China unveils measures to boost spending

China is trying to stimulate domestic consumption by encouraging citizens to buy higher-quality goods.

Why does China struggle to boost consumption?

China's Third Plenum shows a continued reliance on investment, reflecting structural challenges that makes it tough to shift towards consumer-driven growth, writes @michaelxpettis.https://t.co/dlktjlPOmO

— Carnegie Endowment (@CarnegieEndow) August 5, 2024

This initiative is part of a broader strategy to revitalize the economy by boosting consumer spending and reducing reliance on investment-driven growth. The Chinese government is offering various incentives to boost consumer confidence and spending.

China will work to further develop consumer services to support high-quality economic development and meet people's demand for personalized, diversified and quality services, according to a guideline made public on Saturday. pic.twitter.com/1OLqL4Ntqv

— Zhang Meifang (@CGMeifangZhang) August 6, 2024

The success of this strategy could hinge on how Chinese consumers respond to these measures, especially in terms of their willingness to shift spending patterns towards higher-quality goods and services. The State Council’s guidelines include increasing the supply of care services for the elderly, developing childcare services, and promoting high-quality educational resources in colleges, universities, and scientific research institutions. Other services that local governments were urged to promote include catering, housekeeping, entertainment, tourism, sports, residential and green services, and health services.

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Bloomberg: "China has announced a 20-step action plan to get people to spend more, but offered little in the way of financial incentives to rev up domestic demand."https://t.co/hb2osczsrP via @bpolitics

— Michael Pettis (@michaelxpettis) August 6, 2024

The directives also emphasize the cultivation and expansion of new forms of digital consumption, such as unmanned retail stores, self-collection lockers, e-sports, social commerce, and livestreaming e-commerce. China’s GDP grew by a slower-than-expected 4.7% year-on-year in the third quarter, reflecting weak domestic consumption. Retail sales increased by just 2% in June, down from 3.7% growth the previous month.

China is refocusing on boosting domestic spending to save its slowing economic growth. But experts say that it may be challenging, and it could take years to restore confidence and spending power: https://t.co/6jXIjzq1OP

— Katherine Li (@Katherineli_) August 5, 2024

Boosting domestic consumption efforts

The government’s plan includes tax reductions to offset the costs of caring for young children and seniors and pledges for greater financial support for small businesses in the service sector. Additionally, the promotion of food-themed festivals and encouragement for foreign food and beverage companies to set up in China is planned. China announced a $42 billion stimulus package to revitalize consumer spending post-pandemic and support its faltering economic growth. The comprehensive plan includes measures to enhance childcare and health services, develop low-carbon “smart cities,” and a mass equipment and appliance trade-in scheme to support manufacturing. Driving up domestic consumption remains challenging. Policies have traditionally favored businesses and manufacturers, sidelining household expenditure, a smaller proportion of China’s GDP than other countries. This has resulted in an overreliance on foreign investment and trade. Some analysts suggest that more substantial measures are needed to restore consumer spending to pre-pandemic levels. Lockdowns and high youth unemployment have severely impacted consumer confidence. One Chinese markets expert told CNBC, “Confidence and Animal Spirits have disappeared among the youth,” adding that it could “take years, if not longer,” for them to feel comfortable spending again.