Editor's note: China is placing increased emphasis on investment in human capital. Liu Ying, a research fellow at the Chongyang Institute for Financial Studies of Renmin University of China, spoke to China Daily on why investing in human capital is important for the country's future development, and how the government and the private sector must work together on this. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

Investment in human capital aims to enhance people's capabilities and develop their potential throughout their life, thereby stimulating endogenous economic growth. Such investments cover projects to enhance people's education, skills and health, support childcare and elderly care services, boost employment, optimize the income distribution system and cultivate innovative and research talent.

Such investment helps unleash the potential of consumption, allows innovation to play a bigger role in economic growth and contributes to the country's efforts to achieve the well-rounded personal development of its population and common prosperity for all.

As China's economy enters a stage of high-quality development, consumption has become a major driving force for its growth. Final consumption expenditure contributed 52 percent to the country's growth in 2025, with total retail sales of consumer goods exceeding 50 trillion yuan ($7.2 trillion). In addition, consumption of services is gaining momentum.

Still, household consumption accounts for a relatively small share of China's GDP. Many people are inclined to save instead of spending. Insufficient consumer demand is a bottleneck for high-quality development, a challenge that should be addressed through investment in human capital.

As China's population gets older, labor supply has tightened. Also, the development of new quality productive forces requires new skills. Given these challenges, investment in human capital needs to be increased to turn China's waning demographic dividend into a waxing "talent dividend".

Investment in human capital is not a short-term stimulus but a strategic cornerstone for China's continued development. It is not only welfare expenditure, but also a means to increase consumption, support industrial upgrading and enhance total factor productivity.

Both the government and the private sector should participate in human capital investment projects. These projects generally have strong positive spillover effects, and tend to benefit a broad segment of the population. However, they usually require long-term commitment and don't offer significant returns in the short term. The government alone cannot undertake all these projects.

The private sector, which is highly efficient and innovative, could play an effective and complementary role in such investments. Sound mechanisms of policy guidance, risk sharing and profit distribution are necessary to encourage the private sector to participate in these projects, and to promote both public interests and sustainable business operations. In this process, the government should play a crucial guiding role by improving regulations and stabilizing policy expectations.

Greater efforts are needed to explore new business models that enable human capital investment projects to generate sustainable returns. At the same time, it's also important to foster a broad social consensus that values such investment. The government and enterprises should work together to promote the idea that "talent is the primary resource".

While China is emphasizing investment in human capital, investment in physical assets should not be ignored. It remains vital for the country's economic growth and transition. Investment in physical assets, including traditional and new infrastructure and the manufacturing sector, provides the material and technological foundation for the country's economy.

It is worth noting that the two kinds of investment are not mutually exclusive. Rather, they reinforce each other. Together, they form the driving force for the development of new quality productive forces.

Both kinds of investment are necessary for fully unleashing the potential of China's superlarge market. Increased human capital investments in education, healthcare, childcare and elderly care would help enhance the disposable incomes of people and their expectations, thus reducing the need for precautionary savings. On the other hand, higher investments in transportation, digital infrastructure, urban renewal projects and rural water supply projects would improve the quality and accessibility of services and help develop a unified national market.