A STRUCTURAL AND STRATEGIC IMPERATIVE
Expanding China’s capital markets is not only a financial imperative, but also a structural and strategic one, as it is essential to reducing reliance on external capital.
Capital markets channel savings into more productive sectors – particularly services and high-tech industries – and give households opportunities to invest their savings and participate in sustainable wealth creation. They are thus vital to enable a shift from property-based to financial wealth and from investment-led growth to consumption-driven demand.
But, as the 15th Five-Year Plan also recognises, expanding China’s capital markets will require deep institutional reforms to improve initial public offering systems, strengthen corporate governance, encourage dividends and buybacks, and mobilise “patient capital” from pension funds and insurers. Meanwhile, gradual financial opening and greater foreign participation will enhance market depth and integration.
It remains to be seen whether these policies will translate into meaningfully higher consumption in the near term. But they do represent a departure from previous five-year plans, which treated consumption as secondary to more traditional growth engines like investment and exports. This reflects changing external conditions, which have made reliance on others – for demand, technology, capital or energy – synonymous with vulnerability.
At a time of intensifying geopolitical volatility and global fragmentation, China’s embrace of a consumption-led model is not only about rebalancing growth, but also about anchoring it more firmly at home. Strong domestic demand offers a degree of insulation from external shocks, and together with developed capital markets, it can go a long way toward strengthening autonomy.
In this sense, the trajectory is clear. China aims to recreate, in its own way, the conditions that some privileged economies have long enjoyed: the ability to grow from within.
Keyu Jin is Professor of Economics at the Hong Kong University of Science and Technology and the author of The New China Playbook: Beyond Socialism and Capitalism. This commentary first appeared on Project Syndicate.