How can China make consumption the main engine of economic growth

Editor's note: Zhou Jianjun is an assistant researcher at the Institute of State System Research and School of Economics, Zhejiang University. The article reflects the author's opinions and not necessarily the views of CGTN. It has been translated from Chinese and edited for brevity and clarity.

Chinese Premier Li Qiang outlined the government's tasks for 2025 in the government work report on March 5, calling for the country to vigorously boost consumption and investment returns, and stimulate domestic demand across the board. Ultra-long special treasury bonds totaling 300 billion yuan ($41.5 billion) will be issued to support trade-in programs of consumer goods. 

To promote synergy between consumption and investment, China should move faster to address inadequate domestic demand, particularly insufficient consumption, and make domestic demand the main engine and anchor of economic growth.

Need to introduce more policies that exceed expectations

China achieved an impressive 5 percent economic growth rate in 2024, standing out among major economies. However, its economic recovery and improvement remain on shaky ground, facing considerable downward pressure. 

The latest consumer price index (CPI) data reveals a year-on-year CPI decline of 0.7 percent and a month-on-month decrease of 0.2 percent in February, slipping back below zero. There is a growing consensus that insufficient effective demand, subdued consumption and inadequate domestic demand have dragged down economic growth. 

Amid sluggish global economic growth and frequent trade frictions, government departments must introduce stronger-than-expected policies to stimulate the economy, thus achieving the 2025 GDP growth target of around 5 percent.

Boosting consumption is a key driver for economic growth

In China's economic growth structure, consumption has long been a modest contributor. 

In 2024, final consumption expenditure accounted for only 44.5 percent of GDP growth, the third-lowest level in two decades (behind only -4.3 percent in 2020 and 44.2 percent in 2006). 

Against this backdrop, government departments have been fully aware of the key role of consumption, and vigorously boosting consumption has been designated as the top priority of the government's major tasks for 2025. This strategic focus on consumption aims not only to transform China's traditional model of "giving precedence to investment over consumption" but also to harness the advantage of its mega market of 1.4 billion people. 

In addition, both domestic and international conditions make it imperative to prioritize boosting consumption this year.

While the domestic real estate sector remains in a downturn, dampening investment expectations; the multiple rounds of tariffs imposed by Trump continue to hit China's exports severely. 

Activating the "main engine" of consumption through new policies

China's 2025 Two Sessions introduced a suite of measures to boost consumption, including special initiatives to enhance residents' consumption capacity, expand the supply of high-quality goods and services, and improve the overall consumption environment. 

Government departments will issue ultra-long special treasury bonds totaling 300 billion yuan to support consumer goods trade-in programs with a broader product range and greater financial incentives compared to 2024. 

Additional initiatives will encourage the development of new consumption products and services, contributing to the growth of the "debut economy," the "ice and snow economy" and the "silver economy."

Meanwhile, government departments will step up regulation and law enforcement in the consumption field so as to better protect the rights and interests of consumers. These measures will stimulate household consumption, restore consumption as the "main engine," and contribute to steady consumption growth. Moreover, they also help optimize economic structures and shift growth drivers. 

Boosting consumption reinforces its leading role and promotes synergy between consumption and investment, thereby improving economic efficiency. The traditional model where "consumers purchase what producers produce" is gradually evolving into one where "producers produce what consumers want." While demand-driven growth fuels innovation, transforming consumer aspirations into tangible products, turning once-impossible ideas into reality, and injecting fresh momentum into technological innovations.

A series of real challenges need to be addressed

While boosting consumption and expanding effective demand, government departments face the limited consumption capacity of residents and their lackluster willingness to spend. The former challenge stems from residents' declining income and savings, which leave them with little money to spend. The latter arises from their concerns about mounting burdens, causing those with disposable income to hold back on spending. 

These challenges could be addressed from the following three aspects: First, increasing residents' income is essential. It is crucial to ensure employment at every effort, creating more job opportunities and preventing large-scale layoffs to support the stable wage growth of residents. Additionally, stock and real estate markets should be stabilized to drive up asset prices and generate a wealth effect that enhances residents' income. 

Second, from the expenditure perspective, household financial burdens should be alleviated. On the one end, efforts should be made to lower education, healthcare and elder care costs to prevent these three major expenses from eroding residents' consumption capacity and willingness. On the other end, cutting the costs of public services such as utilities, gas, and transportation can help reduce daily living expenses, benefiting people and thus enhancing both their consumption capacity and willingness. 

Finally, the distribution should be adjusted. Support for low- and middle-income groups should be intensified to boost their earnings and expand social security coverage. This will narrow the wealth gap and strengthen overall consumption capacity. Furthermore, increasing subsidies for essential goods such as rice, flour and cooking oil can lower living costs for low- and middle-income residents, ease their survival pressures and encourage them to spend. 

By focusing on these three areas to address the limited consumption capacity and low willingness to spend, the Chinese government can boost domestic demand, making it the main engine and anchor of economic growth.