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.

The Daily Economic News reporter｜Zhang Rui    The Daily Economic News editor｜Wei Wenyi

How can we boost domestic demand if people are expected to “not dare to spend”? How can we ensure that AI (artificial intelligence) shifts employment effects from “disrupting jobs” to “empowering jobs”? What role will real estate play during the “15th Five-Year Plan period” (2026-2030)?

Around the questions above, Zhao Changwen, dean of the Institute of Development Studies at Sun Yat-sen University, Distinguished Professor Wu Xiaolan, and professor at the Lingnan College, gave an exclusive interview to a reporter from The Daily Economic News (hereinafter NBD) during the 2026 annual conference of the China Development Forum.

Zhao Changwen is an authority in China’s macroeconomy and industrial economy fields. He has led the completion of multiple major reform plans and policy research and assessment tasks assigned by the central government. For many years, he has taken part in drafting important conference documents such as the Central Economic Work Conference.

Zhao Changwen, dean of the Institute of Development Studies at Sun Yat-sen University
Image source: provided by the interviewee

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

NBD：This year the Government Work Report proposed “expanding new growth space for domestic demand”, where exactly is this “new space”** mainly located?**

**Zhao Changwen：**This is an extremely critical and era-defining question. Under the new “dual circulation” development paradigm, expanding domestic demand is no longer simply about “stimulating consumption,” but about finding structural growth space. Based on the situation today, there are mainly the following trends:

First, there is an upgrade from “housing and transportation consumption” to “service consumption.” As China’s per-capita GDP has surpassed $14,000, it is a general pattern that household consumption shifts from goods to services. The marginal income elasticity of service consumption is higher than that of goods consumption. Traditional demand pillars such as housing and automobiles are already in a period of relative stability or even adjustment. The new space lies in people’s experience-based and development-oriented needs for a “better life.”

For example, cultural and tourism and sports industries such as the ice-and-snow economy, marathon events, in-depth travel, and study tours still have substantial consumption elasticity. As population aging accelerates, including elderly care and nursing, rehabilitation medical care, senior tourism, age-friendly home renovation, and long-term care insurance and other financial services, the healthcare and elderly-care industries are becoming rigid demands.

Second, there is an expansion from “tangible goods” to “digital and green new-type consumption.” The carriers of consumption are changing; intangible services and green concepts are reshaping the structure of domestic demand. From the perspective of digital consumption, including paid applications related to AIGC (AI-generated content), high-quality supply of remote work and online education, and whole-home intelligent solutions enabled by smart homes—recent years have clearly shown an accelerating upgrade trend. With digital technology maturing, virtual reality (VR) and augmented reality (AR) devices and their content ecosystems, as well as compliant consumption centered on virtual humans and digital collectibles, are forming new transaction scenarios.

From green consumption, green building materials and low-carbon energy-saving appliances are becoming new choices. As the penetration rate of new energy vehicles continues to rise, a consumer chain involving charging services, used-car circulation, and battery recycling is taking shape. Consumers are increasingly willing to pay a premium for “low-carbon certification” and for being environmentally friendly.

Third, there is a shift from “urban agglomerations” to sinking into “counties and rural areas.” China’s biggest potential for domestic demand lies in “urban-rural integration.” In recent years, due to factors such as the contraction effect in the real estate market, the growth rate of social retail sales of consumer goods in first-tier cities has generally been lower than the national average. However, more than 2,000 county-level cities and county areas have a large population base as well as huge consumption potential. The problem currently is that supply lags behind demand—there are significant consumption upgrade gaps, such as high-quality dining, chain brands, and high-end cultural and entertainment facilities.

From rural modern service industries, as rural revitalization advances, demand in rural areas for productive services such as agricultural machinery socialized services, cold-chain logistics, inclusive finance, and information consulting has surged. This is a new space for domestic demand driven by “investment spurring consumption.”

Fourth, investment shifts from “traditional infrastructure” to “new quality productive forces and public services.” Domestic demand includes not only consumption, but also effective investment. New investment space is no longer concentrated on “hard infrastructure investment.” One of the priorities in the “15th Five-Year Plan period” is new infrastructure such as computing power centers, data centers, and ultra-high-voltage transmission, as well as “using both peacetime and emergencies” public basic infrastructure. These can both stimulate investment and be transformed into long-term consumption resources.

Urban renewal, the construction of保障 housing (social housing), and redevelopment of urban villages are another key area. This is not only a substitute for real estate, but also, by improving urban living environments, it releases related consumption by residents in areas such as home renovation, appliances, and community services. In addition, modern productive service industries such as R&D design, information technology services, modern logistics, legal services, and technology finance are key to our transition from a manufacturing powerhouse to a strong country. They are also a huge domestic demand market on the business side.

In short, expanding new domestic demand space is fundamentally shifting from “whether there is” to “whether it is good.” Opening up these spaces requires supporting institutional reforms.

Shift the supply system from “making and selling what exists” to “making what is needed”

**NBD：**Given the current expectation among people that they “don’t dare to spend,” how can we expand new domestic demand space?

**Zhao Changwen：**China’s household consumption rate has long been maintained at around 40%, which is indeed lower than that of developed countries at 60% or even higher. “Not daring to spend” is the result of intertwined factors: expectations, income, and wealth. Therefore, policy focus should also be placed in the following three areas:

First, let people “be able to consume” by increasing income. This mainly includes formulating and implementing income-increase plans for urban and rural residents, improving mechanisms for normal wage growth, and raising the share of labor remuneration; focusing on stabilizing the real estate market, implementing comprehensive measures to stabilize the stock market, expanding channels for property-based income, and forming a virtuous cycle of “wealth growth—consumption expansion—economic growth.”

Second, let people “dare to consume” by reducing burdens. This mainly includes improving the social security system, raising the standards of medical insurance subsidies, developing inclusive childcare services, and easing the pressure of rigid expenditures such as education, healthcare, and elderly care; steadily increasing the basic pensions for urban and rural residents and lowering the motive for precautionary savings; clearing out unreasonable restriction measures in the consumption sector and implementing the paid staggered leave