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Opinion | Why China’s consumption problem is also a supply issue

Households with money to spend need access to diversified, high-quality services they actually want – a problem Beijing is well equipped to handle

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Illustration: Craig Stephens
At the World Economic Forum’s “Summer Davos” in Tianjin last month, Premier Li Qiang reaffirmed China’s ambition to become a “mega-sized consumer powerhouse”. It’s a message of political will: that, after four decades as the “factory of the world”, China is ready to drive global growth through domestic demand.
However, reality tells a more complicated story. Despite targeted subsidies, trade-in schemes and repeated political commitments to boosting consumption, Chinese households are still not spending as much as policymakers would hope. The reasons are misunderstood. What’s referred to as a “consumption problem” is actually three very different problems that each require their own solution.
First, many households simply do not have enough money to spend. This is the most obvious but least tractable constraint, at least in the short term. It reflects a fragile post-Covid recovery and deep, structural imbalances in China’s growth model from decades of channelling capital to investment and exports rather than labour and households. The result has been relatively weak wage growth and households that bear a disproportionate share of education, healthcare and housing costs.
Fixing this requires a reallocation of resources towards public services, stronger social insurance, more equitable income distribution, hukou reform, pension fund reform and childbearing support – reforms that are fiscally demanding, procedurally complicated and unlikely to materialise quickly enough for an immediate recovery. In this sense, while indispensable over the long run, income redistribution is a distant solution to a present-day problem.
Second, a significant share of households do have money but don’t spend it. The bruising effect of the property downturn looms large. For decades, real estate served as both a savings vehicle and the psychological foundation of financial security for Chinese families.
That foundation has been severely shaken. While housing prices in top-tier cities have stabilised somewhat, much of the market remains under pressure. China’s property sector is deeply fragmented: between cities, within cities and across property types. Second-hand homes have largely declined in value. In many regions, the housing market shows few signs of real recovery.
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