Over the next five years, China's industrial policy will undergo a major transformation, shifting its focus from scale to quality and efficiency, said Xing Ziqiang, chief China economist at Morgan Stanley.

Xing expects China to rein in excessive local subsidies and disorderly competition while advancing a unified national market. Support measures will be transparent, open and consistent for both domestic and foreign entities, fostering a more competitive and unified market, he said.

Xing made the remarks on the sidelines of the Forum on Financial Innovation Empowering the High-Quality Development of the Private Economy, which is part of the Annual Conference of Financial Street Forum 2025, in Beijing on Tuesday.

He added that, combined with stronger domestic demand policies — especially through enhancing the social security system to better protect low and middle-income groups such as farmers and migrant workers — these reforms will boost consumer confidence and unlock greater consumption potential. Private enterprises, he said, will gain greater development opportunities under such coordinated financial and fiscal policies.

Xing also noted a revival in capital activity. Since the second quarter, policy shifts in the United States have prompted global investors to diversify away from heavy reliance on the US economy and dollar assets, restoring confidence in Chinese markets and injecting new vitality into capital flows.

Domestically, policymakers have promoted more flexible and long-term asset allocation. As a result, long-term asset allocators such as insurance companies expanded equity investments by nearly 1.5 trillion yuan ($211.3 billion) so far this year, while households have gradually redirected over 800 billion yuan from time deposits to more flexible assets such as wealth management and equity products.

"Whether it's the demystification of the US dollar's dominance overseas or the domestic search for higher-yielding assets, China's policy support has provided a solid safety net," Xing said. "Enterprises have demonstrated renewed vitality, while the financial sector has effectively channeled returns from new quality productive forces to the general public."

Participants at the forum discussed how financial innovation can better empower the high-quality development of the private sector.

Tian Xuan, dean of the National Institute of Financial Research at Tsinghua University and associate dean of Tsinghua University PBC School of Finance, said that technological innovation is the core driving force behind high-quality economic growth, and the private sector, as a key player in innovation, plays an important role in areas such as research and development and the commercialization of scientific achievements.

"Strengthening innovation in technology finance can provide more targeted and efficient financial support for tech-oriented private enterprises, helping to address their financing difficulties and high costs, while promoting the transformation and industrialization of technological achievements," Tian said on the sidelines of the forum.

He stressed that financial innovation must always adhere to the fundamental goal of serving the real economy, centering on supporting enterprise growth and driving economic development.

Financial institutions, he said, should strengthen compliance management, ensuring all innovation occurs within the bounds of laws, regulations, and supervisory policies. They should also fully assess the risks of new products and services, establish robust risk evaluation and early warning systems, and formulate appropriate response measures — while better protecting the legitimate rights and interests of financial consumers and investors.