Domestic demand biggest internal certainty for China to handle external challenges

Editor's note: This article was written by Li Zhi, assistant dean of China Institute of Development Planning at Tsinghua University. It reflects the author's opinions and not necessarily the views of CGTN.

In an era marked by escalating geopolitical tensions, trade disputes, and economic volatility, China's domestic demand has emerged as the most critical internal certainty for sustaining economic stability and counterbalancing external pressures. While international trade frictions continue to intensify — exemplified by the US's indiscriminate use of punitive tariffs — concerns over a potential global economic downturn loom large. Yet, against this backdrop of uncertainty, China's consumer market has demonstrated remarkable resilience and vitality, defying pessimistic projections and reaffirming its role as a cornerstone of the nation's economic strategy.

The record-breaking performance of China's consumer sector during the May Day holiday serves as a compelling case in point. The staggering number of domestic trips — comparable with the entire population of the United States — coupled with robust growth in cultural and tourism expenditures, underscores the vast scale and untapped potential of China's internal market. This phenomenon not only highlights the dynamism of Chinese consumption but also signals the effectiveness of policies aimed at stimulating domestic demand.

To fully grasp why China's consumer market remains so resilient, it is essential to examine the interplay between demand-side factors and supply-side innovations.

Demand-side fundamentals: Population, purchasing power, and evolving preferences

China's demographic advantage is unparalleled. With a population exceeding 1.4 billion, including an estimated 400 million middle-income earners, the country boasts one of the world's largest and fastest-growing consumer bases. This vast demographic not only provides a stable foundation for domestic demand but also allows China to recalibrate its economic focus inward when global trade conditions deteriorate. Unlike export-dependent economies that suffer acutely from external disruptions, China possesses the unique ability to absorb shocks by leveraging its internal market.

Beyond sheer numbers, the qualitative shifts in Chinese consumption patterns are equally significant. Gone are the days when consumer spending was dominated by basic necessities. Today, Chinese consumers are increasingly prioritizing quality, diversity, and personalization. There is a growing appetite for service-oriented consumption (including travel, entertainment, and healthcare), digital and smart products, and green and sustainable goods, driven by rising environmental awareness.

Chinese households continue to exhibit a certain degree of confidence in their future purchasing power. This optimism is particularly evident in their willingness to spend on premium experiences. We can see that the expectations of Chinese consumers for the future economic environment do not seem as pessimistic as the outside world images.

Supply-side innovations: Creating new demand through creativity and adaptation

While demand provides the foundation, supply-side innovations are the engine that propels consumption growth. In recent years, China has excelled in generating new consumption scenarios that captivate consumers and unlock previously untapped markets.

The integration of AI, big data, and e-commerce platforms has revolutionized retail, enabling personalized recommendations, seamless transactions, and immersive shopping experiences. Live-streaming e-commerce, for instance, has become a cultural phenomenon, blurring the lines between entertainment and consumption.

At the same time, in response to the US trade restrictions, many Chinese exporters have pivoted to the domestic market, offering high-quality goods that were previously destined for overseas buyers. This shift has introduced consumers to a wider array of premium products, effectively turning "Made for the World" into "Made for China". Nowadays, more Chinese people have found that there are quite a lot of good things being exported!

Policy support: From short-term stimulus to long-term structural reforms

The Chinese government has played a proactive role in nurturing domestic demand through a multi-pronged strategy that combines immediate relief measures with systemic reforms.

In terms of the short-term stimulus measures, many local governments have distributed vouchers to encourage spending in key sectors such as dining, tourism, and retail. Subsidies for replacing old automobiles and home appliances have spurred sales in these durable goods categories. The government has also simplified tax refund processes to attract more overseas visitors, further boosting retail sales.

As for the long-term structural reforms, efforts to bridge the consumption gap between cities and rural areas are unlocking new demand in lower-tier markets. Investments in high-tech manufacturing and digital infrastructure have ensured that domestic production aligns with evolving consumer preferences. Enhanced consumer protection laws and anti-monopoly measures have fostered a fairer and more transparent market place as well.

In the face of external uncertainties, China's emphasis on high-quality development hinges on its ability to harness the full potential of domestic consumption. The May Day holiday data is not merely a snapshot of short-term recovery but a testament to the structural strengths of China's economy. By transforming its vast consumer base into a source of global competitiveness, China is not only insulating itself from external shocks but also redefining its role in the world economy.