October Digest | Part 1 — Economics, AI and Local Government

Economic Policy and the 15th Five-Year Plan | AI and Chips | Local Government and Hukou Reform | The Nobel Prize and Chinese Economics

Today’s post offers a round-up of noteworthy analyses and commentaries from October.

1. Economic Policy and the 15th Five-Year Plan:

   1. Yan Yilong on the universal value of the Five-Year Plan system as a model for economic development.

   2. Dic Lo reframing debates on Chinese overcapacity as Western underinvestment.

   3. Cui Zhiyuan on the complementary relationship between investment and consumption.

   4. Li Xunlei on how the Fourth Plenum communiqué reflects China’s shifting investment model.

   5. Wu Xiaoqiu on the mindset shift necessary for capital markets to play a more central role in China’s economy.

   6. Huang Wenzheng & James Jianzhang Liang on the economic rebalancing needed to preserve China’s core population advantage.

   7. Liu Gang on parallels between China’s rising stock market and Japan’s 1990s economic experience.

   8. Zhao Jian on the challenges that lie ahead for the implementation of the 15th Five-Year Plan.

   9. Zhou Qiren on the present necessity of radical fiscal reform and economic liberalisation in China.

2. Technology:

   1. Tang Zhimin on why China’s indigenous chip industry needs a unified software architecture.

   2. Liu Dian & Xu Haosen on the contrasting methods of state support for AI in China and the US.

   3. Xue Zhaofeng on why regulators must come to terms with the ungovernable nature of parts of AI development.

3. Grassroots and Hukou Reform:

   1. Zheng Yongnian & Zhu Yinlin proposing an approach to rural revitalisation that allows reform of the hukou system.

   2. Lü Dewen analysing the institutional slowdown of grassroots governance amid reduced autonomy and budget austerity.

   3. Sun Zhanqing on the threat NIMBYism poses to China’s next stage of urban development.

   4. Lin Xiaoying & Tan Xinyi on the expectations gap faced by the elite graduates entering low-level civil service roles.

4. The Nobel Prize and Chinese Economics:

   1. Zhou Wen arguing for the irrelevance of the Nobel Prize for Economics to contemporary economic issues.

   2. Zheng Yongnian on what China’s relative lack of success at the Nobel Prizes reveals about its higher education system.

   3. Tang Shiping on how Chinese economists have misdirected their research efforts through striving for recognition by Western academia.

   4. Li Bozhong on the faulty assumptions that underlie the push to construct China’s own discourse frameworks in economics and other areas.

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1. Economic Policy and the 15th Five-Year Plan

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Yan Yilong (鄢一龙): China’s Five-Year Plan system has evolved from the original Soviet prototype into a macro-framework that fuses centralised planning with broad consultation and institutional feedback, yielding a governance model with “universal value” [普世价值] applicable to other developmental contexts. Central and local objectives are aligned within legal frameworks that transform goals into achievable and binding commitments—avoiding the volatility of campaign slogans in Western democracies. A forward-leaning planning posture allows the development of technologies that may not generate returns until the next plan, with the current emphasis on boosting indigenous innovation designed to avert the “involution trap” [内卷化陷阱] that limited Japan’s further growth. – Professor, School of Public Policy and Management, Tsinghua University (观察者网, 27 October 2025)

Dic Lo (卢荻): Rather than Chinese overcapacity, the core pathology in global trade is Western capital “going on strike” [怠工]—under-investing in productive technology while enriching executives and investors via share buy-backs—and producing innovative hollowing-out that Chinese competition has exposed, not caused. Claims of insufficient consumption in China obscure the phenomenon of depressed demand from rising income inequality in Western countries; in this context, the supply of cheap, high-quality goods from China has subsidised Western demand and propped up global growth. In fact, there is insufficient investment globally—not an excess of it. While OECD investment rates have trended down in recent decades, only China has sustained high capital formation, with its rise returning productive value creation to the global trade system. – Professor, Lingnan College, Sun Yat-sen University (文化纵横, 30 October 2025)

Cui Zhiyuan (崔之元): The long-term path out of economic “involution” (内卷) (or industrial overcapacity) lies in demand-side reform through raising disposable income—and not simply in curbing competition by reducing supply-side investment. Boosting consumption complements, rather than contradicts, investment-driven growth; without abandoning the investment-driven model, China can address weak consumption through expanding Huawei-style employee shareholding and profit-sharing as well as carrying out stronger redistributive welfare—which will provide legitimacy for planned VAT hikes in 2026. Since 2020, government policy has emphasised combining supply-side investment with demand-side expansion under “dual circulation” [双循环]—an approach likely to continue. – Professor, School of Public Policy and Management, Tsinghua University (文化纵横, 18 October 2025)

Li Xunlei (李迅雷): The Fourth Plenum communiqué’s emphasis on “heavily stimulating consumption and expanding effective investment” [“大力提振消费，扩大有效投资”] signifies that consumption holds unconditional priority, while investment is conditional on its effectiveness. Instead of traditional infrastructure, investment during the 15^th Five-Year Plan will focus on electricity and computing power facilities driven by regional comparative advantages such as “data centres in the east, computing facilities in the west” [东数西算]. In parallel, stronger tax collection will allow broader social insurance coverage and increase overall disposable income, while development of the high-end service sector—including low-altitude aviation and high-end healthcare—will be essential for providing more employment opportunities and encouraging affluent groups to spend domestically. – Chief Economist, Zhongtai International (21世纪经济报道, 27 October 2025)

Wu Xiaoqiu (吴晓求): Although capital markets have been elevated by the leadership to the role of a central “hub” [枢纽] in a new economic model designed for rewarding original innovation, a mindset shift is required to allow them to play this structural role. During the 15th Five-Year Plan, the aim should be to increase inflows to the stock market through full opening to foreign investors and addressing a risk-averse structural tendency that prevents large pools of capital—such as insurance and pension funds—from investing in equities. On the supply side, the risk premium on equities should be raised by including more high-growth tech stocks on the market, while transparency and rule enforcement should be strengthened in line with international standards. – Director, National Academy of Financial Research, Renmin University of China (国家金融研究院, 22 October 2025)

Huang Wenzheng (黄文政) & James Jianzhang Liang (梁建章): China’s main structural advantage in global trade and technology is its vast population scale, which has produced advantages in technological innovation, industrial coordination and market resilience. In rare earths, China’s dominance lies less in resource abundance than in its full-chain industrial system sustained by a vast domestic market in electric vehicles, robotics and renewable energy that has established stable demand and driven iterative upgrading. Yet the demographic foundation for this is eroding. To maintain competitiveness, China should allocate 2–5% of its GDP—financed through long-term bonds—to a National Population Development Fund, redirecting fiscal priorities to domestic renewal of human capital and away from subsidising foreign consumption via tax rebates on exports. – Non-resident senior fellow, Centre for China & Globalization (CCG); Chairman, Trip.com Group (育娲人口研究, 30 October 2025)

Liu Gang (刘刚): Despite recent growth in the Chinese stock market, the pace of household “deposit relocation” [存款搬家] (the shift in capital from low-yield bank deposits to higher-return stock market equities) has slowed, raising doubts about its sustainability. There are parallels between the current slowing of capital flows into the equity market and Japan’s economy in the 1990s. Despite three bull phases that decade, collapsing long-term income expectations, heightened precautionary savings due to pension stress, and rising household debt burdens prevented a long-term shift of household assets into equity markets. To consolidate lasting household participation in the stock market, China should roll out better employment protections, strengthen public pensions and social security, and lower benchmark lending rates to ease household debt pressure. – Managing Director, China International Capital Corporation (CICC) (中金点睛, October 2025)

Zhao Jian (赵建): China enters the 15th Five-Year Plan confronting the difficult reality of having to engineer a controlled “soft landing” [软着陆] for the end of the prior high-speed development model—while also balancing the competing priorities of security and development. With the emphasis now on “high-quality” rather than “high-speed”, policy must focus on upgrading existing production without triggering de-industrialisation, and on transitioning from excess construction towards urban upgrades and reform of the residency system. Meanwhile, competing economic and political pressures add to the complexity: while resolving local-government debt needs greater use of market-based financial restructuring, fiscal policy should also act counter-cyclically through tax cuts and higher public spending to offset deflationary pressure. – President, Xijing Institute (西京研究院, 27 October 2025)

Zhou Qiren (周其仁): Given that “a sick elephant cannot be fed medicine with a spoon” [大象感冒，不能用小勺喂药], China’s vast economy requires radical fiscal reform and economic liberalisation to revitalise its internal market. State inefficiencies must be reduced to enable large-scale tax and fee cuts; local governments should be relieved by reassigning certain fiscal responsibilities to the centre; and household consumption stimulated by expanding social security and lowering mandatory pension contributions. On land reform, asset prices should be stabilised through extending property rights to 100 years or permanence, while the rural-urban divide should be addressed by recognising rural residents’ rights to trade homestead land [宅基地] and dismantling the residency [户籍] barriers to urban migration. – Professor, National School of Development, Peking University (正和岛, 10 October 2025)

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2. AI and Chips

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Tang Zhimin (唐志敏): Rather than focusing purely on hardware innovation, a key breakthrough for China’s chip industry will lie in unifying the instruction set architecture (ISA) software that coordinates processors. As Moore’s Law approaches its limits and transistor speeds plateau, performance improvements now depend on expanding clusters of processor cores in “multi-core architectures” [众核结构]. The proliferation of incompatible instruction systems leads to redundant effort and fragmented ecosystems; by contrast, adopting and developing the open-source RISC-V ISA as a common foundation for CPUs, GPUs and xPUs would concentrate R&D resources and promote large-scale and coherent development of China’s computing-power chip industry. – Dean, School of Computational Microelectronics, Shenzhen University of Advanced Technology (腾讯研究院, 31 October 2025)

Liu Dian (刘典) & Xu Haosen (徐浩森): While America’s AI strategy centres on “market competition backed by government” [全政府主导的市场竞争], China follows a “state-planned” [国家规划] approach focused on unified standards and the integration of “AI+” applications across the economy. The US model depends on securing market supremacy through deregulation, state support for mega-projects, and restricting rivals’ access to advanced chips and frontier models—illustrated by Anthropic blocking use of its Claude chatbot by Chinese IP addresses. Meanwhile, China is advancing open-source “public goods”, developing standards attractive to other states. By pursuing scenario-driven breakthroughs in embodied intelligence that exploit its manufacturing depth, China can build a resilient, high-value ecosystem beyond the reach of US-controlled chokepoints. – Associate Research Fellow, China Institute, Fudan University; MA Candidate, School of Foreign Studies, Zhejiang University (现代金融导刊, Issue 9, 2025)

Xue Zhaofeng (薛兆丰): Regulators must recognise that not all phenomena in the development of artificial intelligence will be “governable” [管得住]. Technological and behavioural forces such as the drive to reduce toil and enhance welfare, the long-term trend to broad surrendering of privacy, and the growing differentiation between individuals through data analytics are largely irreversible. Instead of resisting them, regulators should guide AI into the evolving social and economic order, focusing on balancing the marginal costs and marginal benefits of intervention. As they do so, regulators will necessarily “advance and retreat in battle” [且战且退], carrying out adaptive governance. – Adjunct Professor, National School of Development, Peking University (北大金融评论, 27 October 2025)

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3. Grassroots and Hukou Reform

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Zheng Yongnian (郑永年) & Zhu Yinlin (朱胤霖): To prevent rural development funds from devolving into waste and corruption, policy should adapt to the economic reality of continued urbanisation—liberalising the sale of rural homestead land [宅基地] and pursuing comprehensive reform of the residency system [户籍制度]. To carry out rural renewal and preserve the countryside’s role as an economic buffer for displaced labour, policy should focus on encouraging tourism and migration to the countryside by educated urban elites who are attracted to the rural lifestyle. This draws on the historical practice of officials and merchants “returning home in glory” [荣归故里], anchoring the rural economy to the urban economy and avoiding rural hollowing out even as young people continue to migrate to cities. – Founding Director, Institute for International Affairs, Chinese University of Hong Kong (Shenzhen); PhD Candidate, School of International and Public Affairs, Shanghai Jiao Tong University (文化纵横, October 2025)

Lü Dewen (吕德文): The central challenge for China’s grassroots governance is how to sustain effectiveness and vitality when local governments have “no money left” [没钱了]. Ill-conceived projects such as “rural revitalisation demonstration zones” have left heavy debts after higher-level funds failed to materialise, yet local governments remain responsible for solving all manner of community issues and are scapegoated when problems occur. Meanwhile, the expansion of “cookie-cutter” [一刀切] enforcement through “satellite remote control” [卫星遥感] governance has suppressed local initiative and the apparent reduction in meetings and inspections reflects austerity rather than true efficiency reform. This combination of debt, over-responsibility and shrinking resources signals a deeper institutional slowdown in China’s local governance as the grassroots economy moves away from its previous “development orientation” [发展导向]. – Professor, School of Sociology, Wuhan University (观察者网, 9 October 2025)

Sun Zhanqing (孙占卿): Although NIMBYism [邻避效应] in China—which emerged in response to the effects of high-speed development on the environment and local communities—has recently declined, it may pose a problem in the next stage of China’s economic model. As the direction of urbanisation moves towards upgrading existing stock rather than building out, these new projects could incite opposition from existing residents. Governance should institutionalise “full-process democracy” [全过程民主] to incorporate resident input from planning to operation, relying on social organisations to propagate awareness of the shared benefits of urban development projects. – Vice-Director, Institute for Urban Governance, Guangzhou Academy of Social Sciences (IPP评论, 20 October 2025)

Lin Xiaoying (林小英) & Tan Xinyi (谭心怡): Graduates from elite universities are increasingly entering low-level civil service roles as “iron rice bowl seekers” [考碗族]—motivated by traditional notions of official prestige, but later discovering that within the system, repetitive paperwork and tacit customs matter more than ability. Top universities now compete to channel students into government positions—treating public-exam pipelines as Key Performance Indicators (KPIs) and running bespoke classes—resulting in visible “talent wastage” [大材小用] and oversupply. Within this environment, many adapt to necessary “de-skilling” [去能力化] and settle for their situation as a “second-best solution” [次优解] to their careers, while others style themselves as “river-clam youth” [河蚌青年], oscillating between “lying flat” and “involution” as the situation requires. – Professor; PhD candidate, School of Education, Peking University (青年探索, 9 October 2025)

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4. The Nobel Prize and Chinese Economics

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Zhou Wen (周文): The Nobel Prize in Economics has become increasingly “detached from reality”, rewarding irrelevant historical parallels and elegant mathematical theories while ignoring the world’s real economic challenges—“teetering on the edge of self-amusement” [站在自娱自乐的悬崖边]. By awarding a portion of the prize to Joel Mokyr, the committee has reheated old debates about the causes of the Industrial Revolution; meanwhile, by choosing to recognise the quantitative work of Aghion and Howitt on “creative destruction”, they have ignored the real global phenomenon of “destructive stagnation” [破坏性停滞] as global capital “spins in circles” [空转]. Resting on the implicit assumption that innovation can occur only in Western systems, the work of the laureates offers little to explain contemporary development experiences or China’s achievement of lifting 800 million people from poverty through a non-Western model. – Distinguished Professor and Vice Dean, Institute of Marxism, Fudan University (观察者网, 13 October 2025)

Zheng Yongnian (郑永年): China’s lack of greater Nobel Prize success stems from a status-driven academic and educational culture that prizes external “hats” [帽子]—in the form of status granted by official bodies—and hierarchies in research. This fosters “academic cliques” [学阀] within departments that reward intellectual conformity over excellence and a culture of utilitarian incentives that sap genuine interest and curiosity. The result is a cyclical “restlessness” [躁动] in China each Nobel season, as the prizes tend to reward originality in curiosity-driven research rather than achievement in the applied research that China’s incentive structures prioritise. – Director, Institute of International Affairs, Chinese University of Hong Kong (大湾区评论, 17 October 2025)

Tang Shiping (唐世平): The annual enthusiasm in China surrounding the Nobel Prize in Economics exposes Chinese economists’ fixation on Western economics and the poverty of their contributions to the field, which mainly involve translating local data and narratives into English. While Chinese economists’ focus on publication in Western “Top-5” journals limits their focus on solving real problems, Western economics itself offers little knowledge of value to the Global South. To transcend this intellectual dependency, Chinese economists should reorient their goals towards producing socially useful knowledge, expand their research beyond China to global—and especially non-Western—issues, and establish new genuinely international journals addressing development and political economy across the Global South. – Department of Political Science, Shanghai Jiao Tong University (政治经济学新时空, 17 October 2025)

Li Bozhong (李伯重): Recent calls to construct “China’s own academic and discourse system” [中国自己的学术话语体系] in economics—arising from a perceived “legitimacy crisis” [合法性危机] over dependence on Western intellectual frameworks—are misguided. Abandoning these frameworks is virtually impossible and would leave Chinese scholarship without an intellectual foundation—just as Traditional Chinese Medicine could not function without the aid of Western diagnostic technologies. Rather than indulging in “self-amusement” [自娱自乐] through rhetorical opposition to “Western discourse hegemony” [西方话语霸权], Chinese scholars should strive to produce knowledge that is both useful and engaged with universal human concerns, grounded in rigorous and globally intelligible research. – Chair Professor of Humanities, Peking University (三连学术通讯, 22 October 2025)

SINIFICATION’S OCTOBER POSTS IN REVIEW

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