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The Chinese do not spend enough to revive a slow economy
The Chinese government has promised new childcare grants, increased wages and better paid leave in the context of its latest efforts to slow an economy.
It is above a reduction program of $ 41 billion which covers a wide range of things, dishwashers and interior decoration to electric vehicles and smartwatches. It is a wave of expenses that will encourage the Chinese to open their portfolios.
In other words, they do not spend enough.
Monday brought positive news. Official data indicated that retail sales increased by 4% in the first two months of 2025, a good sign for consumption recovery. But, with a few exceptions a few exceptions like Shanghai aside, the prices of new and existing houses continued to decrease compared to last year.
While the United States and other major powers have fought against inflation after the cash register, China knows the opposite: deflation – when the inflation rate falls below zero, which means that prices decrease. In China, they fell on 18 consecutive months in the past two years.
The drop in prices may seem good news for consumers. But a persistent decrease in consumption – a measure of what households buy – reports deeper economic problems. When people stop spending, companies earn less money, hiring slows down, wages stagnate and economic momentum stops.
It is a cycle that China wants to avoid, since it is already fighting against slow growth following a prolonged crisis on the real estate market, of high public debt and unemployment.
The cause of low consumption is simple: Chinese consumers do not have enough money or do not feel confident enough about their future to spend it.
But their reluctance arrives at a critical moment. The economy aimed at growing at 5% this year, the increase in consumption is an top priority for President Xi Jinping. He hopes that the increase in domestic consumption will absorb the cuts of coupons that will inflict on Chinese exports.
So, will the Beijing plan work?
China becomes serious to spend
To combat its economy in difficulty and its low domestic demand, Beijing finished last week from its annual national popular congress with increased investments in social protection programs within the framework of its large economic plan for 2025.
This included an increase of 20 yuan ($ 3; £ 2) minimum pensions. Then came this week’s announcement with larger promises, such as employment support plans, but rare details.
Some say that it is a welcome decision, with the warning that Chinese leaders must do more to intensify support. However, he signals Beijing’s conscience of the changes necessary for a stronger Chinese consumption market – higher wages, a stronger social security net and policies that make people feel safe enough to spend rather than saving.
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An almost empty shopping center in China, where prices dropped 18 months in a row
A quarter of Chinese labor is made up of low-remuneration migrant workers, who do not have fully access to urban social benefits. This makes them particularly vulnerable during periods of economic uncertainty, such as the Pandemic COVID-19.
The increase in wages in the 2010s have masked some of these problems, average revenues increasing by around 10% per year. But as wage growth slowed down in the 2020s, savings became a rescue buoy again.
The Chinese government, however, has been slow to expand social benefits, focusing on increasing consumption through short -term measures, such as commercial programs for household appliances and electronics. But that did not approach a root problem, explains Gerard Dipippo, principal researcher at the Rand reflection group: “Household income is lower and the savings are higher”.
The virtual endorsement of the real estate market has also made Chinese consumers more opposed to risks, which led them to reduce spending.
“The real estate market counts not only for a real economic activity but also for the feeling of households, because Chinese households have invested a large part of their wealth at home,” said Dipippo. “I do not think that China’s consumption will recover completely until it is clear that the goods sector has made a substance and, therefore, the primary assets of many households are starting to recover.”
Some analysts are encouraged by the gravity of Beijing in targeting longer -term challenges such as the drop in birth rates, because more and more young couples are withdrawn from parenting costs.
A study of 2024 by the Chinese reflection group Yuwa estimated that the education of a child in adulthood in China costs 6.8 times the GDP per capita in the country – among the highest in the world, compared to the United States (4.1), in Japan (4.3) and Germany (3.6).
These financial pressures have only strengthened a deeply rooted savings culture. Even in an economy in difficulty, Chinese households managed to save 32% of their disposable income in 2024.
It is not too surprising in China, where consumption has never been particularly high. To put this in perspective, domestic consumption leads to more than 80% of growth in the United States and in the United Kingdom and around 70% in India. The share of China has generally varied between 50% and 55% in the past decade.
But it was not really a problem – so far.
When shopping has fallen and the savings increased
There was a time when Chinese buyers joked on the irresistible look of electronic commerce offers, calling “choppers” – only cutting them could prevent them from hitting the payment button.
While the increase in income fueled their spending power on November 11 in China, or Double 11, became crowned the busiest shopping day in the world. Explosive sales attracted more than 410 billion yuan ($ 57 billion; 44 billion pounds Sterling) in just 24 hours in 2019.
But the last “was a failure,” said an online seller of Beijing -based coffee beans at the BBC. “If anything, it caused more problems than it was worth.”
Chinese consumers have become frugal from the pandemic, and this caution persisted even after the restrictions were lifted in late 2022.
This is the year Alibaba and JD.com have ceased to publish their sales figures, a significant change for companies that once titled their record income. A source familiar with the case told the BBC that the Chinese authorities had warned the platforms against the release of figures, fearing that the disappointing results cannot get rid of consumer confidence.
The tightening of expenses even struck high -end brands – last year, LVMH, Burberry and Richemont have all declared sales drops in China, formerly a backbone of the global luxury market.
On Rednote, a Chinese social media application, publications tagged with “Downrade” have accumulated more than a billion views in recent months. Users exchange advice on how to replace costly purchases with budgetary alternatives. “Tiger Balm is the new coffee,” said a user, while another joked, “I now apply the scent between my nose and the lips – saving it just for me.”
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Double 11 sales have lost their spark because Chinese consumers have ceased to spend as they
Even at its peak, the Boom of China consumers has never been a match for its exports. Trade was also at the center of generous investments supported by the state in highways, ports and special economic zones. China relied on low -wage workers and high household savings, which has fueled growth but left consumers with limited disposable income.
But now, as geopolitical uncertainties are increasing, countries diversify China’s supply chains, reducing dependence on Chinese exports. Local governments are overwhelmed by debt, after years of massive loan to invest, especially in infrastructure.
Xi Jinping has already promised “to make the interior request for the main driving force and the stabilizing anchor of growth”. Caiyun Wang, a national representative of the People’s Congress, said: “With a population of 1.4 billion people, even a 1% increase in demand creates a market of 14 million people.”
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Chinese President Xi Jinping has increased consumption a priority for 2025
But there is a problem in the Beijing plan.
In order for consumption to stimulate growth, according to many analysts, the Chinese Communist Party should restore the confidence of consumers of a generation of wearing graduates who finds it difficult to have a house or find a job. It would also be necessary to trigger a cultural change, from safeguard to expenses.
The more households spend, the less in the saving pool on which state -controlled banks in China count to finance key industries – currently which includes AI and innovative technology that would give Beijing an advantage on Washington, both economically and strategically.
This is why some analysts doubt that Chinese leaders want to create a consumer -oriented economy.
“One way of thinking about it is that Beijing’s main objective is not to improve the well-being of Chinese households, but rather the well-being of the Chinese nation,” said David Lubin, researcher at Chatham House.
The transition from the power of the state to the individual may not be what Beijing wants.
Chinese leaders have done so in the past, when they have started to negotiate with the world, encourage businesses and invite foreign investments. And that has transformed their economy. But the question is whether Xi Jinping wants to start again.
