Service sector reforms could stimulate?demand

Editor's note: China's gross domestic product registered a 5 percent year-on-year increase in 2025, reaching 140 trillion yuan ($20.25 trillion), according to data released by the National Bureau of Statistics. But growth challenges lie ahead. China Economic Weekly spoke to Zhang Bin, a member of the National Committee of the Chinese People's Political Consultative Conference and the deputy director of the Institute of World Economics and Politics of the Chinese Academy of Social Sciences, about how these challenges can be addressed. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

The 5 percent growth rate of China's economy in 2025 was largely in line with market expectations, and met the growth target set at the beginning of that year. Given major external shocks such as the tariff war, achieving this result was no easy feat.

However, it is worth noting that the improvement in the country's economic performance still relies heavily on government debt issuance, higher public spending and external demand. The internal growth momentum of China's economy has not been fully realized.

The weak momentum is mainly reflected in two areas: private enterprises remain cautious about investing and residents are unwilling to purchase homes and consume.

The downward pressure on private companies' investment and housing prices is dragging down the growth of incomes and consumption.

Breaking this interplay requires a shift in expectations. Policies should be refined to support a rebound in asset prices and corporate profits, thereby boosting income and consumption across society. Countercyclical policies, mainly fiscal and monetary policies, need to be strengthened further.

The direction and intensity of this year's fiscal policies were determined at the Central Economic Work Conference in December 2025. The overall arrangement is proactive, including a call for optimizing the structure of fiscal expenditure. These are positive signals.

Monetary policies will play a crucial role this year in bringing about changes in prices to encourage spending and make enterprises feel that investment could be profitable, thereby ensuring sustained economic recovery.

The focus of this year's monetary policies should be to set a clear 2 percent inflation target, and make all-out efforts to achieve it. The central bank needs to communicate clearly and firmly and announce a clear and convincing objective. For instance, it could aim to keep the core consumer price index at around 2 percent, or set definite targets for both inflation and employment.

In the central bank's policy toolbox, the policy rate is one of the most direct and effective instruments to achieve the goal of expanding domestic demand. Although China's short-term policy rate is 1.4 percent, which is already relatively low, there is still room for further reduction.

A moderate interest rate reduction would help lower financing costs for the real economy and provide a more favorable monetary environment for the recovery of domestic demand.

In terms of economic structural reform, it is necessary to not only focus on the manufacturing sector but also to pay attention to the service sector. The manufacturing sector has already received sufficient attention, achieved remarkable results and enjoys sound growth momentum. Now the service sector requires attention as it provides the majority of jobs and is crucial for the upgrading of consumption and industries.

Excessive restrictions on the service sector would hinder the full development of many areas of consumption, such as sports, culture, entertainment, education and healthcare. Scientific research, intellectual property rights protection and other factors that support the upgrading of industries are also highly dependent on the service sector.

Therefore, the next step should be to vigorously promote pilot reforms related to the service sector. The sector covers a wide range of fields, making it difficult to introduce comprehensive reforms in one step. A more pragmatic approach is to start with pilots and advance gradually.