Opinion: To Help the Economy, China Must Fix Its Consumption Deficit

1. The 15th Five-Year Plan for National Economic and Social Development, recently released by the Chinese government, places a strong emphasis on significantly increasing domestic consumption. The plan specifically targets four central areas: strengthening the foundation for consumption, tapping further into service consumption, upgrading consumption of goods, and improving the overall environment for consumers[para. 1].

2. Of these priorities, boosting service consumption is highlighted as the primary driver expected to power the next stage of China’s economic growth. However, successfully expanding service consumption will require addressing challenges on both the supply side and the demand side concurrently[para. 2].

3. In its efforts to stimulate domestic demand, Beijing has implemented a series of policy measures over recent years with a focus on service consumption. Notably, in August 2024, the State Council released new guidelines to promote high-quality service consumption, followed by a detailed action plan from the General Office of the State Council in January introducing priority areas for further expansion and growth in the service sector[para. 3].

4. During the 14th Five-Year Plan period, China confirmed its status as the world’s second-largest consumer market. Between 2021 and 2025, per capita GDP rose from $10,000 to over $13,000, leading to significant changes in consumer behavior. There has been a noticeable transition from spending on basic goods to higher quality, eco-friendly products and a surge in demand for experience-based and service-oriented consumption[para. 4].

5. Still, the contribution of consumption to China’s GDP remains lower than expected, mainly due to underwhelming service consumption. Research indicates that spending on goods and dining by Chinese households is comparable to global averages and nearing those of advanced economies, but service consumption lags behind[para. 5].

6. According to economist Liu Shijin, as referenced in his book “Looking Ahead to the 15th Five-Year Plan,” China’s consumption gap largely comes from insufficient spending on development-oriented services. These are services associated with public needs such as education, health care, affordable housing, social security, and senior care. The 15th Five-Year Plan addresses this by proposing to simplify regulatory hurdles, such as those affecting performances and sporting events, to make services more accessible[para. 6].

7. The document notes that low household service consumption is the result of inadequate income, limited consumer confidence, and supply-side bottlenecks. Service consumption, particularly in developmental areas, requires higher disposable income and better future income prospects. Encouraging such spending hinges on increasing household incomes and strengthening economic confidence[para. 7].

8. To address these issues, policymakers are urged to raise disposable incomes, increase the propensity to spend, and reduce uncertainties that drive excessive savings. Central to this approach are efforts to achieve high-quality full employment, narrow rural-urban income gaps, and pursue common prosperity. Unlocking service demand will require systemic reforms, including adjustments to income distribution, better social safety nets, and changes to fiscal policy, residence registration, and labor market systems[para. 8].

9. The Plan also emphasizes the need to improve the supply of quality education, health, and elder care while reducing costs. In early 2024, the Ministry of Finance introduced subsidies for service businesses to relieve financial pressures, but additional efforts are needed to bolster supply capacity in sectors like education, medical care, home services, and cultural tourism[para. 9].

10. Policy directives call for consumer services that are accessible, inclusive, and personalized. This involves remedying gaps in senior and child care and public health, and optimizing frameworks for government procurement, public-private collaboration, and subsidizing private enterprises in service provision. These measures are expected to foster new engines for economic growth, especially in universal health, smart senior care, culture, tourism, and home-based services[para. 10].

11. Importantly, authorities plan to open up the service sector more widely, including areas like telecommunications, internet, education, culture, and health care, and to pursue pilot projects in telecoms, biotechnology, and fully foreign-owned hospitals. Some experts point out that sectors requiring human capital, such as education and health care, need deeper governance reform, while government-led public services should continue administrative reforms. Such perspectives should be seriously considered[para. 11].

12. In summary, the 15th Five-Year Plan reaffirms that expanding domestic demand—especially through enhanced service consumption—should be central to China’s economic trajectory. Rigorous, coordinated policy execution targeting both the supply and demand sides will be necessary to realize these ambitions and translate policy into real, sustainable economic progress[para. 12].