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.

Every reporter | Zhang Rui Every editor | Wei Wenyi

How can we expand domestic demand under the expectation that the public is “afraid to spend”? How can we ensure that AI (artificial intelligence) shifts from “impacting” employment to “empowering” employment? What role will real estate play during the “14th Five-Year Plan” period?

In response to these questions, Zhao Changwen, Dean of the National Development Research Institute at Sun Yat-sen University, Wu Xiaolan Chair Professor, and Professor at Lingnan College, was interviewed by the “Daily Economic News” (hereinafter referred to as NBD) during the 2026 China Development Forum Annual Conference.

Zhao Changwen is an authoritative expert in China’s macroeconomics and industrial economics. He has been responsible for completing several major reform plans and policy research and evaluation tasks assigned by the central government and has participated in drafting important meeting documents, such as the Central Economic Work Conference, for many years.

Zhao Changwen, Dean of the National Development Research Institute at Sun Yat-sen University. Photo source: Provided by the interviewee.

The greatest potential for China’s domestic demand lies in “urban-rural integration.”

NBD: The government work report this year proposed “expanding new space for domestic demand growth.” Where is this “new space” mainly located?

Zhao Changwen: This is a very critical and timely question. Under the new development pattern of “dual circulation,” expanding domestic demand is no longer simply about “stimulating consumption,” but rather about seeking structural growth space. Currently, there are the following trends:

First, there is an upgrade from “consumption in housing and transportation” to “service consumption.” As China’s per capita GDP exceeds $14,000, the upgrade of resident consumption from goods to services is a common trend, and the marginal income elasticity of service consumption is higher than that of goods consumption. Traditional pillars of domestic demand, such as housing and automobiles, have entered a stable or even adjustment period, and the new space lies in people’s experiential and developmental demands for a “better life.”

For instance, the ice and snow economy, marathon events, deep travel, and study tours in the cultural and tourism sectors and sports industries still have significant consumption elasticity. With the acceleration of population aging, the health and elderly care industry, including nursing care, rehabilitation medical services, elderly tourism, age-friendly home renovations, and long-term care insurance, has become a rigid demand.

Second, there is an expansion from “physical goods” to “digital and green new consumption.” The carriers of consumption are changing, with intangible services and green concepts reshaping domestic demand structure. In terms of digital consumption, including paid applications related to AIGC (artificial intelligence-generated content), quality supply for remote work and online education, and smart home solutions that offer whole-home intelligent solutions, the trend of rapid upgrades in recent years is very evident. As digital technology matures, virtual reality (VR), augmented reality (AR) devices and their content ecosystems, as well as compliant consumption around virtual people and digital collectibles, are forming new transaction scenarios.

In terms of green consumption, green building materials and low-carbon energy-efficient appliances are becoming new choices. As the penetration rate of new energy vehicles continues to rise, a consumption chain is forming around charging services, second-hand vehicle circulation, and battery recycling, with consumers increasingly willing to pay a premium for “low-carbon certification” and “environmentally friendly” products.

Third, there is a shift from “urban agglomerations” to “counties and rural areas.” The greatest potential for 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, the growth rate of social commodity retail sales in first-tier cities is generally lower than the national average, but the more than 2,000 county-level cities and counties have a large population base and enormous consumption potential. The current problem is that supply lags behind demand, with a significant consumption upgrade gap in areas like high-quality dining, chain brands, and high-end entertainment facilities.

From the perspective of modern rural service industries, with the advancement of rural revitalization, the demand for productive services such as socialized agricultural machinery services, cold chain logistics, inclusive finance, and information consulting in rural areas has surged, which belongs to the new space for domestic demand driven by “investment-led consumption.”

Fourth, there is a shift from “traditional infrastructure” to “new quality productivity and public service” investments. Domestic demand includes not just consumption but also effective investment. The new investment space is no longer concentrated in “iron and public infrastructure.” One focus during the “14th Five-Year Plan” period is new infrastructure such as computing power centers, data centers, and ultra-high voltage, along with “dual-use” public infrastructure, which can both drive investment and transform into long-term consumption resources.

Urban renewal, affordable housing construction, and the transformation of urban villages are another key area. This is not only a replacement for real estate but also improves the urban living environment, releasing related consumption from residents in areas like home decoration, appliances, and community services. Additionally, research and design, information technology services, modern logistics, legal services, and technology finance are critical modern productive service industries that will help us transition from a manufacturing powerhouse to a strong nation and represent a huge domestic demand market from the enterprise side.

In summary, expanding new space for domestic demand essentially involves shifting from “whether or not” to “how good.” Opening up these spaces requires accompanying institutional reforms.

Transforming the supply system from “selling what we have” to “producing what is needed.”

NBD: In the current context where the public is “afraid to spend,” how can we expand new space for domestic demand?

Zhao Changwen: China’s resident consumption rate has long remained around 40%, which is indeed lower than the levels of over 60% in developed countries. The “fear to spend” is the result of the intertwined effects of expectations, income, and wealth. Therefore, policy efforts should focus on the following three aspects:

First, increase income so that the public “can consume.” This mainly includes formulating and implementing urban and rural resident income increase plans, improving the normal wage growth mechanism, and increasing the proportion of labor remuneration; stabilizing the real estate market, implementing comprehensive measures to stabilize the stock market, and broadening channels for property income, forming a positive cycle of “wealth growth - consumption expansion - economic growth.”

Second, reduce burdens so that the public “dare to consume.” This mainly includes improving the social security system, raising medical insurance subsidy standards, developing inclusive childcare services, and alleviating rigid expenditure pressures in education, healthcare, and elderly care; steadily increasing the basic pension for urban and rural residents, reducing the motivation for precautionary savings; clearing unreasonable restrictions in the consumption field, implementing a paid staggered vacation system for workers, allowing residents to “have leisure” to consume; increasing the proportion of state-owned enterprise profits contributed to the fiscal budget, specifically for enhancing the level of social security for all.

Third, by improving supply, make the public “willing to consume.” Implement a service consumption quality improvement initiative to create a number of new consumption scenarios that have wide impacts and high visibility. Cultivate domestic brand products, promote upgraded innovative products, and shift the supply system from “selling what we have” to “producing what is needed.” Strengthen consumer rights protection and create a trustworthy consumption environment.

Propose to launch a “social infrastructure renewal” plan and establish an “AI transition buffer fund.”

NBD: This year, the scale of college graduates is expected to reach 12.7 million, with pressures from both total employment and structural “mismatches.” The current impact of AI on employment cannot be ignored. How should macroeconomic policies be designed to ensure that AI transitions from “impacting” employment to “empowering” employment?

Zhao Changwen: This is a core issue related to economic resilience and social stability. In the face of both “total pressure” and “structural mismatch,” macroeconomic policies must transcend the traditional thinking of “growth equals employment” and shift toward a systematic approach focused on buffering, adapting, and creating, transforming artificial intelligence from an “impact variable” on employment into an “empowering constant.”

First, counter “passive replacement” with “active creation” to build an employment buffer zone. When the speed of technological replacement exceeds the speed of laborers’ transformation, the primary task of policy is to “buy time and build buffers.” It is recommended to launch a “social infrastructure renewal” plan, drawing on the idea of “work for relief,” to transform public investments in urban renewal, old community renovations, age-friendly facility construction, and ecological restoration into “skills retention” positions aimed at college graduates. These positions not only provide a transitional employment period but also cultivate “soft skills” such as project management and teamwork through project practice, which are difficult for AI to replace.

Consider establishing an “AI transition buffer fund.” For traditional industries that shrink due to technological replacement, finance and social security should jointly fund to provide those affected with income protection and full-time training subsidies for 12 to 24 months, transforming “unemployment shocks” into “job transition windows.” Tax policies can also guide enterprises that replace manpower with AI on a large scale to establish special funds for employee placement.

Second, address “structural mismatches” through “supply-demand adaptation,” reshaping the “education-employment” closed loop. Currently, the most acute contradiction is the “time lag” of 3 to 5 years between college major setups and industrial technology demands. It is suggested to establish a dynamic adjustment mechanism for “industry-education integration,” linking talent demand forecasts from the industrial side, especially skill maps for AI-related positions, with college enrollment plans; provide per-student funding inclinations to colleges that add scarce majors such as artificial intelligence, data science, and smart equipment; and implement enrollment reduction warnings for majors with persistently low employment rates.

Explore the promotion of a “micro-credential” system after degrees. For graduates whose skills do not match their degrees, public finance should purchase high-quality “AI + industry” micro-credential courses from training institutions, achieving rapid skill reshaping within 3 to 6 months; completion certificates should be jointly certified by leading companies and colleges to facilitate the “last mile” of employment.

Third, reconstruct “job connotations” with “human-machine collaboration” to cultivate a new quality employment ecosystem. The true value of AI lies not in replacing humans, but in enhancing human labor productivity, thereby creating higher-value jobs. It is suggested to implement a “thousands of industries AI empowerment project,” using tax deductions and special subsidies to encourage small and medium enterprises to retain and upgrade existing positions while introducing AI tools.

For example, when retail companies deploy intelligent recommendation systems, they should redeploy saved labor into roles such as user experience designers or private domain operation specialists, forming a positive cycle of “technology upgrade - efficiency improvement - job upgrade.” Support “AI-native” new business forms, focusing on the development of emerging occupational clusters such as AI content creation, intelligent robot operation and maintenance, data labeling and governance, and model training and tuning. These positions correspond closely to the knowledge structure advantages of college graduates.

Fourth, establish “institutional innovation” to build a solid “safety base” and construct inclusive employment protection. Include workers unemployed due to AI replacement in the coverage of unemployment insurance and study the establishment of “skill transition accounts,” allowing individuals to convert unemployment insurance funds into training funds and choose their own learning directions. Improve protections for new employment forms, and for platform-based and flexible employment spawned by AI, require platform companies to contribute to workers’ occupational injury insurance and retirement funds, eliminating laborers’ concerns about “not daring to transition or unwilling to transition.”

In summary, the relationship between AI and employment is essentially a race between technological iteration and laborer transformation. The wisdom of macroeconomic policy lies in “exchanging space for time” to ultimately achieve a historic leap from “machines replacing humans” to “machines enhancing humans.”

The “14th Five-Year Plan” period has officially entered a decisive phase where “new momentum takes the lead.”

NBD: This year’s report and the “14th Five-Year Plan” outline both mention “emerging pillar industries.” Does this mean that future strategic emerging industries will contribute more increments to economic growth? Correspondingly, what role will traditional industries like real estate play?

Zhao Changwen: The transition from “strategic emerging industries” to “emerging pillar industries” marks that the narrative of China’s economic growth during the “14th Five-Year Plan” period is officially transitioning from a transitional phase of “new and old momentum conversion” to a decisive phase where “new momentum takes the lead.”

Strategic emerging industries emphasize forward-looking layout, technological breakthroughs, and future potential; emerging pillar industries mean that these industries have completed the transition from laboratory to production line and formed a significant industrial scale. For instance, the “new three samples,” represented by new energy vehicles, photovoltaics, and power batteries, along with artificial intelligence, biological manufacturing, and commercial aerospace, have long industrial chains, high relevance, and strong employment absorption capacity, now exhibiting characteristics similar to the scale of “pillar industries” like real estate and automobiles in the past.

At the same time, these industries still possess immense growth potential and empowerment space in the future. Emerging pillar industries represent the enhancement of total factor productivity and serve as carriers of new quality productivity. Their contribution is no longer merely “quantitative growth,” but also “qualitative improvement,” driving the entire economic system’s upgrade through technological spillover.

As emerging pillar industries come to the forefront, the role of real estate will inevitably undergo a fundamental transformation. In the future, industries like real estate will fundamentally reshape their functions from “engine” to “stabilizer,” transitioning from the past “growth engine” to “livelihood foundation” and “risk baseline.”

Therefore, the emphasis on “emerging pillar industries” sends a clear signal. The Chinese economy is seeking and establishing new growth drivers that can replace traditional momentum, but this does not mean they will completely exit the historical stage; rather, they need to find the correct way to coexist with new quality productivity in the new development phase, ensuring that they soften their landing and create time and space for the rise of emerging industries.

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Cover photo source: Provided by the interviewee.