Exclusive Interview | Why Invest in Human Capital?

Editor’s Note: The idea of investing in human capital is integral to the people-centered philosophy of development. Human capital investment has become imperative after China’s economic and social development has reached a certain stage, and represents a proactive strategic choice the country has made in its long-term planning. At its fourth plenary session, the 20th Central Committee of the Communist Party of China (CPC) made an important decision “to work toward improving living standards while increasing consumer spending and combining investment in physical assets with investment in human capital.” In an interview with Qiushi, Yu Chunhai, executive dean of the School of Economics, Renmin University of China, shared his views on how to better understand and promote investment in human capital.

Reporter: The CPC Central Committee’s Recommendations for formulating the 15th Five-Year Plan (2026-2030) reads, “We should work toward improving living standards while increasing consumer spending and combine investment in physical assets with investment in human capital.” What does investment in human capital mean in your opinion? And what is its relationship with investment in physical assets?

Yu Chunhai: Investing in human capital means directing more fiscal funds and public resources toward education, employment, healthcare, social security, and other areas important to the people’s livelihood, to help citizens build up capabilities, improve health outcomes, advance career development, and unlock their potential. Such investment can unleash consumption potential and upgrade human capital, consequently propelling high-quality economic development. In contrast with investing in physical assets, investing in human capital reflects a holistic view of investment that encompasses both material and human dimensions. Fundamentally, it is not merely a specific investment field or priority, but represents a new development orientation, and recalibration of past modes of investment, production capacity expansion, and development in general.

Typically, economic growth focuses on the pace of production capacity expansion and related quantitative indicators. Investment in physical assets can deliver quicker results and is easier to be evaluated in cost-benefit terms; it is therefore often the preferred strategy for driving economic development. The formation of physical assets, the expansion of production scale, and the increase in infrastructure directly stimulate economic growth, which naturally leads to higher employment, income, and consumption as well as better public welfare.

However, excessive emphasis on investment in physical assets and expansion of production capacity may lead to structural imbalances between domestic supply and demand. As China moves to a new development stage with different development conditions, returns on investment in physical assets have declined remarkably. From 2008 to 2023, China’s incremental capital output ratio (ICOR) rose from 2.84 to 9.44, indicating significantly more capital is now required to generate one additional yuan of GDP.

What’s more, the expansion of production capacity driven by investment in physical assets may also deviate from the shifting pattern of consumer demand, leading to overcapacity in some areas and imbalanced, insufficient development. As personal income continues to rise and the middle-income group keeps expanding, the demand for better welfare and a happier life grows stronger among Chinese people. Yet their pursuit is hindered by structural mismatch in domestic demand and supply.

Furthermore, the Chinese people’s aspiration for a better life is not a one-dimensional goal limited only to more diversified and higher-quality forms of consumption; rather, it also encompasses multidimensional objectives integral to the well-rounded development of individuals and comprehensive advancement of society. The CPC Central Committee’s Recommendations for formulating the 15th Five-Year Plan emphasizes “meeting the people’s growing needs for a better life as our fundamental goal.” Investment in human capital translates this guiding principle into practice.

Whether it is for meeting the people’s aspiration for a better life or achieving well-rounded development of individuals and the comprehensive advancement of society, all of these depend on investment in physical assets across various sectors of the economy and society. Investing in human capital does not mean spurning investment in physical assets. Instead, we should pursue close integration and positive interaction between the two.

Investment in and accumulation of physical assets should ultimately serve human development. In this sense, investing in human capital sets a new goal and direction for investing in physical assets, guiding the adjustment of investment priorities and the optimization of investment structure. Their combination will lead to refinement of China’s investment philosophy, orientation, and priorities.

Children play in the playground at Hengxing Childcare Center at Hengxing University in Qingdao, Shandong Province, November 4, 2025. In recent years, China has continued to increase investment in improving public wellbeing. XINHUA / PHOTO BY ZHANG YING

Reporter: From President Xi Jinping’s instruction on investing in human capital in 2023 to planning for this issue in the CPC Central Committee’s Recommendations for formulating the 15th Five-Year Plan in 2025, what is the rationale behind this commitment? And what impact will it have on China’s efforts to advance supply-side structural reform and promote well-rounded development of individuals and comprehensive advancement of society?

Yu Chunhai: After China’s economic and social development has reached a certain stage, it becomes imperative to stress the importance of investment in human capital and make arrangements for combining it with investment in physical assets. The purpose is to clarify the direction of investment and establish new regulatory mechanisms for the 15th Five-Year Plan period, hence adjusting investment priorities and optimizing investment structure.

When looking at the composition of domestic demand in recent years, we find that private consumption and gross capital formation have accounted for around 39% and 41% of Chinese GDP respectively. This indicates that the investment rate is higher than the consumption rate. Globally, the share of private consumption of world GDP is approximately 57%, and that of capital formation is roughly 27%. Thus, by comparison, the main problems affecting China’s domestic demand stem firstly, from insufficient private consumption; and secondly, inadequate positive interaction between consumption and investment.

Since consumption and the interaction between consumption and investment are the source of problems affecting domestic demand, expanding domestic demand requires looking beyond demand itself. Different investment directions and structures result in different supply structures. In order to leverage the critical role of investment in optimizing the supply structure, we must refine the direction and structure of investment while advancing supply-side structural reform. The goal is to increase investment quality and efficiency while also adapting domestic supply structure to changes in how, what, and why people purchase.

People are consumers, producers, and innovators, making them the most dynamic, proactive, and robust factor in productive forces. To invest in human capital is to focus precisely on this key factor, and therefore direct investment toward the multidimensional needs, creative capabilities, and high-quality growth of people. This aims to establish a relationship of positive interaction and mutual reinforcement between livelihood improvement and high-quality development, and between short-term macroeconomic balance and long-term sustainable growth. Such investment will help build a robust domestic consumer market and boost the dynamism and reliability of the domestic economy. It can also maximize the strengths of China’s human resources, increase the vitality of innovation and creativity, and accelerate the development of new quality productive forces, thereby consolidating the foundation for high-quality development.

In addition to consumption, production, and innovation, people of course have broader and higher-level aspirations: those being the well-rounded development of the self and comprehensive progress of the society in which they live. Policies on investment in human capital therefore need to transcend short-term thinking and narrow economic considerations. They must address higher-level human needs, including those for development, and cultural and moral progress. Investment in people leads to improvements in human capabilities and increases in the value of human capital. These are not only a vital source of increased social wealth and socio-economic progress but also an essential component of the well-rounded development of individuals and comprehensive advancement of society.

Reporter: We often discuss investment in human capital in relation to the people’s livelihood, but it is actually an issue of a much broader scope. Could you elaborate on which areas this investment should prioritize?

Yu Chunhai: Chinese modernization places top priority on the people’s wellbeing. Understandably, investment in human capital is related to consumption and sectors that have a direct bearing on public welfare. Today, private consumption is not merely for basic subsistence; it also includes spending on personal development and entertainment, with more and more people willing to spend money on health, leisure, and educational and training services. We should guide investment toward human needs, and therefore direct its focus to areas such as housing, healthcare, culture, tourism, and insurance. From this we can increase the supply of high-quality consumer goods and services and create new areas for consumption.

Furthermore, investment in human capital aims to improve the knowledge, skills, health, and social adaptability levels of citizens, thereby increasing the overall quality of human capital and professional expertise across society. Through this process, human resources are transformed into sustainable human capital growth, and the demographic dividend is turned into talent dividend.

Currently, high-skilled workers account for only 7% of China’s employed population, and the job vacancy-to-applicant ratio for skilled workers has remained above 2:1 for a long time. This calls for increased emphasis on the development of human resources and investment in well-rounded personal development, spanning education, training, employment, talent selection, and other related areas.

On another note, humanity and nature make up a community of life. A thriving ecological environment serves everyone’s wellbeing. It is therefore essential to invest in the public’s living conditions to cultivate a healthier ecological environment, safeguard their physical and mental health, and ensure the quality of their life.

Moreover, the people have both material and moral-cultural needs. The expansion from material to moral-cultural needs becomes inevitable as society progresses. The state therefore needs to build up its capacity for providing cultural services and products to meet the people’s diverse, multi-tiered, and multifaceted moral-cultural needs.

Investment in human capital should not be limited to the fields of public wellbeing, human resources, ecological environment, and ethics and culture. Over the long run, the basis of a continuous improvement in public wellbeing is high-quality development. To realize high-quality socioeconomic development and a steady improvement in public wellbeing, China needs to lay the following material and technological foundations: a modernized industrial system that is underpinned by the real economy, centered on advanced manufacturing, and supported by modern services; and greater scientific and technological self-reliance and strength supported by original innovation, breakthroughs in core technologies in key fields, full integration between technological and industrial innovation, integrated development of education, science and technology, and human resources, as well as the Digital China Initiative. These areas all represent priorities for investment in human capital.

The Third Vocational Skills Competition was held in Zhengzhou, Henan Province from September 19 to 23, 2025. Investment in human resources development and well-rounded personal development is an important part of efforts to invest in human capital. PHOTO BY XINHUA REPORTER LI JIANAN

Reporter: Investment in human capital is a kind of investment. How should we then measure its returns?

Yu Chunhai: It is easier to quantify investment in physical assets and the subsequent productive returns, and there are established metrics to measure them. However, to assess the effectiveness of investment in human capital, we should in most instances look beyond a simple cost-profit analysis based on market rationality. Whether for economic growth, public wellbeing, or social benefits, the goals are both quantitative and qualitative—demanding not only an increase in scale but also an enhancement in quality. However, it is difficult to quantify the costs and benefits of achieving many goals, such as coordinated regional development, common prosperity for all, well-rounded personal development, and comprehensive social progress.

In general, investment in human capital is measurable from certain perspectives and for specific targets. However, assessing its overall returns cannot be one-dimensional, instead requiring the introduction of a composite evaluation framework, similar to that adopted by current research on high-quality development. Across academic activities, industry practice, and policy research, efforts are underway to construct indices for such a framework.

Investing in human capital requires a long-term perspective. To evaluate the returns on such investment, we should again move beyond narrow economic thinking or market rationality, and instead adopt a problem- and goal-oriented approach to gauge its effectiveness, shifting the focus to well-rounded personal development—the fundamental objective of such investment. The government should establish robust long-term mechanisms for investing in human capital and take exploratory steps to formulate overall government investment plans. Meanwhile, the management of government investments should be improved over the entire process, evaluation of government performance should be strengthened, stronger incentive mechanisms should be introduced, and investment in human capital should be incorporated into statistical and accounting systems.

Reporter: Many countries around the world prioritize investment in public wellbeing. In comparison, what are the characteristics of China’s approach to investing in human capital? What are its strengths?

Yu Chunhai: Looking around the world, we can see that many countries, especially welfare states, place emphasis on investment in public wellbeing. Compared with them, China doesn’t limit its investment to the sectors that directly affect livelihood, and moves beyond a simplistic, welfare-centric mindset. When investing in human capital, China not only addresses issues in areas such as population, employment, income distribution, education, healthcare, and social security, but also focuses on enhancing the capabilities of its citizens, unlocking their potential, and strengthening the material and technological foundations for bolstering, ensuring, and improving public wellbeing.

In summary, China’s approach to investing in human capital represents a new development philosophy. It places people at the center when coordinating consumption with investment, aligning supply with demand, and propelling high-quality development. It can drive sustained, sound economic development, and comprehensive social progress.

From a long-term perspective, China’s investment in human capital is for the ultimate goal of economic and social development—well-rounded development of the individual. This reflects the principal position of the people and strengthens respect for them, marking the fundamental distinction between China’s approach and that of many other countries. For example, the accumulation of human capital is an important means of increasing productivity and economic growth rate. However, if this becomes our sole purpose, human development will be reduced to no more than an instrument for propelling economic and social progress, thereby depreciating human worth and impairing human agency. During its modernization drive, China has heightened the focus on investing in human capital. While working for the material and cultural prosperity for all citizens, it is also committed to improving their capabilities, providing them with equal opportunities for development, and expanding the scope for their well-rounded development. The latter is a goal in itself.

Compared with many countries around the world, China possesses distinct advantages when it comes to investing in human capital, notably in terms of institutions, markets, industries, talent, and more. The most significant of them comes from the system of socialism with Chinese characteristics. We have firmly adhered to the principle of putting the people first, the goal- and problem-oriented approach, and systems thinking. We have systematically devised policies through medium- and long-term planning, made coordinated arrangements for relevant work, and guided governments at all levels and various departments to perform their respective duties, coordinate with each other, and integrate their operations. In doing so, we have ensured the continuity of economic and social governance and policies. All of this aligns with the systems thinking and long-term perspective required for investment in human capital.

Improvements in quality of life and moral-cultural standards are closely interrelated and mutually reinforcing with the development of productive forces. It is therefore essential to combine investment in physical assets with investment in human capital. To do this, Chinese socialism provides the optimal institutional pathway.

We promote the integrated development of education, science and technology, and human resources, pursue material, cultural, and ethical advancement, and help our people to enhance their cognitive, practical, and innovative capabilities. We highlight the principal position of the people in Chinese modernization, allowing each and every citizen to realize both their personal and social value through free, well-rounded development, innovations, and creations.

Reporter: How to understand the profound, far-reaching significance of investing in human capital for the 15th Five-Year Plan period? And how can we make such investment more effective?

Yu Chunhai: We should try to understand investment in human capital in the context of China’s entire modernization drive, which is itself a process of gradual and ongoing development. The 15th Five-Year Plan period is a critical stage in building on past successes to break new ground for this drive. Tasks for this phase should address current issues while also serving long-term objectives.

Modernization is essentially the modernization of people. Chinese modernization aims to address the alienation and one-sided development of people, which has emerged during Western modernization driven by capitalism. This requires restoring the human element as the core driver of development. While continuously increasing productivity and material wealth, it is also essential to advance the well-rounded development of people through the cultivation of sound values and calibration of development priorities.

Investing in human capital represents a people-centered, long-term developmental orientation. It leads to adjustments in investment behaviors and an optimization of investment structures toward more fundamental goals, such as meeting the people’s growing needs for a better life and achieving well-rounded personal development and comprehensive social progress. After a thorough study of the full text of the CPC Central Committee’s Recommendations for formulating the 15th Five-Year Plan, I have gained a deep understanding of the importance of investing in human capital for China’s overall economic and social development in the coming years.

When increasing the investment in human capital, we should focus on human needs and development, and give priority to areas such as income distribution, basic public services, new urbanization, childbirth and parenting, education, healthcare, vocational training, inclusive eldercare, culture, sports, and well-rounded personal development. In this process, we should follow the principle of doing everything within our means at the current stage and level of China’s development. At the same time, investment must be increased to build a modernized industrial system and boost self-reliance and strength in science and technology, thereby laying a solid foundation for well-rounded personal development and comprehensive social progress. Emphasis should also be placed on fostering both an efficient market and a well-functioning government, ensuring that the market plays the decisive role in resource allocation and that the government better fulfills its role. Efforts should be made to mobilize the enthusiasm, initiative, and creativity of all sectors of society to invest in human capital.

Investing in human capital is a profound philosophy and important decision that requires concrete action. Only through sustained, long-term endeavors can we ensure that the gains of development benefit all our people fairly, realizing well-rounded personal development and comprehensive social progress.

Reporter: Thank you for this interview.

(Originally appeared in Qiushi Journal, Chinese edition, No. 23, 2025)