Boosting consumption: China’s solution to slowing growth

China’s household consumption accounts for just under 40% of the country’s GDP, much lower than in developed economies, for which it sits at around 60-70%. The difference has long been patched up by property investment, government infrastructure spending and exports—the trade surplus reached a huge $1.2 trillion in 2025. But as the property market continues to decline, infrastructure spending drops and trade partners raise concerns over trade imbalances, Beijing is renewing efforts to boost household spending.

This is not new. Policymakers have talked of the importance of boosting consumption for several years now. China’s GDP growth has slowed considerably post-pandemic, from usually around 6% per year during the 2010s, to 5% in both 2024 and 2025. This year, the government has set a range for GDP growth of 4.5-5%. Regaining consumer confidence and getting families to spend again is now being regarded as something that is becoming more urgent.

“The leadership is now treating weak consumption as a structural problem linked to childcare, housing and social security, not just something to fix with trade-in programmes,” says Dan Wang, director of China for political risk consultancy Eurasia Group, adding, “There is more explicit recognition that low wages, the property slump and high precautionary savings are dragging on demand.”

Why has consumption stalled?

For much of the past three or four decades, China’s economic model has relied heavily on property development, infrastructure investment, and export-oriented manufacturing. While this approach delivered rapid growth, it also created vulnerabilities and the cracks are now beginning to show.

The property market slump is the most visible drag. Property—which was long viewed as the safest store of wealth by Chinese people—has fallen in value across the country. Falling property prices, a slowing of construction and concerns about developer solvency have undermined that confidence.

At the same time, demographic pressures are intensifying. China in 2025 recorded its lowest birthrate on record. As the population ages, the workforce is shrinking, and that means fewer taxpayers are now supporting more retirees. This is putting strain on public welfare and also households that are caring for elderly family members.

China’s welfare and social safety nets, while having expanded in recent years, remain uneven and fragmented. Healthcare costs, education expenses and retirement security are all issues that weigh heavily on household decision-making, particularly outside major cities.

All of these point to a broader lack of confidence in the future. Many households choose to hold onto cash “for a rainy day”, rather than spending freely.

“Household spending remains constrained by weak income growth expectations and elevated job insecurity, particularly among younger cohorts and private-sector workers,” says Betty Wang, Head of Northeast Asia Research at Oxford Economics. “At the same time, limited social risk-sharing means households feel compelled to self-insure against future expenses—including healthcare, education, housing, and retirement—reinforcing precautionary saving behaviour,” she adds.

In contrast to developed Western nations, where households typically save around 10% of their income, the average figure for Chinese households sits at 30%.

All of these issues feed directly into lower consumption. Declining property values directly impact net worth and therefore households feel less inclined to spend. Employment insecurity means households feel the need to maintain a stronger safety net in terms of savings.

A shrinking workforce also means slower overall growth and less overall spending power within the overall economy.

The result is a self-reinforcing cycle: weak confidence suppresses spending, which in turn affects overall economic growth, which then further undermines confidence.

In response to weak demand, Beijing has leaned heavily into exports and investing in infrastructure to maintain economic momentum.

However, this approach has drawbacks. The strong export growth alongside weak domestic demand has contributed to a widening trade surplus—it reached a record $1.2 trillion in 2025—which has increased friction with major trading partners as Chinese goods have flooded their markets impacting the sale of locally made products.

Construction-led stimulus has seen diminishing returns—and raising debt—as the shrinking population has less demand for all the newly constructed buildings and infrastructure. The result is a lot of empty apartment buildings and unused public services.

How Beijing plans to boost consumption

Recognizing the scale of the issue, policymakers in Beijing have rolled out a series of measures to tackle the issue, including income support, targeted subsidies and an expansion of service-sector spending.

Among the 30-point action plan one strong priority is to promote wage growth, particularly for lower and middle-income groups, as well as expanded support for small and medium-sized enterprises, which remain a key source of urban employment.

The minimum wage across 27 of China’s 31 provincial-level jurisdictions has been raised over the past year, with around half of those seeing rises of over 10%. This is being paired with an emphasis on strengthening the social safety net. The plan calls for improvements in healthcare coverage, pensions, childcare support and education affordability.

“Social welfare is the main lever to unlock some of the excess savings,” says Eurasia Group’s Dan Wang. “Better health insurance, unemployment benefits and basic pensions reduce the need for precautionary saving and shift part of household cash flow from deposits to consumption,” she explains.

However, these measures take time to implement and to see results. Alongside such longer-term income measures, Beijing has been rolling out policies to encourage spending in the interim. One of these is an “old-for-new” trade-in program for consumer goods. Households can receive subsidies to replace older items with new purchases in areas such as home appliances, electronics, and vehicles.

Automobiles—especially new-energy vehicles— are a major focus of subsidies, with local governments offering additional incentives to complement national ones. While these measures have boosted spending in the short term, there is an issue that they are front-loading demand as opposed to creating sustained growth.

Olivia Plotnick, founder of China-focused marketing firm Wai Social, says these “quick fixes” are unlikely to meaningfully shift consumer sentiment. “These have merely pulled forward future demand and we’re now witnessing those effects fade—decline in EV sales and technology sales in the most recent months—as the underlying structural issues remain unaddressed,” she says.

In January 2026, authorities released a work plan to boost service consumption, an area in which it sees strong potential. Beijing outlined measures to support tourism, cultural industries, sports, entertainment, healthcare, education and elderly care. The plan includes financial support for service providers, expanded credit access and infrastructure upgrades aimed at improving service quality.

Plotnick feels optimistic about the service sector. “Government support for the services sector could yield positive long-term impacts—healthy economies derive more growth from services consumption than goods,” she says, cautioning that avoiding deflation remains a challenge. She recently spent time travelling the length and breadth of China to understand consumer sentiment. “During my travels across 30+ cities, I observed significant expansion in coffee shops and cafes, pet services (grooming, sitting), and boutique hotels and homestays,” she says, adding that these all represent areas where experiential consumption is already gaining traction.

Betty Wang says there is already a rotation from goods to services consumption. “In 2025, for example, online services sales expanded by around 27% year-on-year, compared with goods sales growth of roughly 5% year-on-year, underscoring the growing importance of services-led consumption.”

Tourism is one key pillar in this strategy. Policies are being rolled out to encourage domestic travel, cruise tourism and duty-free retail—all aimed at both stimulating spending while also creating employment in the sector. Public holidays are to be extended to encourage travel and spending.

Sports and entertainment have also emerged as growth areas, particularly among younger consumers. Various live events, digital entertainment and esports are all being promoted as consumption drivers and employment generators.

Education and healthcare are also expected to play a growing role in service consumption, particularly as the population ages and wage-earners are looking after both old and young relatives.

Plotnick feels that there is big potential to unlock spending from both older and younger consumers, yet both demographics feel they are facing futures misaligned with expectations from a decade ago. “Gen Z confronts an automated, hypercompetitive job market while the Silver Generation watches their children’s diminished prospects,” she says, adding, “Until these expectations realign with reality, neither segment will spend at the levels brands anticipate.”

Hindrances to consumption-led growth

Despite these initiatives, shifting to a consumption-driven model is proving no easy feat. The same issues that have suppressed consumption—the property market, lower economic prospects, and confidence issues—will continue to weigh on the effectiveness of the policy measures. Subsidies and incentives may offer temporary relief, but do not address the root of the problem.

Addressing these challenges, analysts say, will require deeper reforms, including more comprehensive redistribution mechanisms, stronger support for private enterprise and potential new approaches to income security.

Dan Wang thinks that a key constraint is the gap between directives from the central government and how they are implemented on a local level. “Implementation will depend on local governments that have weak balance sheets, and their debt overhang limits their ability to run large consumption programmes without central fiscal support,” she says, highlighting the fact that local officials “fundamentally lack incentives to do cash transfer to families directly because they may not spend that money locally.” Ultimately, she says, they will resort to what they are familiar with, and that is subsidizing companies and industrial parks, which they see as bringing in investment, jobs and revenue, and less will be allocated to actually boosting household consumption.

Betty Wang says that while the local governments are burdened with debt, “many of the key transmission channels—such as childcare capacity, community healthcare, eldercare provision, and local service supply—operate at the local level, implying that execution quality and policy effectiveness will continue to vary across provinces and cities.”

Another major complication is the rapid pace of factory automation. As companies are heavily investing in robotics and AI to offset current labor shortages, productivity may rise, but it also takes jobs away from the population and leaves limited room for wage growth.

Dan Wang says that automation will deepen the duality in the economy—while firms that automate can maintain greater competitiveness despite rising costs, they will employ far fewer people. “That combination will widen gaps between high-skill, high-income workers and everyone else, making distributional policy and social insurance much more important if domestic demand is supposed to be a main growth driver,” she says.

Getting people to spend again

Having a consumer-driven economy is crucial for a developed country and for long-term stability. Beijing knows it cannot continue to rely on exports and continuous construction to stimulate growth. Building up consumer confidence again is paramount to getting families to be willing to spend freely and that means addressing some core issues.

Given all the problems, this also raises the question of what a consumer-led economy will look like in such a future. Robots are able to address skills shortages in the workplace, but they do not spend.

Dan Wang says, “Fundamentally, households doubt that their future income and asset values will rise the way they did in the 2000s and 2010s,” citing the fact that the housing slump in particular has “wiped at least 30% of wealth from the 2022 peak.”

“Uncertainty over internal and external policy direction after the pandemic and regulatory crackdowns has driven up precautionary savings and further constrained consumption,” she adds.