How to Boost Consumption in China? (AI Translation)

【周刊提前读】如何衡量中国消费水平？提振消费当下与将来要做什么？

Summary:

In the context of growing external uncertainties, there is broad consensus that China's economic focus should be on expanding domestic demand. The debate centers on how best to achieve this—whether to prioritize stimulating consumption or increasing investment. Recent discussions, initially sparked by comparisons between Chinese and US consumption levels, have intensified through academic reports, social media debates, and policy roundtables. The choice of metrics—total goods consumed, per capita consumption, or structural indicators—significantly shapes the perception of China’s consumption level and thus influences policy recommendations for boosting domestic demand and stable growth [para. 1][para. 2][para. 3][para. 4].

Chinese academics, including Yu Yongding, contend that differences in price levels and consumption structures mean the gap between China and the US in terms of consumption expenditure as a percentage of GDP (cited as 1.25 times the US for goods consumption) is less than raw numbers suggest. Yet, other studies suggest China’s consumption remains systematically underestimated due to price advantages and exchange rate discrepancies. Reports by Yu Fei and Guo Kai from CF40 suggest that although China's aggregate and per capita consumption rates lag behind other economies, actual consumption volumes—especially in goods and basic services—may be twice as high as statistics imply [para. 2][para. 3][para. 4].

Social media discussions often cite higher output and consumption of products like smartphones, automobiles, and various foodstuffs to claim China is the world’s top consumer nation; however, experts warn that such comparisons—closely tied to population size or particular consumption categories—can mislead. Standard economic measures such as per capita consumption expenditure, or the final consumption expenditure/GDP ratio, are commonly used. China's official statistics show its residents’ consumption rate (39.9% in 2024) is much lower than the US (68%) or the EU (52%), reinforcing the narrative of “under-consumption” [para. 5][para. 6][para. 7][para. 8].

Many analysts highlight that the core shortcoming is inadequate service consumption, especially in education, healthcare, housing, and social security—often due to supply-side limitations like entry restrictions and price controls, as well as an underdeveloped public service infrastructure, particularly in rural areas. Improving disposable income and redirecting fiscal resources from investment to public services and livelihood-related expenditures is recommended by experts like Wang Yiming. Premier policy documents, such as the 2025 Government Work Report, emphasize funding allocations "invested in people," pushing local governments to expand into service-oriented sectors and piloting targeted subsidies and financial support for services like childcare and elderly care [para. 9][para. 10][para. 11][para. 12][para. 13][para. 14][para. 15].

Structurally, China’s service consumption-to-GDP ratio is significantly below international norms, with researchers and policy advisors advocating for deregulation, expanded market access (especially for private and foreign providers), improved service quality, and supportive financial mechanisms. Recent policies include the central bank’s dedicated 500 billion yuan re-lending quota for service and elderly care sectors and guidelines to stimulate credit for service consumption [para. 16][para. 17][para. 18][para. 19][para. 20].

On the strategic front, opinions diverge on whether investment or consumption should lead growth. Some, like Yu Yongding, argue that infrastructure investment is needed as a “first mover” to boost incomes, which in turn sparks consumption. Others, like Liu Shijin, argue that the era of rapid real estate and infrastructure growth is over and further consumption expansion is key to unlocking economic potential. Key reforms include optimizing income distribution, enhancing social security, and providing equal public services, especially for rural and migrant populations [para. 21][para. 22][para. 23][para. 24][para. 25][para. 26][para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36][para. 37][para. 38][para. 39][para. 40][para. 41][para. 42][para. 43].

China’s under-consumption, particularly in services, is a structural issue rooted in supply constraints and systemic biases in distribution and public spending. Addressing these with targeted fiscal, social security, and administrative reforms, and by boosting confidence through housing and capital market stabilization, are seen as pivotal to fostering a sustainable, consumption-driven growth model [para. 17][para. 22][para. 35][para. 42].