China Looks to Boost Growth through Increased Consumer Spending
The Chinese government has declared its intention to make consumption the primary driving force behind the economy, as expectations rise that Beijing’s decision to abandon its zero-Covid strategy will spark a surge of spending from Chinese consumers and stimulate a worldwide recovery. During a meeting of the State Council, China’s premier, Li Keqiang, stated that the biggest potential of the Chinese economy lies in the consumption of its 1.4 billion citizens. To increase domestic demand, he emphasized the importance of elevating consumption to its rightful structural role in the economy.
While China has always sought to encourage consumer spending, the premier’s comments come at a critical juncture as the country tries to revive its economy after years of strict lockdowns. The Chinese economy only grew by 3% in 2022, highlighting the impact of the government’s zero-Covid policy prior to its abandonment last month. The collapse of the property market, which has accounted for roughly a quarter of the gross domestic product in the past decade, has added further stress to the economy.
Economists anticipate that China’s pent-up consumer activity will strengthen global demand. Multinational companies, such as Unilever, have recently indicated that they are expecting a rebound in demand in China. Banks, including Morgan Stanley, have also increased their Chinese growth forecasts. In a January note, the bank commented that it believes the market is underestimating the far-reaching implications of reopening and the possibility of a strong cyclical recovery, despite persistent structural challenges.
Despite efforts to boost consumer spending in China, there are still worries about the public’s readiness to increase their spending. Experts have noted that shifting the nation’s focus from property-driven growth to consumer spending will be difficult. Currently, household spending makes up 38% of China’s GDP, significantly less than the 70% it represents in the US GDP. The economic uncertainty brought about by the COVID-19 pandemic has made people more cautious about spending, especially after incomes and housing prices took a hit during the real estate market crash.
The pandemic has also led to a rise in China’s already substantial gross national savings rate. Data from the People’s Bank of China shows that Renminbi deposits held by households grew by a record RMB 17.8tn ($2.6tn) in 2022, up from the RMB 9.9tn growth in 2021.
Last week, citizens in China celebrated the lunar new year, marking the first time since pandemic restrictions were lifted. Although state media reported 226 million domestic trips, 74% more than the previous year during the height of the pandemic, it was still only half the number of trips made in 2019.