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.

By Daily Economic News reporter | Zhang Rui |
By Daily Economic News editor | Wei Wenyi

Under the expectation that ordinary people “daren’t spend,” how do we boost domestic demand? How can we ensure that AI (artificial intelligence) shifts from “disrupting” jobs to “empowering” jobs? What role will real estate play during the 15th Five-Year Plan period?

Against the backdrop of the questions above, Zhao Changwen, dean of the National Development Institute of Sun Yat-sen University and a distinguished professor at the Wu Xiaolan Chair, and a professor at the Lingnan College, was interviewed by reporters from The Daily Economic News (hereinafter referred to as NBD) during the 2026 annual conference of the China Development Forum.

Zhao Changwen is an authority in China’s macroeconomy and industrial economy. He has led the completion of multiple major reform plans and policy research and evaluation tasks assigned by the Central Government, and for many years has participated in drafting important documents for meetings such as the Central Economic Work Conference.

Dean Zhao Changwen of the National Development Institute, Sun Yat-sen University |
Image source: Provided by the interviewee

The biggest potential of China’s domestic demand lies in “urban-rural integration”

NBD: This year’s government work report proposes “expanding new space for growth in domestic demand.” Where is this “new space” mainly located?

Zhao Changwen: This is a very crucial and era-defining question. Under the new development pattern of “dual circulation,” expanding domestic demand is no longer simply about “stimulating consumption”; it has shifted to finding structural growth space. Based on the current situation, the main trends are as follows:

First, consumption upgrades from “housing and commuting” to “services consumption.” With China’s per capita GDP surpassing $14,000, it is a general rule that residents’ consumption shifts from goods to services. The income elasticity at the margin for services consumption is higher than that for goods consumption. Traditional demand pillars such as housing and automobiles have entered a period of stability or even adjustment. The new space lies in people’s experience-based and development-oriented needs for a “better life.”

For example, cultural and tourism industries and sports industries such as the ice-and-snow economy, marathon events, in-depth tours, and study tours all still have substantial consumption elasticity. As population aging accelerates, health and elderly-care industries have become rigid demands, including senior care and nursing, rehabilitation healthcare, senior tourism, age-friendly home renovation, and long-term care insurance and related financial services.

Second, consumption expands from “physical goods” to “digital and green new-type consumption.” The carriers of consumption are changing; intangible services and green concepts are reshaping the structure of domestic demand. In terms of digital consumption, including paid applications related to AIGC (AI-generated content), high-quality supply for remote work and online education, and whole-home intelligent solutions brought by smart homes, the acceleration of upgrading has been very clear in recent years. With digital technologies maturing, virtual reality (VR), augmented reality (AR) devices and their content ecosystems, as well as compliant consumption around virtual humans and digital collectibles, are forming new transaction scenarios.

From a green consumption perspective, green building materials and low-carbon energy-saving appliances are becoming new choices. As the penetration rate of new energy vehicles continues to rise, consumption chains involving charging services, second-hand car circulation, and battery recycling are taking shape. Consumers are increasingly willing to pay a premium for “low-carbon certification” and “environmentally friendly” products.

Third, demand is shifting from “urban agglomerations” to “counties and rural areas.” The biggest potential in China’s domestic demand lies in “urban-rural integration.” In recent years, due to factors such as the contraction effect of the real estate market, growth rates of social retail sales of consumer goods in first-tier cities have generally been lower than the national average. However, more than 2,000 county-level cities and county-level areas have a large population base and thus enormous consumption potential. The problem at present is that supply lags behind demand—there are large gaps in consumption upgrades, such as high-quality dining, chain brands, and high-end entertainment and cultural facilities.

In terms of rural modern services, as rural revitalization advances, rural demand for productive services such as agricultural machinery socialized services, cold-chain logistics, inclusive finance, and information and consulting services has surged. This is a new space for domestic demand where “investment drives consumption.”

Fourth, investment shifts from “traditional infrastructure” to “new quality productive forces and public services.” Domestic demand includes not only consumption, but also effective investment. New investment space is no longer concentrated on “iron, roads, bridges, and utilities.” One of the key focuses in the 15th Five-Year Plan period is new infrastructure such as computing power centers, data centers, and ultra-high-voltage transmission, as well as “dual-use for normal needs and emergencies” public infrastructure. These can both boost investment and be transformed into long-term consumption resources.

Urban renewal, construction of保障性 housing, and redevelopment of urban villages are another key area. This is not only a substitute for real estate, but also a way to release related consumption—such as residents’ spending on renovations, household appliances, and community services—by improving urban living environments. In addition, modern productive services such as R&D and design, information technology services, modern logistics, legal services, and technology finance are the key for us to move from a manufacturing power to a stronger country, and they are also a huge domestic-demand market on the enterprise side.

In short, expanding new space for domestic demand is essentially shifting from “whether there is demand” to “whether it is good enough.” To open up these spaces, we need supporting institutional reforms.

Shift the supply system from “selling what exists” to “producing what is needed”

NBD: Under the current expectations that people “daren’t spend,” how do we expand new space for domestic demand?

Zhao Changwen: China’s resident consumption rate has long hovered around 40%, which is indeed lower than in developed countries at 60% or even higher. “Daren’t spend” is the result of the interplay among expectations, income, and wealth. Therefore, policy focus should also be on the following three aspects:

First, help residents “be able to consume” through increasing income. This mainly includes formulating and implementing an income-increasing plan for urban and rural residents, improving mechanisms for normal wage growth, and raising the share of labor remuneration; focusing on stabilizing the real estate market, applying comprehensive measures to stabilize the stock market, broadening channels for property-based income, and forming a virtuous cycle of “wealth growth → consumption expansion → economic growth.”

Second, help residents “dare to consume” through reducing burdens. This mainly includes improving the social security system, raising standards for medical insurance subsidies, developing inclusive childcare services, and easing pressure from rigid expenditures such as education, medical care, and elderly care; steadily increasing basic pensions for urban and rural residents and lowering the motive for precautionary saving; clearing up unreasonable restrictions in the consumption field and implementing a system of paid staggered leave for employees, so that residents “have leisure” to consume; increasing the proportion of profits remitted by state-owned enterprises to the public finance, with earmarked use to improve the level of social security for the whole population.

Third, help residents “be willing to consume” through better supply. Implement actions to improve service consumption and benefit people, and build a number of new consumption scenarios with broad reach and high visibility. Cultivate domestic brands, promote and upgrade innovative products, and push the supply system to shift from “selling what exists” to “producing what is needed.” Strengthen protection of consumer rights and interests and create an environment where people can consume with confidence.

It is recommended to launch a “plan for updating social infrastructure,” and set up an “AI transition and buffering fund”

NBD: This year, the number of college graduates is expected to reach 12.7 million. Employment pressure on the whole and structural “mismatch” coexist. The impact of AI on employment cannot be ignored. How should macroeconomic policy be designed to ensure that AI shifts from “disrupting” employment to “empowering” employment?

Zhao Changwen: This is a core proposition concerning economic resilience and social stability. Faced with the dual background of “overall employment pressure” and “structural mismatch,” macroeconomic policy must go beyond the traditional thinking that “growth equals jobs.” It should shift to a systematic plan centered on buffering, adapting, and creating, and promote AI from being a “disruptive variable” for jobs to becoming an “empowering constant.”

First, use “active creation” to offset “passive substitution,” and build an employment buffer belt. When the speed of labor replacement by technology is faster than workers’ speed of transitioning, the government’s top priority is to “buy time and build buffers.” It is recommended to launch a “plan for updating social infrastructure.” Drawing on the mindset of “workfare to relieve poverty,” public investments such as urban renewal, renovation of old neighborhoods, construction of age-friendly facilities, and ecological restoration should be transformed into “skill preservation” roles for college graduates. These roles not only provide a transition period for employment, but also cultivate “soft skills” that AI is hard to replace—such as project management and teamwork—through hands-on project practice.

Consider setting up an “AI transition and buffering fund.” For traditional industries that are shrinking due to technological substitution, funding can be jointly provided by the fiscal budget and social security to offer affected people income protection for 12 to 24 months and fully paid training allowances, turning the “shock of unemployment” into a “job-switch window.” It is also possible to guide large-scale AI substitution through tax policies, and set up a dedicated fund for employee placement.

Second, address “structural mismatch” through “matching supply and demand,” and reshape a “education-employment” closed loop. The sharpest contradiction at present is the 3-to-5-year “time lag” between university major setups and industry technology needs. It is recommended to establish a dynamic adjustment mechanism for “industry-education integration,” linking talent demand forecasts from the industry side—especially the skill map for AI-related positions—with university enrollment plans in a mandatory way. Provide per-student funding tilt for institutions that add scarce majors such as artificial intelligence, data science, and intelligent equipment. For majors whose employment rates remain persistently low, implement early-warning for enrollment reduction.

Explore and promote a “post-degree micro-credential” system. For university students and graduate students who have already graduated but whose skills do not match, public finance can purchase “AI + industry” micro-credential course packages from high-quality training institutions, enabling rapid skill reshaping in 3 to 6 months. Graduation certificates can be jointly certified by leading enterprises and universities, opening the “final one hundred meters” of the employment pathway.

Third, use “human-AI collaboration” to rebuild the substance of jobs and cultivate a new ecosystem of employment. The true value of AI is not to replace people, but to raise labor productivity, thereby creating higher-value jobs. It is recommended to implement a “thousand trades and hundred industries AI empowerment project,” using measures such as tax deductions and special subsidies to encourage small and medium-sized enterprises to introduce AI tools while retaining and upgrading existing positions.

For example, after retail companies deploy intelligent recommendation systems, require the saved labor to be transformed into user-experience designers and private-domain operations specialists, forming a virtuous cycle of “technology upgrade → efficiency improvement → job upgrade.” We should support “AI-native” new business forms, focusing on developing emerging job clusters such as AI content creation, intelligent robot maintenance and operations, data labeling and governance, model training and fine-tuning, and so on. These positions align well with the knowledge-structure advantages of college graduates.

Fourth, use “institutional innovation” to build a solid “safety base” and construct inclusive employment保障. Include unemployed people caused by AI substitution within the coverage of unemployment insurance, and study establishing a “skills transition account,” allowing individuals to convert unemployment insurance benefits into training funds for independently choosing learning directions. Improve protections for new employment forms. For platform-based and more flexible employment generated by AI, require platform enterprises to pay workers’ work-related injury insurance and occupational annuity contributions for practitioners, eliminating workers’ worries about not daring or being unwilling to transition.

In short, the relationship between AI and employment is, in essence, a speed competition between technological iteration and workers’ transition. The wisdom of macro policy lies in achieving the historical leap from “machines replacing people” to “machines enhancing people,” ultimately through “trading space for time.”

The decisive phase for the 15th Five-Year Plan period: officially entering the period when new drivers take the lead

NBD: This year’s report and the outline of the “15th Five-Year Plan” both mention “emerging pillar industries.” Does that mean that, in the future, strategic emerging industries will contribute more incremental growth in stimulating the economy? Correspondingly, what role will outdated drivers like real estate play?

Zhao Changwen: Moving from “strategic emerging industries” to “emerging pillar industries” signals that, in the 15th Five-Year Plan period, China’s growth narrative is transitioning from the phase of “shifting from old to new growth drivers,” and has officially entered the decisive phase of “new growth drivers taking the lead.”

Strategic emerging industries emphasize forward-looking layout, technological breakthroughs, and future potential. Emerging pillar industries mean that these industries have already crossed from the laboratory to the production line and formed a larger industrial scale. For example, the “new three” represented by new energy vehicles, photovoltaics, and power batteries, as well as artificial intelligence, bio-manufacturing, and commercial aerospace, have long industrial chains, high degrees of relatedness, and strong abilities to absorb employment. They already possess volume characteristics similar to how real estate and automobiles once served as “pillar industries.”

At the same time, these industries will still have enormous growth potential and room for empowerment in the future. Emerging pillar industries represent an improvement in total-factor productivity. They are carriers of new quality productive forces. Their contribution is no longer only “growth in quantity,” but also “enhancement in quality.” Through technological spillovers, they drive upgrades across the entire economic system.

When emerging pillar industries move onto the main stage, the role of real estate must undergo a fundamental transformation. In the future, industries such as real estate will experience a fundamental remolding of their functions—from “an engine” to “a stabilizer.” They will shift from being a “growth engine” in the past to becoming a “foundation for people’s livelihoods” and a “bottom line for risk control.”

Therefore, emphasizing “emerging pillar industries” sends a very clear signal. China is looking for and establishing new growth drivers that can replace traditional drivers. But this does not mean that these drivers will completely exit the historical stage. Rather, in the new development stage, we should find the right way for them to coexist with new quality productive forces, enabling their soft landing and winning time and space for the rise of emerging industries.

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Cover image source: Provided by the interviewee