, had a strong impulse to focus on building productive forces, while the consumption sector remained largely neglected for a long time.
From a global perspective, every industrialized country must, at some stage, complete the shift from a production-oriented to a consumption-oriented model. The United States experienced this transition in the 1960s, South Korea in the 1990s, and Japan in the 1980s. China will eventually reach this stage as well; the timing, pace, and manner of the transformation will determine its costs. It is foreseeable that China’s policy may only truly shift from "production-first" to "consumption-first" when external demand significantly shrinks, and exports can no longer sustain growth. At that point, consumption will not only become a necessary complement to economic growth, but also a common foundation for industrial upgrading and social stability. The longer this structural shift is delayed, the more likely its costs will manifest in the future through greater volatility. This is the reason that the current issue of insufficient consumption can no longer be viewed as merely a cyclical fluctuation, but rather as a deep structural challenge that affects long-term stability.
The pursuit of hard power and the strategic focus on services are both valid reasons and directions for development. However, these reasons and directions cannot fully align with the socio-economic reality. Therefore, the current Chinese economic policies that serve hard power will ultimately face the challenge of achieving a balance. This balance does not negate the importance of manufacturing, but rather emphasizes that only when the resilience and vitality of the consumption side are enhanced can the strategic advantages of the production side be sustainably supported in the domestic market, thus forming a stable, dual-engine drive for the country’s economic growth.
Final analysis conclusion:
The future of China's economy depends on how “growth” is defined. Its past successes have been driven by miracles on the production side, but the country’s future sustainability must rely on rebuilding the consumption side. External competition demands the strengthening of manufacturing, while internal balance requires that we enhance consumption; the former concerns survival, the latter development. Only when production and consumption form a positive interaction can the country stabilize its economic core in the midst of a turbulent international landscape. The true test of China’s 15th Five-Year Plan lies not only in how to continue manufacturing, but in how to ensure that every product of production becomes a starting point for driving consumption, employment, and improvements in quality of life. This, perhaps, is the deeper meaning of high-quality development.
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Zhou Chao is a Research Fellow for Geopolitical Strategy programme at ANBOUND, an independent think tank.
