Can anything get China's shoppers to spend?

Mint

23-05-2025

Installing more lifts in multi-storey buildings, extending the hours of children's clinics during flu season, encouraging foreign direct investment in camping. These are some of the ideas sprinkled throughout China's 'special action plan" to boost consumption, which was published on March 16th, a Sunday, thus extending the hours of China's journalists.
The plan was hotly anticipated. News of its imminent arrival helped lift China's main stockmarket index by over 2% on March 14th. Officials have long talked about shifting the economy towards consumption and away from investment and exports. Indeed, raising Chinese consumption is something of a white whale for global macroeconomics. But the aim has added urgency now, since other sources of demand are under threat. Investment is still depressed by China's unending property slump: new home starts fell by almost 30% in the first two months of this year, compared with a year earlier. Exports, which propped up growth last year, face steep American tariffs that could soon rise.
Economists reckon that total consumption—including state spending on things like running schools and hospitals—will have to contribute over 60% of China's growth this year if the economy is to get close to the official growth target of 5%. Last year it contributed less than 45%.
Shoppers have made a mildly encouraging start. Retail sales grew by 4%, before adjusting for inflation, in January and February compared with a year earlier, according to figures released on March 17th. That was far below the pre-pandemic trend, but still an improvement over December (see chart). During the eight-day Spring Festival holiday, 187m people went to the movies. Many were drawn by the animated epic 'Ne Zha 2", about a plucky demon child who defies his unpromising destiny.
China's households could do with some of his vim. Their confidence was hit by draconian covid-19 lockdowns and has never recovered. Households still save at a higher rate than pre-pandemic. And more of their saving goes to bank deposits and other financial assets, rather than new homes. The tendency to hoard has led to a bout of secular stagnation, according to Adam Wolfe of Absolute Strategy Research, a consultancy. Consumer prices fell by 0.1% in the first two months of 2025 against a year earlier. Eggs were 1% cheaper.
In his annual speech to China's parliament on March 5th, Li Qiang, China's prime minister, listed 'vigorously" boosting consumption as the first of ten priorities. The state has doubled the size of a trade-in scheme that invites households to swap old appliances, cars and gadgets for new ones. It will also increase the subsidy for medical insurance and raise the basic pension collected by rural people and city folk who do not work from a paltry 123 yuan ($17) a month to a merely tight-fisted 143 yuan. All told, Mr Li announced extra fiscal stimulus worth 2% of GDP. Although that is better than nothing, it is not quite as much as had been hoped.
The new plan provides no new fiscal numbers. But it does reveal more about the government's thinking. There are at least three ways to boost consumption: increase the money in people's pockets, reduce their tendency to save or redistribute from people most likely to hoard to those most likely to spend. Officials will try all three approaches. The plan calls for increases in minimum wages, which are set locally, and an expansion of workfare programmes. That should both increase household income and skew it towards people who live from pay cheque to pay cheque. The government also says it will increase financial aid to students and 'study" child-care subsidies. Hohhot, the capital of Inner Mongolia, this month announced it would provide handouts of 10,000 yuan a year for second children up to the age of five, and third children up to the age of ten.
Other measures could lower households' saving rate. The government will subsidise consumer credit for careful borrowers. And it repeated promises to stabilise markets for housing and stocks. If that makes people feel more secure, they may spend more. Li Chunlin of China's planning agency said it was the first time that stabilising the stockmarket and property market had featured in a government plan to boost consumption.
The plan also envisages giving workers more time to spend their money. It calls for companies to 'strictly implement" their policies on paid leave, allowing workers to take the holidays to which they are entitled. The Communist Party committees that operate within most companies will supposedly help police this initiative, ensuring workers take enough rest. The party of the hammer and sickle may be reconciling itself to the hammock and sickie.
Then there is a mixture of the vague, the strange and the familiar. The plan talks about the role of artificial intelligence in facilitating consumption, without giving details. If the central government has its way, artists will need only one approval for a national tour rather than many approvals from local governments. Ministers have for years talked about helping rural folk make money from the land they occupy, which is owned communally by their village. The plan expresses the same broad aspiration.
It also repeats a call to develop the low-altitude economy of drones, the silver economy for the elderly and the ice-and-snow economy for China's colder regions. All of these proposals previously appeared in a 20-point plan released last year to unlock consumption of services. The new plan extends to 30 points. But without more fiscal resources to back it up, it may be no more successful than its predecessors. The world's second-biggest economy overproduces many things. Consumption plans are no exception.
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