A man rides a bicycle on a street at the central business district in Beijing, on March 17.JADE GAO/AFP/Getty Images
China this week unveiled a “Special Action Plan” for boosting consumption, as the world’s second-largest economy seeks to grow domestic demand amid an increasingly uncertain international trade outlook.
The Chinese economy has struggled to recover from the COVID-19 pandemic, with a housing crisis, high local government debt and unemployment all dragging down growth even before U.S. President Donald Trump restarted a trade war, slapping 20-per-cent tariffs on imports from China.
At a meeting of the country’s rubber-stamp parliament, the National People’s Congress, this month, Premier Li Qiang unveiled an annual growth target of “around 5 per cent,” an ambitious goal he said would be met in part by boosting domestic consumption – long a target of Beijing’s but one that has so far bedevilled an economy heavily reliant on state support and infrastructure spending for growth.
The new action plan calls for China to “vigorously boost” household spending by increasing wages nationwide, stabilizing the stock market, enhancing support for new parents to stave off a looming demographic crisis and improving pension and social-security provisions.
Speaking to reporters in Beijing on Monday, Li Chunlin, vice-chairman of the National Development and Reform Commission, said consumption “is closely linked with economic development and the people’s aspiration for a better life.”
“For over 10 years in a row, China has been the world’s second-largest consumer market and largest online retail market, and consumer demand and structure has been improving,” he said. “But due to multiple factors, consumer confidence and expectations remain weak, some demands are not fully met and the consumption environment is yet to be improved.”
According to World Bank data, consumption accounts for around 75 per cent of GDP globally, compared to 55 per cent in China, where investment and exports have long been the primary drivers of growth. For decades, Chinese consumers have been wary of spending, storing savings in property, which as recently as 2023 accounted for upwards of 70 per cent of all household wealth.
A recent housing crash has severely shaken consumer confidence, along with swings in the stock market and the unreliable employment millions of migrant workers find themselves in, with strict household registration – or hukou – policies often cutting them off from receiving social-security benefits in the cities where they work.
“Meaningfully boosting consumption requires structural reforms to address the rural-urban divide, the precarious position of migrant workers, and the misallocation of capital by [state-owned enterprises] and banks,” researchers at Rhodium Group, a New York-based think tank, wrote in a report earlier this year. “Many of these issues were recognized in China’s 2013 reform agenda but have remained largely unaddressed due to political and financial constraints.”
The plan unveiled this week included measures aimed at addressing these issues, including boosting rural incomes and reforming the hukou system to allow migrant workers to access urban public services. It also promised to get more money flowing into the stock market and to “stabilize the real estate market and halt its decline,” in an apparent bid to reassure Chinese consumers that their investments are safe and get them spending.
The boom that stock markets in Hong Kong and China have enjoyed in recent weeks has helped, driven in part by enthusiasm for the country’s tech sector – emboldened by the success of AI startup DeepSeek and signals from the government that a prolonged crackdown is easing. The stronger Chinese returns come as Mr. Trump’s tariff policies have pushed markets in the U.S. into correction territory.
Chinese retail sales, a gauge of consumption, rose 4 per cent in the first two months of this year, according to data released Monday by the National Bureau of Statistics, a slight improvement on the previous month, boosted in part by holiday spending during the eight-day Lunar New Year vacation.
A recently expanded 300-billion yuan ($60-billion) consumer goods trade-in scheme, offering subsidies for electric vehicles, home appliances and phones, has also seen some success, but this may “fade over time,” with auto sales already down in the first two months of this year, said Tianchen Xu, senior economist at the Economist Intelligence Unit.
Louise Loo, lead economist for China at Oxford Economics, agreed, writing in an e-mail that the recent gains “could fade quickly if stimulus were not kept up.”
With a report from Reuters