Time for China to set an explicit household consumption target

The Chinese planning season is in full swing. Ahead of the formal release of the 15th five-year plan (running from 2026 to 2030) next March, early signs coming out of the just-completed fourth plenum of the Communist Party suggest that it will be more of the same: a focus on continuing China’s extraordinary industrial and technological ascendancy, driven by what President Xi Jinping has called “new productive forces”.

That would be a mistake in the following sense: China’s techno-industrial prowess is so well established that it is unnecessary to dwell on the obvious. The planning exercise should instead aim to tackle the country’s most daunting challenge: a long-awaited consumer-led rebalancing. To that end, the 15th five-year plan should set an explicit target of boosting household consumption as a share of gross domestic product (GDP) from its latest reading of nearly 40 per cent to 50 per cent by 2035.

By now, the debate over rebalancing has dragged on for decades. It was raised in 2007 by former premier Wen Jiabao as the second of his now-famous “four uns” – unstable, unbalanced, uncoordinated and unsustainable. That, he argued, jeopardised the seemingly strong Chinese economy. Of course, “unbalanced” is only an elliptical reference to the Chinese consumer. But in the context of all four “uns”, it raises what has since become the most important structural issue for the Chinese economy: the need to find new sources of growth.