The Strategic Imperative of Expanding Domestic Demand

The Strategic Imperative of Expanding Domestic Demand

XI JINPING

I

In the past, when China’s production capacity lagged behind, we focused on ramping up investment to build it out. Today, facing general overcapacity, continued reliance on the expansion of investment to accelerate growth yields limited outcomes amid diminishing marginal returns. While investment is a key short-term engine of growth, it is consumption that ultimately underpins long-term economic expansion. Therefore, as we expand productive investment and leverage its pivotal role, we must more effectively harness the fundamental role of consumption in driving growth.

—Speech at the second plenary meeting of the fifth plenary session of the 18th CPC Central Committee, October 29, 2015

II

Supply and demand are the fundamental internal dynamics of a market economy. They form a dialectical unity of interdependent opposites that cannot exist in isolation. Without demand, supply finds no outlet, while new demand can catalyze fresh supply. Conversely, without supply, demand cannot be satisfied, but new supply can create new demand.

Supply-side management and demand-side management are the two fundamental instruments of macroeconomic regulation. Demand-side management focuses on addressing aggregate issues and emphasizes short-term regulation, mainly by adjusting taxation, fiscal expenditure, and the supply of money and credit to stimulate or restrain demand and thus drive growth. Supply-side management, on the other hand, focuses on resolving structural issues, aiming to stimulate the drivers of economic growth. It fuels growth by improving the quality and efficiency of the supply system chiefly through optimizing factor allocation and adjusting production structures.

The history of global economic development shows that whether a country emphasizes supply-side or demand-side policy depends on its prevailing macroeconomic conditions. Prioritizing one while neglecting the other is one-sided. These two types of policies are not mutually exclusive alternatives; they complement each other and must be advanced in a coordinated manner.

—Speech at a seminar for principal provincial- and ministerial-level officials on studying and implementing the guiding principles from the fifth plenary session of the 18th CPC Central Committee, January 18, 2016

President Xi Jinping talks with local people while visiting a food market in Shenyang, Liaoning Province, January 23, 2025. Xi visited local officials and residents during his trip to the province from January 22 to 24. PHOTO BY XINHUA REPORTER WANG YE

III

We must remain steadfast in implementing the strategy of expanding domestic demand. Building a complete domestic demand system is crucial for China’s long-term development and stability.

Since the launch of reform and opening up in 1978 and particularly following our accession to the World Trade Organization in 2001, China has integrated itself into the global economy. This process fostered a growth model where China became the “world’s factory,” while the two ends of the industrial chain—markets and resources (mineral resources, for example)—remained largely overseas. This model enabled China to seize the opportunities of economic globalization, rapidly increase its economic strength, and raise living standards of its people.

In recent years, however, economic globalization has encountered headwinds. The Covid-19 pandemic may further exacerbate the trend of deglobalization as many countries adopt more inward-looking policies. These shifts could lead to major changes in the external environment for China’s development. Consequently, implementing the strategy of expanding domestic demand is essential to cushion the pandemic’s impact, sustain long-term healthy economic development, and meet our people’s growing needs for a better life.

One advantage of a large economy is the robust internal circulation it can generate. With a population of 1.4 billion and per capita GDP above US$10,000, China possesses the world’s largest and most promising consumer market. The upgrading of household consumption, when integrated with modern technologies and production models, holds vast potential for growth. Taking expanding domestic demand as our strategic cornerstone, we must ensure that production, distribution, circulation, and consumption are increasingly driven by the domestic market, thereby creating a virtuous economic cycle. We must clearly establish supply-side structural reform as our strategic orientation and strive for a dynamic equilibrium between aggregate supply and aggregate demand at a higher level.

There is no contradiction between expanding domestic demand and opening up wider. Indeed, the smoother our domestic economic circulation, the more global resources and production factors will gravitate toward China, and the easier it will be for us to foster a new development dynamic that is focused on the domestic economy and features positive interplay between domestic and international economic flows. It will also be easier for us to forge new advantages in international competition and cooperation.

As a primary engine of China’s economic growth, consumption is underpinned by our middle-income group. Currently, China’s middle-income cohort numbers approximately 400 million people, making it the world’s largest in absolute terms. With the expansion of this group as a key policy objective, we must optimize the income distribution structure and improve the market-based mechanisms for evaluating and remunerating production factors such as knowledge, technology, management, and data. We should increase investment in human capital to ensure that more ordinary workers can, through their own efforts, join the ranks of middle-income earners.

—Speech at the seventh meeting of the Central Financial and Economic Affairs Commission, April 10, 2020

IV

This year, I have emphasized on multiple occasions the need to foster a new development dynamic that is focused on the domestic economy and features positive interplay between domestic and international economic flows. Formulated in response to the shifts in China’s development stage, environment, and conditions, this represents a strategic choice aimed at reshaping China’s new advantages in international cooperation and competition. 

In recent years, against the backdrop of an evolving external environment and changing domestic factor endowments, international economic flows driven by overseas markets and resources have significantly lost momentum. Meanwhile, as China’s domestic demand potential continues to be unlocked, its internal economic circulation is gathering even greater momentum. Objectively speaking, these two trends present a clear inverse correlation. This objective phenomenon has been widely discussed in academic circles and merits further in-depth research to yield new insights.

Since the 2008 global financial crisis, the Chinese economy has been transitioning toward a development pattern with the domestic economy as the mainstay. In fact, the current account surplus has fallen from 9.9% of GDP in 2007 to less than 1% at present, while in seven of the years since then, domestic demand contributed to over 100% of economic growth. In the coming period, the domestic market will play an increasingly prominent role in driving China’s economic development, with the potential of domestic demand being steadily unlocked. With supply-side structural reform as our strategic orientation and the expansion of domestic demand as our strategic cornerstone, we must ensure that production, distribution, circulation, and consumption are increasingly based on the domestic market and make our supply system better adapted to domestic demand. This will enable us to achieve a higher-level dynamic equilibrium in which demand both drives and is created by supply.

—Speech at a symposium attended by experts in economic and social fields, August 24, 2020

V

We must move faster to foster a complete domestic demand system, as it constitutes a crucial foundation for ensuring unimpeded economic circulation and reinforcing the domestic economy as our mainstay. Economic activity is a dynamic process of continuous cyclical flow. We must further reform and strengthen policy guidance to remove the key impediments to this circulation. Taking meeting domestic demand as our fundamental starting point, we must integrate efforts to implement the strategy of expanding domestic demand and continue supply-side structural reform. This will enhance the supply system’s adaptability to domestic demand, achieving a higher-level dynamic equilibrium in which demand drives and is in turn created by supply. Furthermore, we must redouble our efforts to build a modern logistics system featuring robust physical and institutional infrastructure, well-developed channels, and efficient platforms. This system will provide a solid foundation for both domestic and international economic flows. 

—Speech at the second plenary meeting of the fifth plenary session of the 19th CPC Central Committee, October 29, 2020

VI

We must continue to treat the expansion of domestic demand as a strategic cornerstone. A robust domestic market is a crucial pillar of the new development dynamic and gives China an important advantage as a large economy. When we emphasize expanding domestic demand, we do not just mean increasing government public expenditure, but also establishing effective institutions to properly guide consumption, savings, investment, and other activities. 

Ultimately, expanding consumption depends on boosting employment, improving social security, optimizing income distribution structures, and enlarging the middle-income group, thereby making solid progress toward common prosperity. Efforts to expand consumption should be integrated with initiatives to improve people’s quality of life, ensuring that we respond to the practical needs of different income groups and leverage high-quality supply to boost people’s capacity and willingness to consume. Administrative restrictions on consumer spending should be abolished in a well-ordered manner to unleash greater consumption potential. In line with the trend toward consumption structure upgrading, we must foster new consumption formats and models to cultivate new growth areas such as service consumption and encourage the repatriation of overseas consumption. Close attention should be paid to rural consumer demand, and the consumption potential of county and township residents must be fully harnessed. It is important to improve the vocational and technical education system to achieve fuller and higher-quality employment. Public spending should be appropriately increased, and expenditure efficiency in public services such as education, healthcare, eldercare, and childcare should be enhanced.

President Xi Jinping inspects the exhibition of Guangdong’s achievements in the integrated development of technological and industrial innovation in Guangzhou, Guangdong Province, November 8, 2025. Xi toured the province on November 7 and 8. PHOTO BY XINHUA REPORTER YAN YAN

We need to strengthen the momentum of investment so that it continues to play a pivotal role. To this end, investment systems should be improved to facilitate the conversion of savings into investments as appropriate. We need to harness the guiding and catalytic role of central government budget investment in areas with significant positive spillover effects and high social returns. The overall investment environment should be improved to help shape positive expectations and stimulate the investment vitality of the whole society. We should promote vigorous growth of the digital economy, increase investment in new types of infrastructure, and speed up the digitalization, smart upgrading, and green transformation of traditional industries. Efforts should also be made to develop the digital industry and transform traditional industries with digital technologies. We should promote advanced applicable technologies and increase investment in equipment upgrades and technological transformation in manufacturing. We should further advance new urbanization, implement urban renewal initiatives, and renovate old urban residential compounds. To upgrade infrastructure and enhance distribution, we should develop a modern logistics system and carry out a batch of major projects in areas such as integrated transportation, basic research, public health, ecological conservation, and rural development.

—Speech at the Central Economic Work Conference, December 16, 2020

VII

In today’s world, the market is the scarcest resource. Our country’s market therefore constitutes an enormous advantage—one we must fully leverage and continually strengthen to serve as a strong pillar of our new development dynamic. Expanding domestic demand is neither a stopgap policy for coping with financial risks or external shocks, nor a move in unleashing a deluge of strong stimulus policies, much less about simply increasing government investment. Rather, it is about establishing effective institutions, grounded in the realities of China’s economic development, to boost domestic demand. This entails unlocking the potential of our demand, accelerating the development of a complete domestic demand system, enhancing demand-side management, and expanding consumer spending while upgrading the quality of consumption. Only through such an approach can we ensure the sustainable development of our vast domestic market over the long term. 

—Speech at a seminar for principal provincial- and ministerial-level officials on studying and implementing the guiding principles from the fifth plenary session of the 19th CPC Central Committee, January 11, 2021

VIII

Pursuing high-quality development as our overarching task, we will make sure that our implementation of the strategy to expand domestic demand is integrated with our efforts to further supply-side structural reform; we will boost the dynamism and reliability of the domestic economy while engaging at a higher level in the global economy; and we will move faster to build a modernized economy. We will raise total factor productivity, make China’s industrial and supply chains more resilient and secure, and promote integrated urban-rural development and coordinated regional development, so as to effectively upgrade and appropriately expand China’s economic output.

—Report to the 20th National Congress of the Communist Party of China, October 16, 2022

IX

Insufficient aggregate demand is a salient challenge to our current economic performance. Therefore, we must vigorously implement a strategy of expanding domestic demand and adopt more effective measures to ensure a virtuous cycle in social reproduction. In the past, by expanding domestic demand, China effectively countered the Asian financial crisis of 1998, the global financial crisis of 2008, and the impact of Covid-19 since 2020, thereby accumulating valuable experience in this regard. We must now refine our policy initiatives to fully leverage the fundamental role of consumption and the pivotal role of investment.

First, we should prioritize the recovery and expansion of consumption. As China makes steady progress in pursuing new industrialization, IT application, urbanization, and agricultural modernization, consumption is becoming an increasingly fundamental driver of economic growth. To fully unleash consumption potential, we need to enhance people’s spending power, improve consumption conditions, and create new consumption scenarios. As consumption depends on income, we must raise the incomes of urban and rural residents through multiple channels. Particular emphasis must be placed on increasing the spending power of low- and middle-income groups, which exhibit a high propensity to consume but were severely affected by the pandemic. Consumer credit should be appropriately expanded to support spending on housing upgrades, new-energy vehicles, eldercare, and services related to education, healthcare, culture, and sports.

Second, we should stimulate investment across society through government investment and policy incentives. Given the current weakness in private investment expectations, we must fully harness the guiding role of government investment, which serves as a powerful tool for responding to cyclical economic fluctuations. The government should increase investment in projects that lay strong foundations, deliver long-term benefits, shore up weak areas, and facilitate economic restructuring. To this end, we must expedite the implementation of major projects outlined in the 14th Five-Year Plan (2021-2025), strengthen infrastructure development in areas such as transportation, energy, water conservancy, agriculture, and information, and boost infrastructure connectivity between regions. We should support city clusters and metropolitan areas in developing modern infrastructure systems and implement initiatives for urban renewal and rural development. Investment in science, technology, and industry should be intensified, with a forward-looking approach to developing major scientific and technological infrastructure and building R&D capacity for core technologies in key fields. We must ensure that policy-backed finance plays an effective role in counter-cyclical regulation by increasing financial support for major projects that align with national development plans and industrial policy guidance, emphasizing both economic and social returns. Market access for private investment should be expanded to encourage and attract more private capital into major national projects and those designed to address weaknesses. Furthermore, project pipeline and preparatory work must be improved, and safeguards for factors of production strengthened.

—Speech at the Central Economic Work Conference, December 15, 2022

X

We should adopt a more coordinated approach to expanding domestic demand and furthering supply-side structural reform in order to foster a more reliable and dynamic flow in the domestic economy. Creating a new pattern of development relies on unimpeded economic circulation, which itself requires that both supply and demand possess strong internal momentum, remain broadly matched in aggregate, and mutually reinforce one another in a state of dynamic equilibrium. To achieve this, we should integrate the strategy of expanding domestic demand with furthering supply-side structural reform. This will facilitate a coordinated push from both the demand side and the supply side, achieving a higher-level dynamic equilibrium in which each reinforces the other, thus ensuring a virtuous economic circle. 

We must resolutely carry out the outline of the plan for implementing the strategy of expanding domestic demand and move faster to create a complete domestic demand system. Priority should be given to the cultivation of more robust consumer demand underpinned by rising incomes, stronger investment demand based on reasonable returns, and broader financial demand that operates within the bounds of principal and debt sustainability. It is necessary to establish and refine long-term mechanisms for increasing household consumption, ensuring that people have the stable income necessary to spend, the social safety nets that allow them to spend with confidence, and a favorable consumption environment that enhances their satisfaction and willingness to consume. Mechanisms for expanding investment should be refined to unlock greater scope for productive investment. We should pursue appropriately forward-looking development of new types of infrastructure, scale up investment in high-tech and strategic emerging industries, and continue to stimulate the vitality of private investment. 

We must continue supply-side structural reform and advance scientific, technological, and institutional innovation steadily. This will allow us to remove the bottlenecks, obstacles, and weak links constraining supply, thereby bolstering the competitiveness and security of our industrial and supply chains, and thus enable us not only to adapt to and satisfy existing demand but also to create and guide new demand through secure, self-reliant, and high-quality supply. 

Many risks in the economic and financial sectors stem from a significant mismatch between supply and demand and impaired economic circulation. Therefore, coordinating our efforts to expand domestic demand and deepen supply-side structural reform will also serve to guard against and defuse risks in these areas.

—Speech at the second group study session of the Political Bureau of the 20th CPC Central Committee, January 31, 2023

XI

We must effectively manage the relationship between aggregate supply and aggregate demand to ensure unimpeded flows in the national economy. Coordinated efforts on both the supply and demand sides are essential to achieve a dynamic equilibrium between the two. We should continue supply-side structural reform, advancing and supporting key sectors while withdrawing and scaling back others to enhance the adaptability and equilibrium between supply and demand. 

Expanding domestic demand is vital for both economic stability and security. This is not a stopgap measure, but a strategic initiative. We must act with great urgency to address inadequate domestic demand, particularly in consumption, and work to establish domestic demand as the primary engine and anchor of economic growth.

—Speech at the Central Economic Work Conference, December 11, 2024

XII

This document, the Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development, underscores the imperative to strengthen the domestic economy and provides a framework for building a robust domestic market and a high-standard socialist market economy. It stresses the need to take expanding domestic demand as a strategic cornerstone, improve living standards while stimulating consumer spending, integrate investment in physical assets with that in human capital, boost consumption, expand productive investment, and remove bottlenecks and obstacles that hinder the development of a unified national market. The document further emphasizes the necessity to energize all market entities, accelerate improvements to institutions and mechanisms for market-based allocation of production factors, and strengthen macroeconomic governance. It also calls for efforts to facilitate broader international economic flows, expand institutional opening up, safeguard the multilateral trading system, and advance high-quality Belt and Road cooperation.

—Explanation of the Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan for National Economic and Social Development, October 20, 2025

The above are excerpts from statements made by General Secretary Xi Jinping regarding the strategic imperative of expanding domestic demand between October 2015 and October 2025

(Originally appeared in Qiushi Journal, Chinese edition, No. 24, 2025)