Beijing, 12 March: China’s leadership has signalled a significant shift in its economic strategy, focusing on boosting domestic consumption as the country grapples with slowing growth and weakening consumer confidence.
At the annual policy gathering known as the Two Sessions, officials set an economic growth target of 4.5%–5%, the lowest in more than three decades. Alongside the target, policymakers unveiled measures designed to encourage households to spend more and increase incomes — a move analysts see as an acknowledgement that China’s long-standing growth model is losing momentum.
For decades, the world’s second-largest economy relied heavily on infrastructure investment, exports, and a booming property market to drive expansion. When growth slowed, authorities typically responded with large construction projects such as highways, industrial parks and apartment complexes.
This year’s policy direction suggests a different approach. Leaders are increasingly emphasising household spending as a new pillar of economic growth, describing the strategy as “investing in people.”
Economists say the shift reflects recognition in Beijing that the old model is under strain.
Push for consumer spending
The government has proposed several measures aimed at boosting consumption, including stronger support for families raising children, expanded services for the elderly and enforcement of paid annual leave.
Officials are also working on an urban-rural income growth plan intended to increase household earnings and narrow income gaps, with the expectation that greater financial security will encourage people to spend more.
China’s household consumption currently accounts for around 40% of gross domestic product, significantly below the global average of roughly 55%.
Authorities have already experimented with stimulus measures. During the Spring Festival holiday, local governments distributed billions of yuan in consumption vouchers to encourage spending on travel and entertainment. Travel revenue rose by about 19% year-on-year, though average spending per traveller declined — a sign that consumers remain cautious.
Weak confidence and property downturn
China’s economic challenges extend beyond consumption patterns. A prolonged slump in the property sector — once responsible for nearly a quarter of the country’s economic activity when related industries are included — has eroded household wealth and confidence.
Home prices have fallen sharply in many cities since 2021, reversing the “wealth effect” that previously encouraged spending when property values were rising.
Premier Li Qiang acknowledged the difficulty of shifting the economic model.
Other structural pressures are also weighing on the economy, including declining birth rates, high youth unemployment and weak consumer demand, which has pushed the country closer to deflation.
Analysts remain cautious
Some economists believe the current policy framework is not yet strong enough to fully transform China’s growth model.
DiPippo added that the challenge lies in replacing the huge economic engine previously created by the housing sector.
“China’s consumption challenge is largely about replacing the massive housing-investment demand engine.”
For now, analysts expect any transition toward a consumer-driven economy to happen gradually rather than quickly.
Public reaction has also been mixed. Some social media users questioned whether policies such as encouraging paid leave are designed primarily to stimulate spending.
One user on the Chinese platform Weibo wrote:
“This is not to let you rest, it’s to make you spend money.”
Another commenter argued that deeper changes are needed before consumption can rise.
“Young people need stable jobs and incomes, and appropriate rest. Then we can talk about marriage and having a kid.”
Despite the scepticism, policymakers appear determined to move away from a development model defined by construction and exports. The success of that shift may ultimately depend on whether households feel confident enough about their future to open their wallets.
