Aerial view of a villager drying Chinese fan palm leaves on July 21, 2025 in Neijiang, Sichuan province of China.
Vcg | Visual China Group | Getty Images
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highly ranked Peking University‘s Guanghua School of Management. Academics at Beijing’s top schools often share recommendations with policymakers.
It’s not that the persistent drop in prices should be overlooked, but that they’re signaling the need for more serious changes — just as China prepares its “15th five-year plan.” It’s a national social and economic development blueprint for the period from 2026 to 2030. China is wrapping up its 14th such plan this year and is expected to reveal details for the next five years in the coming months.
“When we talk about the 15th five-year plan, the key issue is how to grow productivity,” Liu Qiao, dean of the Guanghua School and a finance professor, told me last week.
He’s referring specifically to “total factor productivity,” a measure of an economy’s productivity gains from technology, innovation, economies of scale, or policies, without adding more labor or capital.
According to the International Monetary Fund, China’s total TFP growth fell from 4.1% in the 2000s to 2.6% in the 2010s, and entered a state of decline from 2006. Liu believes China’s TFP needs to grow by at least 2% or more.
To that end, tech innovation is an important part of the upcoming five-year plan, Liu said. But he added that institutional reform is just as important.
The Chinese Communist Party’s grip on the state and its institutions enables it to exert greater influence over the economy than in the U.S., for example.
“80% of China’s total factor productivity comes from institutional reform,” economist Zhou Tianyong wrote in an opinion piece in Chinese business news magazine Caixin, which CNBC translated. Zhou is a former vice president of the International Strategy Institute at the Central Party School, China’s higher education institution for training party leaders.
Zhou pointed out that the textbook definition of technology as a way to boost productivity doesn’t necessarily apply in China, where business and consumer interests are constrained in certain areas. “Without economic system reform, there will be no medium-to-high-speed growth.”
All this may seem rather academic for the average markets discussion more focused on deflation, industrial overcapacity and spillover into trade tensions. But public debate is limited in China. In a country where leaders operate by building consensus behind closed doors, policy signals come largely from key phrases in government documents and high-level speeches.
according to a state media readout.
“Routine assessments [of officials] cannot only focus on how much GDP has grown and the number of major projects, but also on how much debt is owed,” Xi said at another high-level meeting this month that focused on urban development.
The current system for evaluating the performance of government officials has also inadvertently contributed to China’s overcapacity issues, where industries are producing more goods than the market can absorb, according to Goldman Sachs.
Local authorities are incentivised to collect revenue even if manufacturers are losing money under the current production-based tax system, Goldman Sachs Chief China Economist Hui Shan said in a report Monday.
“Solving overcapacity issues requires a different incentive structure for local officials’ evaluation and promotion,” she added.
“None of these fundamental adjustments will be easy or quick to implement.”
As China’s economic growth slowed over the last several years, Beijing has emphasized the need for “high-quality” development. But the country still makes a big deal out of its annual GDP target, which is 5% this year.
Looking ahead, China will likely signal a lower growth target around 4.5% to 5%, Guanghua’s Liu said. But what’s more important in his view is that local authorities may then be able to focus more on consumption, rather than investments, which have contributed to overcapacity issues.
