China's New Economic Boost: Investing in People to Revive Growth

For decades, China has relied on exports and innovation to fuel its remarkable economic growth. However, this model is now under strain as the global economy faces headwinds. In the past, when growth slowed, Beijing turned to familiar tactics - building more apartments, motorways, factories and industrial parks - fuelling expansion through state investment, exports and a booming property market.

But this time, China's leadership is taking a new approach, shifting the focus towards boosting domestic consumption and supporting innovation. The goal is to create a more sustainable, balanced and resilient economy that is less dependent on external factors.

At the heart of this new strategy is a push to invest in people - through improved social welfare, better education and training, and policies aimed at raising incomes and empowering consumers. By putting the needs of citizens first, Beijing hopes to unleash a new wave of domestic spending that can help offset the slowdown in exports and investment-driven growth.

"This is a fundamental shift in the Chinese economic model," says Eswar Prasad, a professor of trade policy at Cornell University. "The government recognizes that the old growth model is running out of steam, and they need to find new engines of growth."

One key element of the new approach is a push to boost research and development (R&D) spending. China has set a target of raising its R&D intensity - the share of GDP spent on R&D - to 2.8% by 2025, up from 2.4% in 2021. This investment in innovation is seen as crucial for developing new technologies and industries that can drive future growth.

Alongside this, the government is rolling out a range of social welfare reforms aimed at supporting the middle class and reducing income inequality. These include measures to improve access to affordable housing, healthcare, education and pensions.

The ultimate goal is to create a thriving consumer class that can power domestic demand and reduce China's reliance on exports. "If they can get this right, it could transform the Chinese economy," says Prasad.

But the shift won't be easy. Rebalancing the economy away from investment and exports towards consumption and innovation will require fundamental changes to policies, institutions and mindsets. And with the global economy facing significant headwinds, the pressure is on for China to get this transition right.