Exclusive Interview | Understanding and Tapping China’s Economic Potential

Editor’s Note: China is a major developing country with tremendous economic potential. The Central Economic Work Conference held at the end of 2025 put forth the “five essentials,” encapsulating the understanding of the laws governing economic work under the new circumstances, the foremost of which states “It is essential to fully tap our economic potential.” This represents a practical necessity for continuously consolidating and expanding the current momentum for steady economic growth, as well as a strategic choice based on a profound understanding of the long-term trends in China’s economic development. In regard to how best to understand and tap the economic potential of a major country, Qiushi reporter Hou Yajing conducted an exclusive interview with Tu Shengwei, a researcher at the Institute of Industrial and Technological Economics under the National Development and Reform Commission (NDRC), and Liu Xiaoguang, a professor at Renmin University of China.

Reporter: How should we understand a country’s economic potential? Furthermore, in order to effectively carry out our current economic agenda, what are the strategic considerations behind the CPC Central Committee’s call to tap this economic potential?

Tu Shengwei: Among the “five essentials,” tapping economic potential is placed at the forefront. This objective is not only theoretically supported by Marxist political economy, but also deeply rooted in the practice of China’s economic development. In essence, a country’s economic potential represents the untapped momentum of its productive forces. It encompasses under-utilized elements of production, such as laborers and means of labor, as well as the institutional and structural constraints that hinder the development of productive forces.

Generally speaking, supply capacity, the scale of demand, and the institutional environment are the three core elements that determine a country’s economic potential. These three interconnected factors work together to shape the long-term growth trajectory of any given economy. Of these factors, supply capacity in particular serves as a material and technological foundation. The more complete a country’s industrial system and the stronger its capacity for technological innovation, the more efficiently it can translate resources into output. The scale of demand plays a crucial role in translating supply capacity into actual growth, determining the extent to which economic potential is tapped. The institutional environment, meanwhile, provides safeguards for the allocation of resources and economic activities, determining how efficiently and sustainably this potential is unleashed.

Economic potential varies from country to country, and even for the same country, it may evolve across different stages of development. Furthermore, economic potential does not automatically turn into development momentum. For a major developing country to achieve long-term, steady growth, it must effectively manage the pace at which its economic potential is unlocked. It must steadily turn this potential into development momentum, continuously foster new development advantages, and keep the development initiative firmly in its own hands.

Liu Xiaoguang: Economic potential is the source of sustained momentum for growth and underpins a country’s confidence in its development. The process of tapping China’s economic potential is also a process of creating additional models of economic development driven by domestic demand and consumption and sustained by self-generating momentum. The objective of tapping the economic potential, as proposed at the Central Economic Work Conference, not only reflects a profound insight into and a precise understanding of the laws governing economic operations, but also aligns precisely with the strategic requirements and characteristics of China’s current stage of economic development.

In terms of development stage, China’s economy has entered a stage of high-quality development, where the traditional model heavily reliant on cheap labor and material resource inputs has fundamentally changed. Consequently, the drivers of development must likewise shift from scale expansion to improved efficiency. In this context, as traditional drivers of growth weaken and the cultivation of new drivers urgently needs to gather pace, fully tapping economic potential is essential for overcoming development bottlenecks and securing the strategic initiative.

In regard to the current development environment China faces, the external conditions have become increasingly complex and severe. Global economic growth lacks sufficient momentum, and rivalry between major countries has become more intricate and intense. Domestically, the imbalance between strong supply and weak demand remains acute, while multiple risks and hidden dangers still exist in key areas. To navigate these pressures, advance development while maintaining stability, and improve quality and efficiency, China must make vigorous efforts to tap its potential, foster new drivers of growth, and strengthen the momentum of steady and sustainable economic growth.

Tourists enjoy themselves at Harbin Ice-Snow World, Heilongjiang Province, January 2, 2026. In recent years, winter sports have not only enriched people’s lives, but also stimulated consumption as new drivers of growth. PEOPLE’S DAILY / PHOTO BY YANG TIEYAN

In regard to our development goals, an important benchmark for basically realizing socialist modernization by 2035 is that China’s per capita GDP will be on a par with that of a mid-level developed country by that time. Achieving this requires our economy to maintain an appropriate growth rate throughout the 15th Five-Year Plan period from 2026 to 2030. Based on these established objectives and factoring in demographic changes and other variables, the average annual growth rate of our economy must be maintained at a minimum of 4.17% during the 15th and 16th Five-Year Plan periods. Over the next decade, to ensure that economic growth remains within an appropriate range, we must move faster to remove institutional barriers that hinder the unleashing of China’s economic potential and steadily improve total factor productivity.

Reporter: China has held its position as the world’s second-largest economy for many years. Given the characteristics that make China a major country, what are the main areas of economic potential in the years ahead? 

Liu Xiaoguang: The hallmarks of a major economy are that it is driven by domestic demand, capable of internal economic flows, and able to remain independent and self-reliant. Theoretically speaking, a robust domestic market can reduce innovation costs and extend the life cycles of industries through economies of scale, while a complete industrial system provides reliable safeguards for ensuring that industrial chains are independent and controllable. To fully tap China’s economic potential, we must first objectively recognize the practical conditions of its economic development and the inherent advantages it enjoys. China boasts a population of over 1.4 billion and the world’s largest middle-income group, presenting a clear trend of consumption upgrading. It possesses the world’s largest, most comprehensive, and highly integrated industrial system, encompassing 41 categories, 207 subcategories, and 666 detailed classifications, with the overall scale of its manufacturing sector ranking first globally for 15 consecutive years. Furthermore, the value of China’s talent pool shows accelerating potential, with the portion of its population that has received higher education reaching 250 million, while its total number of skilled workers exceeds 220 million. China’s economy features a solid foundation, a great number of advantages, strong resilience, and vast potential. The conditions for and underlying trend of long-term growth remain unchanged, which constitutes the bedrock of our confidence in overcoming risks and challenges and tapping into China’s economic potential.

Tu Shengwei: China’s characteristics as a major country are prominent, and its economic potential is vast; yet, much of this potential remains to be fully unleashed. First, its enormous market continues to expand and upgrade. China enjoys the demand-side advantages of an enormous market. As China is working to achieve modernization for its more than 1.4 billion people, the growth potential of its market is boundless. There remains significant room for expansion in terms of consumption, particularly in the consumption of services. Looking ahead, the integration of investment in both physical assets and human capital will allow us to further unlock tremendous investment potential. Second, there is immense room for industrial upgrading. At present, the value added of traditional industries accounts for about 80% of the entire manufacturing sector. Preliminary estimates suggest that by upgrading these traditional industries, the market is expected to expand by approximately 10 trillion yuan during the coming five years. Furthermore, emerging industries and the industries of the future are characterized by rapid technological innovation, vast market potential, and the vigorous growth of new drivers, which will give rise to several new markets on a trillion-yuan scale or even larger in the coming years. Third, integrated urban-rural development and coordinated regional development hold tremendous potential. China’s urban and rural regions cover a vast expanse, exhibiting both prominent developmental disparities and huge room for growth. Moving faster to shore up critical weak links in agriculture and rural areas will not only provide immense room for investment but also unleash massive potential for consumption in these areas. Simultaneously, China’s urbanization process is ongoing, and its urbanization rate will continue to rise. Estimates suggest that each one-percentage-point increase in China’s urbanization rate can generate over 200 billion yuan in additional annual consumption demand and spur new investment demand on a trillion-yuan scale, which demonstrates how significant the driving effect of urbanization is.

Reporter: Internationally, momentous changes of a magnitude not seen in a century are unfolding across the world at an increasingly faster pace. A profound shift is taking place in the international balance of power, and breakthroughs are accelerating in the new round of technological revolution and industrial transformation. Among these changes, China enjoys highly prominent competitive advantages as a major economy at the current stage. During the 15th Five-Year Plan period, China faces tremendous development opportunities as it seeks to take the initiative to make proactive moves in the international arena and shape a favorable external environment. How can fully unlocking its economic potential enable China to better seize global opportunities?

Tu Shengwei: Recently, several international institutions have spoken highly of China’s economic development in 2026, expressing widespread optimism regarding the resilience and development prospects of China’s economy.

The 15th Five-Year Plan period is crucial as we work to reinforce the foundations and push ahead on all fronts toward basically realizing socialist modernization by 2035. Fully tapping China’s economic potential is of great significance for ensuring a good start to the 15th Five-Year Plan. China’s economy has become deeply integrated into the global economic system, making it difficult to continue to participate in the international economy for an extended period through the model of relying on both markets and resources abroad. Fully tapping China’s economic potential provides the foundation for seizing global opportunities, which in turn creates new international space that benefits our newly unleashed domestic economic potential. The two are mutually reinforcing and advance in tandem. On the one hand, the more fully the economic potential is unlocked, the stronger China’s capacity will be to attract global resources and production factors. This will enable us to foster new advantages in international competition and cooperation, bringing greater stability and certainty into the global economy. On the other hand, by attracting high-quality production factors and promoting high-level global engagement, we can better utilize both domestic and international markets and resources, which allows us to effectively unleash China’s economic potential amid the mutually reinforcing domestic and international economic flows.

Cars approach the entrance of the Tianshan Shengli Tunnel on the first day of full operation of the G0711 Urumqi-Yuli Expressway, December 26, 2025. The tunnel, the world’s longest of its kind, officially opened to traffic that day. PHOTO BY XINHUA REPORTER WANG FEI

During the 15th Five-Year Plan period, there remains considerable room for expansion in how China handles the relationship between tapping its economic potential and seizing global opportunities. For instance, by fully tapping the potential of domestic demand, we will open the service sector wider in an orderly manner. Focusing on areas where market demand is strong but effective supply is insufficient, we will expand opening up step by step according to the needs of varying categories and regions, thereby better meeting the needs of Chinese citizens for consumption upgrading. By fully tapping into our industrial potential, we will strengthen international cooperation in industrial and supply chains across areas such as smart manufacturing, the digital economy, and green and low-carbon development and integrate more deeply into the global system of industrial and supply chains, continuing to provide the world with high-quality Chinese manufacturing and stable supply. By fully tapping our scientific and technological potential, we will further enhance scientific and technological innovation in China’s industries. To do so, we will encourage and guide greater foreign investment into scientific and technological innovation and support foreign-invested enterprises and their R&D centers in undertaking major scientific research projects and in carrying out joint technological R&D and industrial applications with domestic enterprises. As long as we fully leverage our own advantages, thoroughly and exhaustively unlock our internal potential, and solidify the foundation for development, we will be well positioned to seize and make the most of global opportunities. In turn, this will enable China to make proactive moves in the international arena, shape a more favorable external environment, and secure greater strategic initiative as we continue to open up and pursue development.

Reporter: As the above analysis indicates, the economic potential available to China is indeed immense. With that being said, the ultimate purpose of further tapping this economic potential is to turn it into actual development momentum. In light of China’s current economic landscape, could you please discuss the possibility and practical prospects of transforming economic potential into development drivers?

Tu Shengwei: We must recognize that the transformation of economic potential into development drivers is conditional. To turn this possibility into actual economic growth, it is necessary that we fully comprehend the conditions required for this transformation in practice and act in line with the laws governing economic development. Viewed from both the current features of economic operations and the medium- and long-term trends of economic development, the transformation of China’s immense economic potential into actual development drivers primarily rests on three key supporting conditions.

The first is a robust scientific and technical foundation. Looking back at the history of human society, every leap in productive forces has been driven by scientific and technological revolutions. Currently, as a new round of scientific and technological revolution and industrial transformation gathers pace, disruptive technologies such as artificial intelligence (AI) are profoundly reshaping production practices and lifestyles. Technological advancement not only promotes the expansion and upgrading of domestic demand and fosters a dynamic balance between supply and demand, but also serves as a crucial force enhancing production efficiency and economic potential transformation.

The second is solid guarantees in terms of production factors. Essentially, high-quality economic development involves the efficient accumulation and optimal allocation of high-quality production factors. China holds a competitive edge with its abundant talent resources, massive capital stock built over decades of development, and vast data resources and application scenarios. The continuous accumulation and growth of these high-quality factors have created favorable conditions for the transformation of China’s economic potential into actual growth momentum.

The third is solid institutional guarantees. Institutions are of decisive and far-reaching significance, serving as a stabilizing force that sustains economic growth over the long run. Ultimately, sustained economic growth and high-quality development depend on the continuous improvement and enhanced efficacy of our institutional and governance systems. The great strength of China’s socialist system is its capacity to coordinate aggregate supply and demand and balance the need to stabilize short-term growth with boosting medium- and long-term momentum. This provides a fundamental guarantee for the transformation of our country’s economic potential.

Reporter: At present, insufficient domestic demand is a major factor that constrains China’s economic potential. In your opinion, what are the practical challenges China faces and the focuses of its efforts to fully tap its economic potential?

Liu Xiaoguang: The fourth plenary session of the 20th CPC Central Committee listed insufficient effective demand as one of the major risks and challenges we face, and the Central Economic Work Conference explicitly stated that the imbalance between strong supply and weak demand is acute. At present, insufficient domestic demand has become a prominent bottleneck affecting the flows of the national economy. It not only affects the steady operation of the economy but also constrains China’s economic potential. On the consumption side, this is notably reflected in sustained pressure on households’ propensity to consume, their tendency toward precautionary savings, and the existing restrictive measures in certain consumption areas. In 2024, China’s household consumption rate stood at 39.9%, which lags behind that of developed countries by about 10 to 30 percentage points, with the proportion of service consumption being particularly low. In the investment sector, this manifests as a structural slowdown in investment. The growth rate of real estate investment has declined, with the adjustment in the real estate market impacting domestic demand. Furthermore, a lack of confidence among private investors stands as a salient issue, with some private enterprises facing the predicament of lacking confidence, willingness, or capability to invest.

Tu Shengwei: Laws of economics indicate that the dynamic balance between aggregate supply and demand is a prerequisite for the sound operation of the socialist market economy and a fundamental goal of macroeconomic governance. The key to fully tapping China’s economic potential and addressing the current imbalance between strong supply and weak demand lies in first understanding the laws governing economic operations and the current problem of insufficient domestic demand. Systems thinking and coordination of the expansion of domestic demand with the furthering of supply-side structural reform are essential to ultimately achieving a higher-level dynamic balance of aggregates, wherein demand drives supply and supply creates demand. To this end, on the one hand, we need to focus on the demand side, adhering to expanding domestic, demand as our strategic foundation. We should strive to boost consumption supported by income growth, promote investment with reasonable returns, and expand financial demand constrained by debt burdens, thereby establishing a more robust domestic demand system as quickly as possible. On the other hand, we need to focus on the supply side. By deepening supply-side structural reform, we need to address structural mismatches between supply and demand in certain areas and improve the quality and efficiency of the supply system, so as to adapt to and meet existing demand and generate and steer new demand through high-quality, more self-supporting, and resilient supply. 

In short, we must make concerted and coordinated efforts on both the supply and demand sides to promote a virtuous cycle in the national economy and effectively address the prominent issues in current economic operations. Only in this way can we create favorable conditions for continuously tapping and unleashing China’s economic potential.

Reporter: Innovation is the primary engine of development, and scientific and technological innovation is a key force in tapping the economic potential. What are the current weak links in China’s efforts to advance scientific and technological innovation? How can technological innovation be more effectively leveraged to unleash economic potential?

Liu Xiaoguang: Technological innovation has become a strategic arena of rivalry among major countries today. Currently, China’s technological innovation capacity continues to make great leaps forward, with its R&D investment and the size of its research workforce ranking among the highest in the world. However, some prominent weak links still remain. For instance, problems such as the insufficient supply of high-quality science and technology, a lack of major original and disruptive innovations that represent “from zero to one” breakthroughs, and a low proportion of basic research funding continue to plague scientific and technological innovation.

Furthermore, the principal role of enterprises in technological innovation has yet to be firmly established. Their participation remains limited in the initiation of scientific and technological projects, resource allocation, and decision-making for major scientific and technological programs. A pattern of deep integration among industry, academia, research, and application that is truly led by enterprises has yet to take shape. Additionally, the industrial application rate of scientific and technological achievements in China is only around 30%, whereas in some developed countries it ranges from 50% to 70%. In particular, the industrialization rate of invention patents from universities is less than 10%, with numerous innovative achievements remaining confined to technical reports, scientific papers, or laboratory samples rather than being converted to real productive forces. These are not isolated issues, but the result of a number of intertwined factors such as the structure of R&D investment, corporate behavior, the institutional environment, and external constraints.

Tu Shengwei: In advancing technological innovation to unlock economic potential, the key is to make targeted efforts to address the bottlenecks and sticking points hindering the deep integration of technological innovation and industrial innovation, ensuring that technological innovation better empowers industrial innovation, and industrial innovation in turn further drives technological innovation.

First, we should step up basic research. The proportion of investment in basic research needs to be increased. Equally important is the optimization of an environment conducive to original and disruptive innovation. Second, we should reinforce the principal role of enterprises in innovation. We need to channel innovation resources to enterprises and accelerate the development of a market-oriented technological innovation system where enterprises play the leading role and there is deep integration among industries, universities, research institutes, and end-users. Third, we need to use the cultivation of application scenarios to drive the highly efficient application of scientific and technological advances. Areas to focus on include enhancing the national technology transfer system, planning and developing a number of proof-of-concept and pilot-scale testing platforms, increasing the supply of services for application of these advances, and promoting wider application scenarios. These efforts will accelerate the transition of innovative advances from the laboratory to the production line and then onward to the broad market. Fourth, we need to promote the deep integration of innovation and industrial chains. We should strengthen coordinated planning for breakthroughs in key and core technologies and drive whole-chain breakthroughs in technological research, manufacturing, and application in key areas, thereby enhancing overall industrial innovation capacity. Fifth, we need to pursue the integrated development of education, science and technology, and human resources. We should institute sound mechanisms for advancing integration on this front, increase personnel collaboration, and optimize talent structures. We need to orient talent cultivation toward technological innovation, industrial development, and national strategic needs and move faster to build a contingent of personnel with expertise of strategic importance.

Visitors view a ducted-fan drone on the opening day of the 2025 Wuhan International Industrial Design Expo, December 12, 2025. PHOTO BY XINHUA REPORTER XIAO YIJIU

Reporter: Unlocking economic potential is not simply a matter of achieving a breakthrough in a single field, but rather a systematic endeavor involving coordinated efforts across multiple dimensions. Regarding improving the efficacy of macroeconomic governance, where should we direct our efforts to fully tap this economic potential and continuously create new room for growth in high-quality economic development?

Tu Shengwei: Tapping the economic potential is indeed a systematic endeavor. To do so, we need to focus on key areas and enhance the efficacy of macroeconomic governance.

First, we need to both provide policy support and pursue reform and innovation. The transformation of economic potential must be supported by both effective policies and robust reform measures. At present, a number of interwoven and overlapping cyclical, structural, and institutional issues in China’s economic development constrain its economic potential. We must take coordinated measures to foster new drivers as we address these issues. This is also a process that will unleash and transform China’s economic potential.

It is therefore essential to strengthen macroeconomic regulation, mitigate short-term economic fluctuations, and guard against systemic risks. Simultaneously, we must seize every opportunity to further reform and accelerate the establishment of long-term mechanisms that are more conducive to unleashing our country’s economic potential.

Second, we need to both foster market vitality and conduct effective regulation. This is an essential requirement for developing a high-standard socialist market economy. We need to stimulate the vitality of various market entities, while maintaining an environment of fair competition through effective regulation. Practice has shown that only by clarifying the boundaries between the government and the market while allowing each to leverage their respective strengths can we better harness the institutional advantages of our socialist market economy, further liberate and develop social productive forces, and create an institutional environment characterized by vibrancy and order.

Finally, we need to strengthen the synergy of various policies. We should accelerate the establishment of mechanisms for institutionalized, sustained, and consistent policy coordination. Particular focus should be placed on enhancing synergy between different economic policies, between economic and non-economic policies, between existing and new policies, and between policy implementation and expectation guidance. By doing so, we can create policy synergy for effectively unlocking China’s economic potential.

Reporter: Thank you both for this interview.

(Originally appeared in Qiushi Journal, Chinese edition, No. 2, 2026)