Exclusive Interview with Professor Zhao Changwen of Sun Yat-sen University: The greatest potential for China's domestic demand lies in "urban-rural integration," with significant gaps in consumption upgrades in high-quality dining, chain brands, and high-end entertainment facilities.

How to Expand Domestic Demand Under People’s “Unwillingness to Spend”? How to Ensure AI (Artificial Intelligence) Shifts from “Impact” to “Empower” Employment? What Role Will Real Estate Play During the 14th Five-Year Plan?

During the China Development High-Level Forum 2026 Annual Conference, Zhao Changwen, Dean of the National Development Research Institute at Sun Yat-sen University, Wu Xiaolan Chair Professor, and Lingnan College Professor, was interviewed exclusively by the China Daily Economic News (hereinafter referred to as NBD).

Zhao Changwen is an authoritative expert in China’s macroeconomics and industrial economics. He has led several major reform plans and policy research projects assigned by the central government and has participated in drafting important documents for key economic meetings over the years.

Dean of the National Development Research Institute at Sun Yat-sen University, Zhao Changwen. Photo source: provided by interviewee

The Largest Potential of China’s Domestic Demand Lies in “Urban-Rural Integration”

NBD: This year, the government work report proposed “expanding new space for domestic demand growth.” Where is this “new space” mainly located?

Zhao Changwen: This is a very critical and timely question. Under the new “dual circulation” development pattern, expanding domestic demand is no longer just about “stimulating consumption,” but about seeking structural growth space. Currently, the main trends include:

First, upgrading from “housing and transportation consumption” to “service consumption.” As China’s per capita GDP surpasses $14,000, the shift from goods to services in consumer spending is a general trend, with service consumption having higher marginal income elasticity than goods. Traditional pillars like housing and automobiles are entering a stable or even declining phase. New opportunities lie in experiential and developmental demands for a better life.

For example, ice and snow economy, marathon events, deep travel, educational travel, and sports tourism still have strong consumption elasticity. With accelerating aging, there is a rigid demand for elderly care, rehabilitation medical services, senior tourism, age-friendly home modifications, and long-term care insurance—forming a health and elderly care industry with significant growth potential.

Second, expanding from “physical goods” to “digital and green new consumption.” The carriers of consumption are changing, with intangible services and green concepts reshaping demand structures. Digital consumption includes paid applications related to AIGC (AI-generated content), high-quality remote work and online education supply, and smart home solutions, all showing rapid upgrading trends. As digital technology matures, VR, AR devices and content ecosystems, as well as virtual humans and digital collectibles, are forming new transaction scenarios.

Green consumption is increasingly characterized by green building materials and energy-efficient appliances. With the rising penetration of new energy vehicles, the charging infrastructure, second-hand car circulation, and battery recycling chains are forming, and consumers are willing to pay premiums for “low-carbon certification” and “environmentally friendly” products.

Third, moving from “urban clusters” to “counties and rural areas.” The greatest potential of China’s domestic demand lies in “urban-rural integration.” In recent years, due to factors like the contraction of the real estate market, retail sales in first-tier cities have grown more slowly than the national average. However, over 2,000 county-level cities and counties have large populations and huge consumption potential. The main issue is supply lagging behind demand, with significant gaps in high-quality dining, chain brands, and high-end entertainment facilities.

In rural modern services, demand for socialized agricultural machinery services, cold chain logistics, inclusive finance, and information consulting has surged with rural revitalization, representing a new space for domestic demand driven by investment.

Fourth, shifting from “traditional infrastructure” to “new quality productivity and public services” investment. Domestic demand includes not only consumption but also effective investment. The new investment space will no longer focus solely on “railways, roads, and bridges.” During the 14th Five-Year Plan, key areas include data centers, super-high voltage transmission, and other new infrastructure, as well as “dual-use” public infrastructure that can boost investment and transform into long-term consumption resources.

Urban renewal, affordable housing construction, and urban village renovations are also priorities. These are not just real estate projects but aim to improve urban living environments, releasing related consumption in renovation, appliances, and community services. Additionally, modern productive services such as R&D, information technology, logistics, legal services, and financial technology are crucial for China’s transition from a manufacturing powerhouse to a strong nation, representing a huge internal demand market for enterprises.

In summary, expanding new demand space is fundamentally a shift from “whether it exists” to “whether it is good.” Opening these spaces requires institutional reforms.

Shifting the Supply System from “Selling What We Have” to “Making What Is Needed”

NBD: Under current public expectations of “unwillingness to spend,” how can we expand new demand space?

Zhao Changwen: China’s household consumption rate has long been around 40%, which is lower than the 60% or higher in developed countries. The “unwillingness to spend” stems from intertwined expectations, income, and wealth factors. Policy efforts should focus on three areas:

First, increasing income to enable consumption. This includes implementing income growth plans for urban and rural residents, improving the normal wage increase mechanism, and increasing the share of labor compensation; stabilizing the real estate market, implementing comprehensive measures to stabilize the stock market, broadening property income channels, and forming a positive cycle of “wealth growth—consumption expansion—economic growth.”

Second, reducing burdens to encourage spending. This involves improving social security, increasing medical insurance subsidies, developing inclusive childcare services, easing rigid expenses in education, healthcare, and elderly care; steadily increasing basic pensions for urban and rural residents, reducing the motivation for precautionary savings; removing unreasonable restrictions in consumption fields; implementing paid flexible leave policies; and increasing the proportion of profits from state-owned enterprises remitted to the treasury, specifically for enhancing social security.

Third, improving supply to stimulate willingness. This includes implementing service consumption quality improvement initiatives, creating popular new consumption scenarios, cultivating domestic brands, promoting innovative products, and shifting supply from “what we have” to “what is needed.” Strengthening consumer rights protection and creating a trustworthy consumption environment are also essential.

Proposal: Launch a “Social Infrastructure Renewal” Program and Establish an “AI Transition Buffer Fund”

NBD: With an expected 12.7 million college graduates this year, employment pressure and structural mismatches are evident. How should macroeconomic policies be designed to ensure AI shifts from “impact” to “empower” employment?

Zhao Changwen: This is a core issue related to economic resilience and social stability. Facing both “total volume pressure” and “structural mismatch,” macro policies must go beyond traditional “growth equals employment” thinking, adopting a systematic approach centered on buffering, adaptation, and creation, transforming AI from an “impact variable” into a “constant of empowerment.”

First, proactively creating jobs to offset “passive replacement.” When technological substitution outpaces workers’ ability to transition, the priority is to “buy time and build buffers.” I suggest launching a “Social Infrastructure Renewal” plan, drawing on the “work-for-relief” model, to convert urban renewal, old community renovations, age-friendly infrastructure, and ecological restoration into “skills retention” positions for college graduates. These jobs provide transitional employment and cultivate soft skills like project management and teamwork that AI cannot easily replace.

Consider establishing an “AI Transition Buffer Fund.” For traditional industries shrinking due to automation, government and social security contributions could provide 12 to 24 months of income support and full-time training subsidies for affected workers, turning unemployment shocks into reskilling opportunities. Tax policies could also incentivize companies heavily using AI to set aside funds for employee placement.

Second, aligning supply and demand to address “structural mismatch.” The most acute current problem is the 3- to 5-year lag between university majors and industry needs, especially AI-related skills. I recommend establishing a dynamic “industry-education integration” mechanism, linking industry demand forecasts—particularly for AI skills—with university enrollment plans; providing additional funding to institutions that add AI, data science, and intelligent equipment programs; and issuing early warning signals for declining enrollment in oversaturated majors.

Exploring “post-degree micro-credential” systems is also promising. For graduates with skills mismatched to industry needs, public funds could purchase short-term AI and industry-specific micro-courses from top training providers, enabling rapid skill reshaping in 3 to 6 months. Certificates jointly recognized by leading companies and universities would facilitate quick employment.

Third, reconstructing “job content” through “human-machine collaboration” to foster a new employment ecosystem. The true value of AI lies not in replacing humans but in enhancing productivity and creating higher-value jobs. I propose implementing a “AI Empowerment in All Industries” initiative, using tax incentives and subsidies to encourage SMEs to adopt AI tools while retaining and upgrading existing roles.

For example, retail companies deploying recommendation systems could reallocate saved labor to roles like user experience designers or private domain operators, creating a virtuous cycle of “technology upgrade—efficiency boost—job upgrade.” Supporting “AI-native” new industries—such as AI content creation, robot maintenance, data annotation, and model tuning—will also generate new job clusters aligned with recent graduate expertise.

Fourth, innovating制度 to ensure safety and inclusiveness. Unemployment due to AI should be covered by unemployment insurance, and “skills transition accounts” could be established, allowing individuals to convert unemployment benefits into training funds and choose learning paths independently. Strengthening protections for gig and platform workers—such as mandatory social insurance contributions—will reduce workers’ fears of job instability and facilitate mobility.

In summary, the relationship between AI and employment is fundamentally a race between technological iteration and worker adaptation. The key for macro policies is to “buy time” through strategic space, ultimately enabling a historic shift from “machines replacing humans” to “machines augmenting humans.”

The 14th Five-Year Plan Marks the Beginning of the “New Momentum” Era

NBD: The current report and the “14th Five-Year Plan” outline emphasize “emerging pillar industries.” Does this mean future strategic emerging industries will contribute more to economic growth? What role will traditional industries like real estate play?

Zhao Changwen: Moving from “strategic emerging industries” to “new pillar industries” signifies that China’s economic growth narrative during the 14th Five-Year Plan is transitioning from “new and old kinetic energy conversion” to the decisive phase of “new momentum taking the lead.”

Strategic emerging industries focus on forward-looking layout, technological breakthroughs, and future potential; new pillar industries mean these sectors have moved from experimental stages to large-scale production. For example, new energy vehicles, photovoltaics, and power batteries—collectively known as the “Three New”—along with AI, biotech manufacturing, and commercial aerospace, have long supply chains, high interconnectivity, and strong employment absorption, resembling the scale of traditional pillars like real estate and automobiles.

Meanwhile, these industries still have enormous growth and enabling potential. As representatives of total factor productivity improvement, they embody new quality productivity, contributing not just quantitatively but qualitatively, driving technological spillovers and upgrading the entire economic system.

As these emerging pillar industries come to the forefront, the role of real estate will fundamentally change. It will shift from an “engine” to a “stabilizer,” transforming from a growth driver into a “people’s livelihood foundation” and “risk bottom line.”

Therefore, the emphasis on “new pillar industries” sends a clear signal: China is seeking and establishing new growth drivers to replace traditional ones. This does not mean they will completely exit the stage but rather that, in the new development phase, they will coexist with new quality productivity, providing time and space for emerging industries to rise through a soft landing.

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