China puts consumption at heart of economic growth strategy

Beijing [China], July 15: Beijing has elevated household spending to a higher strategic priority, rolling out the country's first stand-alone five-year plan for consumption.
The plan, unveiled on Monday by the National Development and Reform Commission (NDRC) and the Ministry of Commerce, sets a 2030 retail sales target of 60 trillion yuan (US$8.85 trillion) - nearly 20 per cent higher than the 2025 level - as policymakers seek to steady growth amid sluggish expansion.
"The country's consumer market is entering a critical period of expansion and quality improvement," the NDRC and the Ministry of Commerce said in a statement on Monday. They added that a buoyant retail market would eventually serve as a key growth engine for the national economy.
It marked the first time Beijing had rolled out a dedicated five-year framework exclusively targeting consumption, Huatai Securities said in a report on Tuesday.
"It places greater emphasis on cross-ministerial coordination and rolls out a full set of medium-to-long-term institutional frameworks," it added.
Beijing did not publish a stand-alone blueprint for the retail market in its 14th five-year plan for 2021 to 2025, which listed consumption as one of the key areas for expanding domestic demand and powering economic activity.
The new road map calls for a 10 trillion yuan expansion from the 2025 level, requiring an annual growth of at least 3.66 per cent over the 15th five-year plan period from 2026 to 2030.
Official figures from the National Bureau of Statistics (NBS) painted a softer backdrop: retail sales, a major metric for consumption activity, rose just 1.4 per cent year on year from January to May.
"Retail sales slipped 0.6 per cent year on year in May, pointing to softening consumption momentum," said Wang Peicheng, senior analyst at Orient Futures.
"The 60 trillion yuan retail sales target is set to steady shaky market expectations." But Wang warned that the target would fall short of what was needed to meet China's 2035 goal of lifting per capita gross domestic product (GDP) to the level of moderately developed economies. "The current growth target will not suffice," Wang said.
The NBS is expected to release June retail sales figures on Wednesday, along with second-quarter GDP and other economic data.
The Ministry of Commerce's previous five-year cycle set a retail sales goal of 50 trillion yuan for 2025, ultimately achieved with a compound annual growth rate of about 5 per cent. Official data indicated consumption contributed an average of 58.8 per cent to China's economic growth during that period.
This time, policymakers are prioritising the expansion of service consumption - including catering, elderly and early childcare spending, tourism and sports - over merchandise retail. Property and cars remain key levers for goods spending.
"Service consumption still boasts massive growth potential," Wang said. "Certain service segments featuring high-end medical care and artificial intelligence technologies align with China's push to develop new quality productive forces. This creates a dynamic loop where consumption growth and technological progress mutually reinforce each other."
Goldman Sachs remains "cautious" on the pace of consumption recovery.
It said in a report released on Tuesday that "while the plan should improve supply quality and reduce institutional frictions, the near-term impulse is likely to be limited absent stronger demand-side stimulus and given weak labour-market conditions, subdued income expectations, and negative property-related wealth effects".
Beijing also acknowledged the hurdles. "The consumption sector still faces a host of constraints and hurdles that prevent the nation's untapped domestic consumption potential from being fully unlocked," the NDRC and the Ministry of Commerce said in thestatement.
To address such bottlenecks, the guidelines flagged boosting employment and raising household income as core policy levers. The property and capital markets were singled out as two vital avenues to lift earnings.
"The housing market was referenced four separate times in the guidelines," said Yan Yuejin, vice-president of E-house China Research and Development Institute.
"One section explicitly called for removing unwarranted restrictive curbs, a provision that would grant local governments greater regulatory leeway when rolling out local rules." Yan added that property policies would likely tilt more towards buyers replacing existing flats.
Source: Qatar Tribune