Investment in human capital key to economic growth

Editor's note: The recommendations of the 20th Central Committee of the Communist Party of China for formulating the 15th Five-Year Plan (2026-30) for national economic and social development highlight the need to invest in human capital. Yu Chunhai, executive dean of the School of Economics at Renmin University of China, spoke to Qiushi Journal about the importance of cultivating human resources. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

Investment in human capital entails directing more resources to fields that are related to people's well-being, including education, employment, healthcare and social security. Improving people's ability, maintaining their health and facilitating their career development boosts the quality of human capital, which in turn unleashes consumer spending and ultimately drives high-quality economic growth.

The idea of investing in human capital is a new guidance for growth. Investing in physical assets is usually the preferred strategy for driving growth, because the investments tend to yield outcomes faster, and it's easier to calculate the costs and returns on such investments. Expanding production and increasing infrastructure not only boosts growth but also increases employment, people's income, consumption and their well-being.

However, focusing too much on investments in physical assets and on expanding production capacity can lead to excessive production in some areas and cause imbalances in domestic supply and demand. Besides, the return on investments in physical assets has declined significantly over the years. The country's incremental capital output ratio — which indicates the amount of capital required for every 1 yuan ($0.14) increase in GDP — increased from 2.84 in 2008 to 9.44 in 2023.

As incomes continue to increase and the middle-income group expands, aspirations for improvements in well-being and a better life have also increased. The mismatch between domestic supply and demand, however, hinders the fulfillment of these aspirations.

Also, people's aspirations for a better life cannot be fulfilled only through the supply of diversified and high-quality consumer goods. Their aspirations encompass multiple goals concerning the overall development of society as well. The central authorities clearly emphasize that meeting people's ever-growing needs for a better life is a fundamental goal and that investing in human capital can help achieve it.

People are the mainstay of consumption and production, as well as the source of innovation. Investment in human capital not only helps build a stronger domestic consumer market and boosts the vitality of domestic circulation, it also improves human resources, stimulates innovation and creativity, and speeds up the development of new quality productive forces.

More and more people are willing to pay to improve their health, experiences and abilities. So investments should align with people's demands and focus on housing, healthcare, culture, tourism and insurance to increase the supply of high-quality goods and services. Investments to improve people's knowledge, skills, health and adaptability will help China turn its "demographic dividend" into a "talent dividend".

Currently, skilled talents account for only 7 percent of China's employed population. As a result, importance should be attached to investments in human resources and the all-around development of people. Investments should also be made to create a pleasant ecological environment, and ensure people's physical and mental health. The country should also improve cultural services and products to meet people's diversified cultural needs.

Though investment in human capital is important, the country should not stop investing in physical assets. What we need is an integration of investments in physical assets and human capital. At the end of the day, investments in physical assets should lead to people's development.