More of the same?

Revisiting previous policy promises to boost consumption

• Beijing is resolute about significantly enhancing domestic consumption by 2025, with the intention of correcting enduring economic imbalances and ensuring sustainable growth, particularly considering its deteriorating trade relations with the United States.
• The Central Economic Work Conference (CEWC) has underscored the necessity of "vigorously spurring consumption" as a fundamental strategy for tackling weak domestic demand and reducing dependence on exports. However, this is no new policy direction; discussions on bolstering consumption have been ongoing for over two decades. While promoting domestic demand has remained a top priority in recent CEWC meetings, tangible progress has been minimal.
• Previous policy measures aimed at stimulating consumption—often rooted in supply-side strategies—have succeeded in maintaining employment and boosting production, making goods more accessible. Nevertheless, retail sales have lagged GDP growth. This disparity stems from the limited overall impact of growth in rural and low-income household consumption. Although these households have increased their spending, they constitute only a small percentage of total retail sales, resulting in modest multiplier effects.
• We anticipate that fiscal resources will be mobilized to support consumption subsidies and consumer goods trade-in programmes, broadening the range of products available to the expanding low- to middle-income demographic. Moreover, a key focus will be on mechanisms designed to elevate disposable income by reducing household expenses—particularly for housing, healthcare, education, childcare, and elderly care. New initiatives will also aim to enhance social welfare inclusivity, particularly for migrant workers, and importantly, there will be an emphasis on increasing pension income levels for the elderly. These measures are expected to gradually reduce households’ already marginal propensity to save, though the impact on cyclical dynamics may remain limited.
• Alarmingly, household sentiment remains near historical lows due to economic uncertainty and persistent structural challenges – despite government efforts to bolster consumer confidence through optimistic messaging.
• Policymakers must now act decisively to address sluggish income growth, improve social welfare, and tackle issues related to rural-urban migration to revitalize consumer spending and enhance household purchasing power.
• To achieve Beijing’s five-year growth target, retail sales to increase by 3.5%, slightly up from 3.4% in 2024. However, this figure is unlikely to satisfy policymakers who will aim for retail sales growth that surpasses nominal GDP—a feat they managed prior to the pandemic but have struggled to maintain in the post-pandemic era.