China Pivots to Domestic Growth
As global geopolitical risks mount, China is kicking off its 15th Five-Year Plan by focusing on powerful domestic growth drivers. The government is emphasizing internal consumption and technological self-sufficiency. The strategy is designed to insulate its economy from external shocks and maintain stable expansion.
This strategic shift is underpinned by the "dual circulation" concept, first introduced in May 2020. The policy aims to make the domestic market less vulnerable to external shocks while simultaneously making China more indispensable to the global economy. It represents a move away from the previous export-oriented growth model, known as the "great international circulation." Final consumption expenditure accounted for 52% of China's GDP growth in 2025, an increase of 5 percentage points from the previous year. Total retail sales of consumer goods in 2025 surpassed 50 trillion yuan (approximately $7.15 trillion) for the first time, growing by 3.7% year-on-year. Early indicators in 2026 showed a 13.7% year-over-year increase in average daily sales revenue for consumer-related industries during the Spring Festival holiday. To further bolster spending, Beijing is rolling out new policies for the 2026-2030 period. These include an initial funding package of about $9 billion for a domestic-demand stimulus program and the extension of interest subsidies for personal consumption loans through the end of 2026. The government is also promoting initiatives like large-scale equipment upgrades and consumer goods trade-in programs. Technological self-reliance is a cornerstone of the new plan, a goal accelerated by U.S. export controls on high-tech goods. The 15th Five-Year Plan aims for "rapid breakthroughs" in key areas like semiconductors, industrial machinery, advanced materials, and biotechnology. This follows the "Made in China 2025" initiative, which by 2025 had successfully established global leadership in sectors like high-speed rail, solar panels, and electric vehicles. China's investment in research and development exceeded $500 billion in 2024, creating the world's largest pool of researchers. The government is encouraging further private R&D investment through "super deduction" tax breaks, which could be enhanced under the new Five-Year Plan. The strategy now emphasizes a shift from merely introducing foreign technology to a "two-way exchange" where Chinese scientists take leading roles in setting international standards.
