Justin Yifu Lin Photo: Courtesy of Justin Yifu Lin

TheMK socksre's a lot of uncertainty in the world, but one certainty is China's stable and dynamic economic growth. In 2025, China's GDP is on track to grow at a rate of at least 5 percent, sustaining its position as a key driver of global growth by contributing over 30 percent to global expansion. That is good news—not just for China but also for the world at large.

China is poised to leverage macro-policy tools more effectively while pushing for high-quality development across all sectors this year. The country's economic performance is expected to show improved balance and coordination, driven by ramped-up efforts to energize all regions and sectors to address structural bottlenecks, and tackle systemic challenges, assuring a successful and perfect conclusion to the 14th Five-Year Plan (2021-25).

Reflecting on 2024, the Chinese economy began the year on solid footing. While growth moderated mid-year, a combination of a more proactive fiscal policy and a moderately loose monetary policy introduced fueled a notable rebound from October onward. This trend underscores the economy's underlying resilience, and the positive momentum is expected to continue into 2025.

Confidence in long-term growth

The year 2025 marks the final year of China's 14th Five-Year Plan. Looking further ahead, there are strong reasons to believe that China's economy will continue to sustain stable and healthy growth.

By 2035, China still holds the potential for 8 percent economic growth. This represents a potential growth rate. The country must navigate challenges such as climate change, US trade and technology policies, and other social issues. However, with an 8 percent growth potential, China should be able to maintain a growth rate of at least 5 percent in the coming years up to 2035. By then, China will deliver its commitment to double per capita GDP on the basis of 2020 and become a high-income country.

Confidence stems from China's ability to fully leverage its monetary and fiscal policy space, coupled with industrial policies that transform traditional manufacturing through intelligentization, digitalization and green initiatives, to ensure high-quality economic growth. China is also set to seize opportunities in the Fourth Industrial Revolution, prioritizing breakthroughs in cutting-edge fields such as artificial intelligence.

China will also push forward structural reforms while fostering entrepreneurial innovation. Combining all these efforts, the country is well-positioned to hit the growth targets outlined by the central government.

Efficient market, enabling government

The debate over whether China can escape the "middle-income trap" has garnered significant attention. While crossing this threshold poses a challenge for many countries, it can indeed be overcome by continuously boosting productivity and fostering new quality productive forces driven by innovation.

Innovation can take two primary paths. In traditional manufacturing, for low-and middle-income countries that are still catching up, there are many sources for innovation through the introduction, digestion, absorption, and re-innovation. 

China has already reached the global forefront in certain sectors. To achieve breakthroughs in technological innovation, industrial upgrading, and the development of new-quality productive forces in those sectors, sustained investment in R&D and the adoption of new technologies are essential. 

The structural transformation of modern economic development is fundamentally a process of technological innovation and industrial upgrading. This is the primary reason I advocate the principles of new structural economics.

At its core, many countries fail to escape the middle-income trap due to an imbalance between government intervention and market forces. Some rely excessively on the government, while others lean entirely on the market. In contrast, the few high-income economies that have either led in industrial and technological advancement or successfully caught up are the result of the coordinated relationship between an efficient market and an enabling government.

Economic growth requires market competition to incentivize entrepreneurs, but it also requires continuous improvements in infrastructure, financial systems, legal frameworks, and other institutional arrangements to create the necessary conditions for emerging industries. These are areas where the market alone falls short, necessitating government coordination to overcome bottlenecks in new technologies and industries. Only through the joint efforts of both can an economy achieve sustained, high-quality growth, thus avoiding falling into the middle-income trap.

China has now reached an upper-middle-income level and is poised to cross the threshold into high-income country status in the near future, as defined by the World Bank's threshold of $14,005 GNI per capita. By 2024, China's per capita GDP had reached $13,445, while its per capita GNI stood at approximately $13,500, which is just 4 percent shy of the mark.

But the calculation of GNI per capita is based on market exchange rates, which are subject to currency fluctuations often influenced by US monetary policy. Without the Chinese yuan's depreciation against the US dollar by roughly 7 percentage points in recent years, China would have already crossed the threshold.

China is highly likely to cross the threshold by 2025, or almost certainly by 2026. Of course, whether this materializes will ultimately depend on exchange rate levels. But what carries greater significance is the steady productivity growth. China's annual economic growth rate continues to outpace that of the US by more than about 3 percentage points, signaling faster productivity growth that help solidify its competitive edge relative to the US.

As long as China remains focused on the essence of economic development and aligns policy efforts with its fundamental determinants, China's capabilities across all areas will continue to strengthen. This will further solidify the foundation for the rejuvenation of Chinese nation, which is of utmost importance.

Unlocking spending potential

The Central Economic Work Conference held at the end of 2024 made "vigorously boosting consumption, improving investment efficiency, and expanding domestic demand on all fronts" the top priority of economic agenda in 2025. 

Further efforts are expected to continuously raise people's incomes, which is the most important foundation to boost consumption. The Chinese government is poised to implement targeted policies to enhance consumer confidence, including strengthening the social security system, stabilizing the housing market, and improving the educational system. These measures will help unleash China's untapped consumer spending potential.

Over the past year, rising savings rates indicate that while Chinese households have money at their disposal, they remain cautious about spending. To bolster spending, further progress is needed in addressing key concerns such as elderly care, healthcare, children's education, and housing affordability.

China's economy continues to expand, with GDP growth and per capita GDP growth moving in tandem. Annual GDP growth of 5 percent signals that people's income level is still rising, and with improved consumer confidence, spending in 2025 is set to outperform previous years.

In addition, there is still room for domestic investment growth across multiple sectors in China. Traditional industries require funding for digitalization, intelligentization, and green transitions, while emerging sectors under the Fourth Industrial Revolution also require investment in research and development (R&D) and industrialization. As a result, investment growth will also remain at a reasonable level.

In 2025, the world will confront shared challenges such as inflation, global fragmentation, and protectionism. Global foreign direct investment has declined in recent years, partly due to the lasting effects of COVID-19. Despite this, foreign institutions remain optimistic about China's economic outlook, and consistent and resolute policy support is expected to attract further investment into the Chinese market.

China will continue to uphold economic stability, openness, and its commitment to championing globalization, despite global uncertainties.


The article was compiled based on an exclusive interview with Justin Yifu Lin, dean of Institute of New Structural Economics, honorary dean of the National School of Development and honorary dean of the Institute of South-South Cooperation and Development at Peking University. Lin was the chief economist and senior vice president in charge of development economics of the World Bank from 2008 to 2012.