How can the "temperature gap" between macroeconomic data and micro-level sentiment be narrowed? Where are the levers for boosting consumption and expanding domestic demand? How can the contradiction between existing real estate inventory and housing demand be resolved? Liu Qiao, a professor at Peking University's Guanghua School of Management, offers his answer: direct more resources toward "people" and do the things that are hard but right.

Narrowing the Economic "Temperature Gap": From Investing in Things to Investing in People

For some time, China's economy has maintained real growth of around 5%, contributing nearly 30% to global economic growth. Yet many business operators and ordinary residents still feel a chill. Liu Qiao believes this temperature gap stems first from price factors: the producer price index (PPI) has been on a general downward trend since the second quarter of 2023, with nominal growth lower than real growth, and it is nominal growth that households and small and medium-sized enterprises actually experience. Second, household disposable income accounts for about 43% of GDP, and the household consumption rate is below 40%, creating a natural gap between macro figures and individual experience. The deeper reason lies in the fact that the Chinese economy has long excelled at "investing in things." China's manufacturing capacity accounts for more than 30% of the global total, and manufacturing value added accounts for nearly a quarter of GDP. But Liu Qiao points out that the ultimate purpose of growth is to improve people's well-being, and the two must not diverge. Investing in people is a slow endeavor—it involves how value is realized, how distribution is optimized, and how public services are equalized, far more difficult than launching projects and expanding capacity. What truly constrains growth is often not the things we are good at, but the things that are hard yet right.

Growth Is Not a Panacea: The New Anchor Should Focus on Income and Profits

Insufficient domestic demand cannot be addressed by investment alone. Liu Qiao cautions that after decades of intensive investment, capacity in many industries is already relatively saturated—new energy vehicles, air conditioners, and smartphones all account for very high shares of global capacity, and the room for continued "investment in things" is narrowing. Whether consumption can pick up fundamentally depends on household income and confidence. He offers a set of key figures: China's household disposable income accounts for about 43% of GDP, and without borrowing to consume, this is almost the ceiling for the consumption rate; in typical industrialized countries, this ratio is about 60%. Property income is an even greater weak spot—currently household property income accounts for less than 4% of GDP. If it were raised to around 15%, the share of household disposable income in GDP could increase by about 12 percentage points. This means that developing a capital market capable of delivering reasonable returns to investors and promoting inclusive finance are themselves important ways to boost domestic demand. The consumption structure is also changing. Service consumption currently accounts for about 46% of household consumption, and Liu Qiao expects this share could rise to 60% by 2035. The quality, cost-effectiveness, and willingness to pay for service consumption will become new opportunities for enterprises. At the same time, he cautions that policy must not be one-sided. Hardcore technology sectors account for about 17% of GDP and are developing rapidly, but the other 80%-plus of economic sectors—especially the vast number of small, medium, and micro enterprises—are closest to people's livelihoods, employment, and consumption, and equally need financial support and policy care. Growth is not a panacea. Liu Qiao proposes that growth needs an "anchor"—not overemphasizing scale, but focusing on quality. He suggests that local economic accounting could adopt more of an "income approach," examining whether labor income is growing and whether corporate profits are improving within a locality's GDP. These indicators are more closely related to high-quality development and can also guide local governments toward structural adjustments in their policy direction.

250 Million New Urban Residents and 4 Trillion Yuan in Existing Housing: Opening Up Space for Real Estate Transformation

Investing in people cannot bypass a massive group: approximately 250 million people who already work and live in cities but have not yet been fully incorporated into the urban public service system. Liu Qiao states that the urbanization rate of permanent residents is currently about 67%, but the proportion of the population fully enjoying urban public services is roughly 18 percentage points lower. This means 250 million people live in cities but struggle to equally access education, healthcare, housing, and other benefits. They often find themselves "suspended between two worlds," with their development potential suppressed. He believes that resolving the equalization of public services for this group would unleash substantial demand for housing, education, healthcare, and consumption, which is highly important for boosting domestic demand and transforming the industrial structure. Corresponding to this is the structural contradiction in real estate: existing commercial housing inventory is high, while the housing needs of new urban residents remain unmet. Liu Qiao believes that future real estate operations need to shift from a "developer model" to an "operator model," developing high-quality long-term rental apartments and affordable housing, and he suggests advancing this goal through REITs funds. REITs are real estate investment trusts that package income-generating real estate—such as shopping malls, highways, and commercial housing—into fund units that are bought and sold on securities trading platforms. Their returns mainly come from rental and other operating income, and by law, the vast majority of profits must be distributed to investors. Currently, China's REITs all use infrastructure as underlying assets, but Liu Qiao believes REITs funds have great potential in the commercial housing sector as well. He suggests linking housing provident funds with REITs to acquire some existing commercial housing, convert it into long-term rental apartments, have market-based institutions operate them, and achieve asset off-balance-sheet treatment through REITs. The nationwide housing stock is valued at nearly 400 trillion yuan, and the potential of opening up this space is enormous. Liu Qiao estimates that in some second-tier cities, certain projects can achieve investment returns of 5% to 6% or even higher. The difficulty lies in startup capital and supporting policies—policy banks need to provide interest subsidies, and local governments need the courage to pilot first. In his view, China's central government debt stands at about 25% of GDP, which still leaves considerable room in horizontal comparison, and with strong creditworthiness, it is entirely feasible to discuss at the policy level moderately increasing central government debt to provide startup capital for "investing in people." As the 15th Five-Year Plan outline explicitly proposes "closely integrating investment in things with investment in people," a window for reform is emerging. Liu Qiao says that whether value, once created, can be realized, ultimately used by people, and serve people—that is the true endpoint of growth. The direction of the hard but right things is already clear; the key lies in how to act.

Liu Qiao is a professor at Peking University's Guanghua School of Management, editor-in-chief of the Journal of Economics and Management, the fifth dean of Peking University's Guanghua School of Management, a professor and doctoral supervisor in the Department of Finance, a member of the National 14th Five-Year Plan Expert Committee, a Changjiang Scholar Distinguished Professor appointed by the Ministry of Education, and a recipient of the National Natural Science Foundation's Outstanding Young Scholars Fund. He was named a 2017 "Influential Chinese" Economist of the Year by China Newsweek. Professor Liu Qiao has authored numerous works in corporate finance, empirical asset pricing, market microstructure, and Chinese economic research, including "The Finance We Love: Reshaping Chinese Finance in Our Times" and "From Large to Great 2.0: Reshaping the Micro Foundation of China's High-Quality Development."