Addressing Cyclical, Structural, and Institutional Challenges

During the 14th Five-Year Plan period (2021–2025), China’s economy forged steadily ahead despite difficulties, achieving higher-quality, innovation-driven development. As total economic output scaled new heights, the country’s economic strength, scientific and technological capabilities, and composite national strength all increased significantly, marking solid strides in the drive for Chinese modernization. Nevertheless, China is still confronted by many longstanding problems and emerging challenges in economic development. Obstacles hindering high-quality development persist in areas ranging from market development and technological innovation to the transformation of growth drivers, entrepreneurship and employment, and income distribution. A closer analysis shows that these obstacles are deeply intertwined with China’s development process and arise from the interplay between cyclical, structural, and institutional challenges. The 15th Five-Year Plan period (2026-2030) will be a crucial stage for reinforcing foundations and pushing ahead toward basically realizing socialist modernization by 2035, serving as a critical link for building on past achievements to break new ground. Against the backdrop of increasingly adverse and complex internal and external conditions, addressing cyclical, structural, and institutional challenges will help China consolidate its strengths, remove bottlenecks, shore up weak links, and achieve breakthroughs in strategic tasks that are vital to Chinese modernization as a whole.

Cyclical issues are an expression of the inherent laws governing economic operations. At present, they are manifested mainly in a temporary imbalance between strong supply and weak demand, highlighting the specific characteristics of this stage: short-term economic fluctuations and insufficient domestic demand. During the 15th Five-Year Plan period, China’s development environment is expected to undergo profound and complex changes, where strategic opportunities coexist with risks and challenges, and uncertainties and unpredictable factors increase. Multiple domestic and external pressures and shocks will further complicate cyclical issues.

Domestically, the economy remains in a critical period for shifting to new drivers of growth and new models of development, a transition that in itself entails a certain degree of downward pressure and risk of volatility. The tension between strong supply and weak demand remains pronounced. The recovery in consumer confidence has yet to be fully consolidated, private investment lacks vitality, and weak market expectations still require shoring up. In the short term, adjustments in the real estate market, steps to defuse local government debt risks, and comprehensive measures to address excessive competition have exerted contractionary effects on consumption, investment, and fiscal revenue, while posing challenges to financial stability. Persistently low price levels also reflect the temporary gap between supply and demand, as well as bottlenecks in market circulation.

Internationally, global economic growth remains sluggish, while global trade and investment growth has slowed. Protectionism and unilateralism are on the rise, risks from geopolitical conflicts continue to spill over, fluctuations in global commodity prices are intensifying, and international financial markets remain volatile. These external factors will create cyclical disruption to China’s macroeconomy, particularly its industrial and supply chains and financial stability. The combined effect of these cyclical factors will amplify fluctuations in macroeconomic performance, increasing the difficulty of maintaining steady and sound economic growth during the 15th Five-Year Plan period.

Structural issues represent deep-seated challenges that have built up over the long course of development. At present, these issues, which are manifested primarily in unbalanced and inadequate development, have become a major bottleneck hindering high-quality development.

In terms of the supply-demand structure, the supply system has not adapted quickly enough to market demand, which is rapidly evolving. With consumption shifting toward higher-end, more diversified, and more personalized products and services, a shortfall in high-end supply has coincided with a glut in homogeneous low- and mid-range supply. The result has been poor alignment of the supply and demand structures. Turning to the industrial structure, traditional industries still account for a relatively large share of the economy and face formidable tasks to transform and upgrade. Emerging industries and industries of the future, despite their robust development, still need to enhance their scale and capacity to drive broad-based development. Meanwhile, the modern service sector continues to face constraints in areas such as mindset, capital, and talent. Challenges remain in our efforts to ensure manufacturing continues to account for a reasonable share of the economy and safeguard the security and stability of industrial and supply chains, while bottlenecks persist in certain areas. In short, further efforts are needed to build a modern industrial system.

Tourists feed black-headed gulls at the Haigeng Dam in Kunming City, Yunnan Province, February 16, 2026. According to the Data Center of the Ministry of Culture and Tourism, China registered 596 million domestic tourist trips during the nine-day Spring Festival holiday in 2026, with total spending reaching 803.48 billion yuan. Both figures achieved record highs. PHOTO BY XINHUA REPORTER PU CHAO     

As for urban-rural and regional structures, modernization in the agricultural sector and rural areas still lags behind, and disparities between urban and rural areas and among regions remain pronounced. Institutional barriers to the two-way flow of production factors have yet to be fully removed, while the mechanisms for coordinated regional development require further improvement. Considerable efforts are still needed to foster an economic layout that enables regions to fully leverage their complementary strengths in pursuit of high-quality development. On the income distribution front, personal income growth needs to be more closely aligned with economic growth, and the share of work remuneration in primary distribution should be steadily increased. Relatively large income disparities also remain between urban and rural areas, across regions and industries, and among social groups. Optimizing the income distribution system and expanding the size of the middle-income group therefore remain formidable tasks.

These structural problems are interrelated and affect the economy’s potential growth rate, overall development efficiency, and social equity and justice.

Institutional issues constitute the fundamental obstacles and systemic bottlenecks constraining high-quality development. At present, they are manifested mainly in the fact that the high-standard socialist market economy has yet to be fully developed. Institutional supply has not yet fully adapted to the requirements for fostering new quality productive forces and advancing high-quality development, thereby stifling market vitality, innovative dynamism, and the efficiency of resource allocation.

In terms of market system development, we still face bottlenecks and obstacles in building a unified national market. Problems such as market segmentation and local protectionism have yet to be fundamentally resolved in certain areas. This has prevented the market from fully playing the decisive role in resource allocation. With regard to factor allocation, reforms to realize the market-based allocation of production factors, such as land, labor, capital, technology, and data, have made relatively slow progress. Factor pricing mechanisms need to be further refined, while institutional barriers continue to hinder the flow of resources between urban and rural areas, across regions, and among entities under different forms of ownership. In terms of business entity development, the institutional environment for private enterprises still requires improvement. Fair competition review mechanisms need to be more effectively enforced, and market access barriers in certain sectors have yet to be fully removed. Turning to government governance, the precision and coordination of macro regulation need to be refined. Instances of regulatory absence and overreach coexist in certain areas. Fiscal, taxation, and financial reforms must be further deepened, local fiscal sustainability mechanisms need to be strengthened, and the quality and efficiency of finance in serving the real economy need to be raised further. In terms of public wellbeing, institutional arrangements in areas such as education, healthcare, eldercare, and housing remain inadequate; they have yet to adapt to demographic changes, promote social equity and justice, foster realistic expectations, and unlock consumption potential, thereby falling short of the people’s growing expectations for a better life.

The cyclical, structural, and institutional challenges currently facing China in economic development do not exist in isolation. Rather, they are intertwined, nested within one another, and mutually reinforcing. This has created a situation in which institutional obstacles entrench structural imbalances, structural imbalances exacerbate cyclical fluctuations, and cyclical fluctuations in turn constrain the deepening of institutional reform.

On the one hand, institutional issues are the underlying cause of structural and cyclical problems. Reforms in key areas such as the market-based allocation of production factors and fair competition have not progressed quickly enough, preventing the market from fully playing the decisive role in resource allocation. As a result, the flow of production factors toward advanced productive forces has been impeded, which in turn has reinforced, to varying degrees, structural problems such as mismatches between supply and demand, industrial imbalances, and uneven urban-rural and regional development.

The prolonged persistence of structural imbalances has also left economic growth over-reliant on traditional growth models. Consequently, when external conditions shift or domestic demand fluctuates, the economy becomes more vulnerable to cyclical downward pressure. For example, shortcomings in the institutions and mechanisms for scientific and technological innovation, together with insufficient integration between technological and industrial innovation, have reduced the efficiency with which scientific and technological advances are translated into practical applications. A virtuous cycle in which new supply creates new demand and new demand in turn drives new supply has yet to take shape across the economy. As a result, when the global economy falters and external demand contracts, the domestic economy becomes more prone to a cyclical slowdown.

On the other hand, structural issues serve as the key link between institutional and cyclical problems. Not only do structural contradictions arise from institutional barriers, but their evolution also amplifies the effects of cyclical fluctuations. For instance, the structural imbalance between excessive low-end supply and insufficient high-end supply stems largely from institutional factors such as the overreach, misalignment, or absence of local government intervention in economic affairs. This has resulted in industrial upgrading falling out of step with consumption upgrading, making it difficult to effectively meet consumer demand for high-quality goods and services. This not only constrains the role of consumption in driving economic growth, but also makes growth more susceptible to fluctuations in external demand.

Conversely, cyclical fluctuations can also impede efforts to address structural problems and advance institutional reform. When the economy faces significant downward pressure, for example, some regions and departments may prioritize growth and employment, thereby slowing the pace of both structural adjustment and institutional reform. In some sectors, this can result in a self-perpetuating cycle in which cyclical problems accumulate, structural adjustment slows, and institutional reform is deferred.

Furthermore, the increasingly interweaving and interconnected nature of cyclical, structural, and institutional challenges is characteristic of the current stage of development. During periods of economic expansion, structural and institutional problems may be masked by short-term growth dividends. However, once the economy turns downward, these problems tend to surface simultaneously, with each compounding the rest. In sum, the cyclical, structural, and institutional challenges facing China’s economic development are not merely superficial symptoms. Rather, they represent the concentrated expression of deep-seated problems accumulated over long years of development. They also reflect the fact that, at this transitional stage of China’s economic and social development, the relations of production and the productive forces, the superstructure and the economic base, as well as state governance and social development have not yet been fully aligned in certain areas. This lack of alignment has had a significant impact on China’s pursuit of high-quality development.

China is now at a critical stage of economic transformation, where external shocks from global cyclical fluctuations are interwoven with internal constraints arising from domestic structural and institutional issues. This interplay has rendered macroeconomic governance more complex and challenging. We must combine a problem-oriented approach with a goal-oriented approach to accurately understand the interwoven and evolving dynamics underlying cyclical, structural, and institutional challenges. Applying systems thinking and taking comprehensive measures, we should aim to smooth out cyclical fluctuations through macro regulation, address deep-seated imbalances through structural adjustment, and remove institutional barriers through furthering comprehensive reform. Together, these measures will help drive higher-quality economic growth while delivering an appropriate increase in economic output.

We need to adopt more proactive and effective macro policies to see that the economy keeps growing within an appropriate range

Maintaining overall economic stability serves as both a fundamental guarantee for China’s modernization drive and a prerequisite for high-quality economic development. Without a stable economic foundation, it will be difficult to leverage our existing development strengths or open up the necessary space to address structural and institutional issues. Therefore, we must adhere to the general principle of striving for growth while ensuring stability, so as to create a favorable economic and policy environment for economic transformation and reform.

First, we need to ensure continuity in our macro policies while making them more proactive and effective. We will continue to apply a more proactive fiscal policy and an appropriately accommodative monetary policy, and place greater emphasis on coordinating both cross-cyclical and counter-cyclical adjustments. We will deploy a full combination of policy tools and carefully calibrate the intensity, timing, and tempo of policies. In doing so, we will effectively smooth out economic fluctuations and promote stable economic growth.

Second, we need to improve the macroeconomic governance system. We will enhance the strategic guiding role of the 15th Five-Year Plan, step up coordination between fiscal and monetary policies, and leverage the roles of industrial, price, employment, consumption, investment, trade, regional, environmental protection, and regulation policies. We will make our macro policy orientation more consistent to maximize the effectiveness of macroeconomic governance.

Third, we need to strengthen expectations management and improve the mechanisms in this regard. We will see that policy implementation and expectations guidance are well-coordinated and make our policies more targeted and actionable. We will conduct thorough assessments of policy outcomes and promptly respond to market concerns. By ensuring policies better guide and shape expectations, we will foster positive market expectations and strengthen public confidence.

At the same time, we also need to guard against risks in key sectors. We should pursue development while guarding against risks and mitigating risks in the process of development. Coordinated, well-sequenced steps will be taken to address risks arising from real estate, local government debt, and small and medium financial institutions, and to strictly prevent systemic risks. This will help create a favorable environment for consolidating and expanding the momentum for steady economic growth.

We need to strengthen the domestic economy to address deep-seated structural problems

Strengthening the domestic economy is both an effective strategic step for effectively withstanding external shocks and an essential requirement for meeting people’s aspirations for a better life. Guided by the strategy of expanding domestic demand, we should take integrated steps to improve living standards and increase consumer spending and invest in both physical assets and people. We should see that new demand drives new supply, that new supply helps create fresh demand, and that positive interactions are fostered between consumption and investment and between supply and demand. These efforts will help create more growth models that are led by domestic demand, driven by consumption, and sustained by internal momentum.

First, we need to boost household consumption. We will continue to advance special initiatives to boost consumption and formulate and implement an income growth plan for urban and rural residents. We will strengthen inclusive policies that directly benefit consumers, and refine the implementation of large-scale equipment upgrades and consumer goods trade-in programs. Greater support will be given to promote the consumption of services, and a major push will be made to abolish all excessive or one-size-fits-all restrictions on consumption. All this will ensure that domestic spending potential is unleashed at a faster pace.

Second, we need to proactively expand effective investment. We will launch a series of major projects and carry out initiatives to implement major national strategies and enhance security capacity in key areas to a high standard. The layout of investment in infrastructure and public services will be adjusted in light of changes in spatial distribution, population, industries, and services, and more investment will be channeled into human resources development and well-rounded personal development. By effectively leveraging policy-backed financial instruments, real estate investment trusts (REITs), and government investment funds, we will spur private investment and raise its overall share, thereby fostering a market-driven investment pattern that is steered by government guidance.

Third, we need to enhance our capacity to supply medium- and high-end consumer goods and services. We will increase investment in consumption-related sectors, upgrade traditional industries, nurture emerging industries and industries of the future, and promote the high-quality, efficient development of the service sector. We will also promote high-quality full employment. This will help meet the demand for consumption upgrading and create positive interplay between consumption and investment.

In addition, we need to promote broader international economic flows to strengthen the domestic economy. To this end, we will boost the duty-free economy and expand inbound consumption. We will also diversify our agricultural imports and boost imports of high-quality services. This will help us forge new strengths in attracting foreign investment and increase our pull as a destination for global production factors and resources.

We need to remove institutional barriers through furthering comprehensive reform

Furthering economic structural reform is essential for better aligning production relations with the productive forces, the superstructure with the economic base, and state governance with social development. Moreover, it provides an institutional safeguard for the effective implementation of the major objectives set out in the 15th Five-Year Plan. Focusing on removing institutional barriers that impede high-quality development and regarding greater social fairness and justice and increased wellbeing of the people as our ultimate objectives, we will better leverage the leading role of economic structural reform to provide strong impetus and institutional support for our modernization drive.

First, we need to step up reforms aimed at raising resource allocation efficiency. We will deepen reform of state capital and state-owned enterprises and help the private sector grow bigger and stronger. We will move faster to improve the institutions and mechanisms for market-based allocation of production factors and refine the systems underpinning the market economy. We will refine pricing governance and eliminate bottlenecks and obstacles hindering the development of a unified national market. We will also improve our ecological conservation systems. We will work to see that property rights provide effective incentives, production factors flow freely, prices remain flexible, competition is fair and orderly, and business survival is determined by competition.

Second, we need to implement reforms designed to boost the quality and performance of development. We will improve the institutions and mechanisms for fostering new quality productive forces in light of local conditions, support comprehensive innovation, and advance corresponding reforms of the fiscal, tax, and financial systems. By improving the incentive and constraint mechanisms for promoting high-quality development, we will help create new growth drivers and strengths.

Third, we need to accelerate reforms that are conducive to motivating all sectors of society. We will optimize mechanisms to ensure that public services are inclusive, meet essential needs, and provide a cushion for those most in need. We will also refine the systems for integrated urban-rural development and for ensuring and improving public wellbeing. In doing so, we will further raise living standards and deliver solid progress toward common prosperity for all.

Furthermore, we need to step up reforms that facilitate alignment and mutual recognition of domestic and international rules. We will push forward domestic reforms geared toward opening China wider to the outside world, advancing the innovative development of trade, and promoting two-way investment cooperation. We will reduce border and behind-the-border barriers that constrain the flow of production factors and develop mechanisms for ensuring both easy market access and accommodating business environments for foreign investors. We will expand opening up at the institutional level and develop new institutions for a higher-standard open economy, thereby harnessing our openness to propel reform and development.

Huang Hanquan is Director of the Macroeconomic Research Institute at the National Development and Reform Commission.

(Originally appeared in Qiushi Journal, Chinese edition, No. 5, 2026)