Weekend Long Read: How China Should Tackle Complex Challenges in Its 15th Five-Year Plan

[para. 1] As China prepares for its 15th Five-Year Plan (2026-2030), the nation faces significant challenges and opportunities in both its domestic economy and global positioning. There are growing complexities in the geopolitical landscape, especially as the U.S.-China relationship undergoes fundamental shifts, which affects the dynamics of global cooperation and China's own development agenda. Internal pressures such as real estate and debt further complicate policy decisions, requiring careful recalibration as the economy transitions into a new phase of development[para. 1].

[para. 2][para. 3] Insights into the future direction are provided by Xu Lin, a former senior official of China’s National Development and Reform Commission and current chairman of the China-U.S. Green Fund. Xu emphasizes that the core of global geopolitical shifts is the changing nature of China-U.S. relations. As the international system fragments and the U.S.-China rivalry intensifies, improvements with other major partners such as Europe, Japan, Australia, and South Korea are unlikely unless the U.S.-China relationship stabilizes. China-Europe relations are particularly crucial but are constrained by China's stance on the Russia-Ukraine conflict and coordinated Western positions towards China[para. 3][para. 4][para. 5]. While positive momentum can be found in China’s relations with Latin America, Africa, and ASEAN, these regions are becoming arenas for strategic competition with the U.S.[para. 7]. Xu points out that flashpoints with potential for conflict, such as the South China Sea, Taiwan Strait, and Korean Peninsula, remain areas over which China retains significant initiative[para. 9][para. 10].

[para. 11][para. 12][para. 13] Xu asserts that despite ongoing external pressures and internal economic challenges, China retains ample room to maneuver and safeguard its interests, employing diplomatic wisdom and leveraging its comprehensive national strength to secure peace and development.

[para. 14][para. 15][para. 16][para. 17][para. 18][para. 19] Turning to economic strategy, Xu supports setting an average annual growth target of around 4% for the next five to ten years, citing demographic decline (a 40 million drop in the working-age population since 2015), a decrease in the savings rate (from 47.9% in 2015 to about 44% in 2024), and slowing productivity growth. He contends that targeting higher growth would be unrealistic given both cyclical issues (such as property and debt concerns) and structural challenges (particularly weak market confidence)[para. 16]. Achieving this moderate growth target, while maximizing employment and containing the debt-to-GDP ratio, would represent a successful outcome[para. 19].

[para. 20][para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28][para. 29] Xu identifies four key transformative drivers for China’s next phase: 1) Transformation toward a service economy – China’s service sector remains underdeveloped compared to developed nations, with service consumption accounting for only 46% of total consumption, versus 69% in the U.S. and 56% in Japan. Expanding the service sector would boost income distribution and employment[para. 23][para. 26][para. 27]; 2) Digital and intelligent transformation – While China’s digital economy accounts for 45% of GDP, it lags about 20 percentage points behind the U.S., but Western technological blockades now provide impetus for China’s own innovation and import substitution, particularly in semiconductors[para. 28][para. 29]; 3) Green and low-carbon transformation – Xu expects massive investment (25–30 trillion yuan during the 15th Five-Year Plan) in renewable energy and related sectors, potentially creating an industry cluster worth over 100 trillion yuan in the long run[para. 31][para. 32]; 4) All three major transformations will drive economic momentum for decades[para. 33].

[para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40] Xu also advocates for an “institutional opening-up,” stressing that as China’s economic clout grows, its practices attract global scrutiny. Unwarranted subsidies, especially those inconsistent with WTO obligations, could invite retaliatory measures such as countervailing duties from the U.S. and its allies under a Trump administration[para. 36][para. 37][para. 38]. He suggests comprehensive pilot reforms in places like Hainan to benchmark global best practices, signaling that open and market-driven reforms are necessary to adapt China’s system to global standards[para. 41][para. 42][para. 43].

In summary, Xu Lin believes that by anchoring economic growth at a realistic level and pursuing service, digital, and green sector transformations while deepening institutional openness, China can navigate turbulent geopolitics and internal headwinds to secure long-term development and stability[para. 1][para. 2][para. 3][para. 11][para. 33][para. 43].