In Depth: The Consumption Conundrum Dividing China’s Economists

China’s household consumption has become a central issue in economic policymaking, with a contentious debate emerging as officials prepare the 15th Five-Year Plan, aimed at guiding development through 2030. Policymakers, including President Xi Jinping, are increasingly concerned with boosting domestic demand as the Chinese economy faces headwinds such as deflation, a prolonged property slump, and low consumer confidence.[para. 1][para. 2][para. 5] The debate on the strength of China’s consumer sector is now fueling divisions among top economists, with major consequences for the direction of stimulus and reform policies.[para. 2][para. 3][para. 5]

One side of the debate, supported by traditional metrics and many mainstream economists, argues that China’s household consumption relative to GDP is alarmingly low. In 2023, household consumption represented roughly 40% of GDP, compared to 68% in the U.S. and 52% in the EU, according to World Bank data. Even when including government-provided services, China’s final consumption rate was only 56.6% of GDP in 2024, still lagging far behind developed nations.[para. 9][para. 10][para. 11] Analysts generally agree the underlying issue is China’s underdeveloped services sector, which leaves consumers with few avenues to spend, despite rising incomes and savings.[para. 34][para. 35][para. 36]

The opposing camp, including prominent voices like Yu Yongding from the Chinese Academy of Social Sciences (CASS), claims traditional monetary measurements understate the true level of Chinese consumption. They argue that differences in price levels and consumption structures mean China’s real consumption is higher than reported. Yu estimates that, adjusted for such differences, China’s consumption of goods as a share of its economy is about 1.25 times that of the U.S. Other analysts, like Yu Fei and Guo Kai from the China Finance 40 Forum, add that prices are lower in China, and official exchange rate conversions distort international comparisons. They assert that physical consumption volume shows China’s spending could be twice as high as monetary figures suggest.[para. 16][para. 17][para. 18][para. 19][para. 20]

Despite such arguments, many economists believe that a considerable gap in consumption remains. Even under purchasing power parity (PPP) adjustments, China’s consumption—especially of services—lags behind OECD countries. Liu Shijin, former deputy director of the State Council’s Development Research Center, warns that unless this “structural deviation” of roughly 20 percentage points is addressed, economic growth will falter.[para. 27][para. 28][para. 29]

Proponents of a consumer-focused approach advocate targeted reforms: boosting rural pensions, equalizing public services for migrant workers, shifting consumption tax to the local level, liberalizing service sector prices, and expanding the social safety net. These measures would increase spending power, especially among low-income groups and the approximately 300 million migrant workers.[para. 46][para. 47][para. 48][para. 49][para. 50][para. 51] In contrast, Yu Yongding and allies support further government-driven infrastructure stimulus, drawing on the perceived robustness of current consumption levels to argue for investment-fueled growth.[para. 41][para. 42]

Ultimately, the debate revolves around diverging interpretations of consumption data and the policy implications at a critical juncture. The publication of the 15th Five-Year Plan is expected to signal the government’s position and the future direction for China’s economic model, as balancing investment with household-driven growth remains a pressing challenge.[para. 58]