China’s President Xi Jinping’s government has recently announced a plan to boost domestic consumption in an effort to combat weak confidence and deflationary pressures in the country’s economy. The goal is to “vigorously boost consumption” and “expand domestic demand in all directions”, according to Xinhua, China’s state news agency. This initiative comes after Xi’s call for policymakers to shift towards supporting demand following a period of focusing on industry growth.
The plan, outlined by the state council, China’s cabinet, aims to increase incomes, stabilize the real estate and stock markets, and improve medical and pension services. However, specific details on planned fiscal spending are still scarce. The announcement of this plan has already had an impact on the financial markets, with Hong Kong’s Hang Seng index rising and futures for Brent crude climbing.
The focus on boosting domestic spending is crucial as China has seen weak consumer spending since the end of Covid-19 lockdowns, with households being cautious about their expenditures. The country also experienced deflation in February, partly due to the lunar new year holiday. Additionally, the prolonged slowdown in China’s property sector has heightened the need to strengthen domestic demand.
Recent data released by the National Bureau of Statistics showed a 4% increase in retail sales in January and February compared to the previous year, surpassing expectations. Policymakers introduced measures last September to support the economy, with a particular emphasis on stock markets. The new consumption plan includes raising the minimum wage, enhancing education support, and establishing a childcare subsidy system to address the declining population.
Economists believe that the focus on increasing household consumption capacity and willingness could help transition China towards a consumption-driven growth model. Industrial output also saw growth in the first two months of 2025, surpassing analysts’ expectations. The new package will also promote inbound consumption by extending visa-free travel to boost foreign tourism.
Despite the efforts to stimulate demand, some experts believe that policymakers are still struggling to take concrete steps. Xu Chenggang, a senior research scholar at Stanford University, pointed out that while there is acknowledgment of the severity of the economic situation, more emphasis is still placed on the supply side rather than supporting domestic demand.
In conclusion, China’s push to revitalize domestic consumption is a significant step towards addressing economic challenges and fostering sustainable growth. The focus on boosting consumer spending, along with other measures outlined in the plan, could potentially lead to a more balanced and resilient economy in the long run.
