Unleashing economic potential requires multipronged approach

Editor's note: This year marks the beginning of China's 15th Five-Year Plan (2026-30) period. ThePaper.cn spoke to Zhang Xiaojing, director of the National Institution for Finance and Development, on how the country intends to unleash its economic potential while confronting a mismatch in strong supply and weak demand. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

The government has vowed to continue opening-up at the institutional level, which marks a shift from the traditional opening-up centered on the flow of goods and production factors to a systematic opening-up with regard to rules, regulations and standards.

This transformation seeks to ensure domestic alignment with high-standard international economic and trade rules, and to foster a market-oriented, law-based and internationalized business environment. The aim is to build what can be described as institutional competitiveness.

When advancing institutional opening-up in the financial sector, a few things should be prioritized. First, when opening the capital markets, instead of just expanding channels, there should be greater alignment of rules. This means broadening the scope of interconnection mechanisms and cross-border renminbi-denominated products, and benchmarking against international standards. At the same time, enriching derivatives and hedging instruments will strengthen the appeal of renminbi assets and enhance the resilience of financial markets.

Second, the level of capital account convertibility should be raised in a prudent manner. That way, China can facilitate genuine cross-border investment and financing activities, helping multinational corporations establish cross-border capital pools and streamline procedures for mergers and acquisitions, equity investment and profit repatriation.

Third, cross-border data flows should be promoted and regulated in parallel. This would enable differentiated management of financial data and sensitive personal information. Pilot programs in key regions can adopt a "white list plus regulatory sandbox" approach.

Fourth, digital technologies should empower cross-border financial infrastructure. Pilot initiatives in free trade zones and major bay areas can support the cross-border use of the digital renminbi and participation in multilateral central bank digital currency bridge projects, thereby improving the efficiency of payment and settlement systems.

Also, the government pledges to promote investment in human capital. The social security and safety net system should be strengthened, and equal access to basic public services should be promoted to stimulate development-oriented consumption. Spending on culture, entertainment and sports plays a crucial role in nurturing long-term innovation and creativity.

It is important to optimize the structure for investment in human capital. Spending on education, skills training, public health and research personnel can be identified as human capital investment or productive social spending, rather than being treated simply as consumption.

Efforts should be made to increase returns from State-owned capital operations, which could be put into social security funds and public welfare systems. Meanwhile, existing government assets should be revitalized and managed more efficiently, providing stronger support for public services and social security.

Unlike investment in physical assets, investment in people generates mobile human capital. This mobility may weaken local governments' incentives for this investment. Therefore, the central government should play a greater role in funding, while performance evaluation mechanisms for local investment in people should be further improved.

As for increasing consumption, several measures can be expected. In order to help stabilize employment expectations and household income prospects, it is suggested that income growth plans for urban and rural residents be accelerated, focusing on sectors with large employment capacity and strong demand-supply mismatches. Greater efforts should be made to provide skills training and support for innovation and entrepreneurship.

Increasing fiscal spending in pensions, childcare, education healthcare and affordable housing sectors, and transferring a larger proportion of State-owned capital to strengthen basic pension insurance is advisable. Greater social assistance and transfer payments for low- and middle-income groups will help alleviate concerns that restrain consumption.