Premier Li Qiang Pushes Forward on China’s Economic Transformation
Premier Li Qiang’s June 19, 2025 meeting in Jiangsu with provincial leaders marks a definitive culmination of the 14th Five-Year Plan’s central aims: fostering innovation-led industrial transformation and boosting domestic demand. With global trade volatility, U.S. tariffs, and slowing exports challenging China’s external growth engine, Beijing is intensifying efforts to “anchor stability through domestic strength.” Li’s speech emphasized fortifying research and development (R&D), nurturing high-tech sectors like AI, clean energy, and semiconductors, and invigorating consumer spending via subsidies and service-sector support.
This dual-pronged strategy—mirroring the “dual circulation” model—is meant to secure long-term growth resilience. With only months remaining in the 14th Five-Year Plan cycle, the Jiangsu summit signals a national push to translate macro-level goals into regional and sector-specific execution. The choice of Jiangsu, China’s innovation and manufacturing hub, was strategic: it is expected to model how advanced provinces can drive productivity upgrades, deepen private-sector integration, and expand middle-class consumption as the economy reorients inward.
Base Case Scenario – Moderate Stabilization (65%)
In the most likely outcome, China achieves ~5% GDP growth in 2025 as innovation policies and consumer-focused subsidies gain traction but with uneven results across provinces. Jiangsu and a handful of coastal economies implement the new agenda effectively, boosting investment in AI, clean tech, and industrial upgrades. The RMB 300 billion trade-in program and targeted subsidies drive an uptick in household spending, raising consumption’s share of GDP from ~38% to ~41%. However, inland provinces lag behind due to weaker fiscal capacity and administrative inertia. Private sector confidence improves modestly, especially in high-tech and consumer sectors, but capital spending remains cautious. External conditions remain soft, with continued trade friction and weak export demand dampening upside. This base case aligns with the final phase of the 14th Five-Year Plan: stabilizing growth while laying groundwork for deeper structural reform in the 15th Plan.
Upside Scenario – Accelerated Transformation (20%)
Under a stronger-than-expected outcome, China’s economy grows above 5.3%, propelled by full-spectrum execution of innovation and consumption strategies across all provinces. Coordinated policy efforts turbocharge industrial upgrading in AI, semiconductors, and smart manufacturing, while a new wave of service-sector subsidies invigorates sectors like travel, healthcare, and education. Foreign and private investment rebounds sharply due to clearer regulatory signals and attractive fiscal incentives. Employment strengthens, wages rise, and consumer confidence returns—boosting consumption’s share of GDP to ~43%. This virtuous cycle supports productivity gains and middle-class expansion, especially in inland cities. Such a scenario would not only meet the 14th Plan’s ambitions but also shape the contours of the 15th Plan, positioning China as a global tech and consumption powerhouse.
Downside Scenario – Fragmented Execution and External Drag (15%)
In a less favorable scenario, China’s GDP dips below 4.3% as policy execution falters and external headwinds intensify. Outside of model provinces like Jiangsu, innovation policies fail to scale due to bureaucratic inertia and local fiscal constraints. Stimulus programs underperform—delayed implementation, limited scope, or lack of consumer trust restrict their impact. Regulatory unpredictability and tight credit conditions continue to suppress private sector investment, while foreign capital outflows accelerate amid geopolitical risks. Household spending remains sluggish, with consumption stuck at ~39% of GDP, well below target. External shocks—such as a renewed tariff war or a global downturn—compound these challenges, exposing the fragility of China’s rebalancing effort. In this case, the failure to realize the 14th Plan’s end-stage goals would necessitate a more aggressive reset in the next planning cycle.
