Opinion: Boosting China’s Consumption Requires Comprehensive Measures

China's recent economic performance for the first half of the year showcases sustained GDP growth for eight consecutive quarters, as reported by the National Bureau of Statistics. However, the GDP growth rate saw a deceleration in the second quarter following a strong first quarter. Researchers attribute the slowdown primarily to insufficient effective demand, with consumption being the main drag on domestic demand. Therefore, future strategies need to focus on stimulating consumption to bolster domestic demand [para. 1].

Examining the "three engines" of growth—final consumption expenditure, gross capital formation, and net exports of goods and services—reveals their respective contributions to economic growth in the first half of 2024 were 60.5%, 25.6%, and 13.9%. Although the contribution of gross capital formation increased in the second quarter, final consumption expenditure declined compared to the significant 82.5% contribution in 2023. The spokesperson for the National Bureau of Statistics emphasized that despite short-term fluctuations, the long-term positive trend of the Chinese economy remains, but there's still a need to solidify the foundation for consumption recovery and enhance people's consumption capacity [para. 2].

Retail sales of consumer goods showed a modest year-on-year increase of 2.0% in June, although this was a decline from May and marked the lowest growth since February 2023. Monthly, seasonally adjusted retail sales dropped by 0.12% in June, a first since August 2023. Analysts suggest that the decline could be linked to the "618" promotion, which occurred earlier. Additionally, service retail sales outpaced goods retail with a 7.5% year-on-year growth from January to June. This indicates that boosting consumption involves more than just targeting retail sales of consumer goods [para. 3].

To stimulate consumption, Chinese policymakers have introduced various measures, such as the State Council's "Action Plan for Promoting Major Equipment Renewal and Old-for-New Consumption Goods" issued in March. These initiatives focus on promoting the replacement of old automobiles, home appliances, and home decorations with new models to encourage the adoption of high-quality durable consumer goods [para. 4].

One of the primary challenges in boosting consumption lies in the existing pain points and bottlenecks that limit residents' ability and willingness to spend. The key is not merely a willingness to consume but ensuring people can and dare to spend [para. 5]. Disposable income, which has seen a slowing growth rate in the second quarter, directly impacts consumer spending. Additionally, factors such as the macroeconomic environment, employment landscape, high costs of education, healthcare, and elderly care have led to increased passive savings, posing obstacles to consumption. Therefore, addressing these issues alongside implementing short-term motivators is vital [para. 6].

Boosting consumption is intrinsically linked to the overall vigor of China's economy. Genuine enhancement of consumer capacity depends on continuous economic growth, innovation, ample circulation of social wealth, and stable employment paired with increasing incomes [para. 7]. Given the evolving economic landscape, shifting towards a consumer-led economy necessitates updated perspectives and policy changes [para. 8].

Comprehensive strategies are essential to unleash consumption potential. Short-term measures should focus on supporting low-income households through targeted subsidies. In the medium to long term, enhancing consumer capacity, refining policies, optimizing supply, and improving the consumption environment are crucial. Reforms should strengthen household registration, labor and employment, and income distribution systems, alongside social security and fiscal systems, empowering local governments to promote consumption actively [para. 9].

The Third Plenum of the Chinese Communist Party's 20th Central Committee emphasizes deepening reforms and advancing Chinese-style modernization to establish a high-level socialist market economy. By enabling and encouraging consumption, living standards will improve, ultimately driving economic transformation and high-quality development [para. 10].