To tackle its ailing economy and weak domestic demand, Beijing wrapped up its annual National People’s Congress last week with increased investment in social welfare programmes as part of its grand economic plan for 2025.
Then came this week’s announcement with bigger promises, such as employment support plans, but scant details.
Some say it is a welcome move, with the caveat that China’s leaders need to do more to step up support. Still, it signals Beijing’s awareness of the changes needed for a stronger Chinese consumer market – higher wages, a stronger social safety net and policies that make people feel secure enough to spend rather than save.
A quarter of China’s labour force is made up of low-paid migrant workers, who lack full access to urban social benefits. This makes them particularly vulnerable during periods of economic uncertainty, such as the Covid-19 pandemic.
Rising wages during the 2010s masked some of these problems, with average incomes growing by around 10% annually. But as wage growth slowed in the 2020s, savings once again became a lifeline.
The Chinese government, however, has been slow to expand social benefits, focusing instead on boosting consumption through short-term measures, such as trade-in programmes for household appliances and electronics. But that has not addressed a root problem, says Gerard DiPippo, a senior researcher at the Rand think tank: “Household incomes are lower, and savings are higher”.
The near-collapse of the property market has also made Chinese consumers more risk-averse, leading them to cut back on spending.
“The property market matters not only for real economic activity but also for household sentiment, since Chinese households have invested so much of their wealth in their homes,” Mr DiPippo says. “I don’t think China’s consumption will fully recover until it’s clear that the property sector has bottomed out and therefore many households’ primary assets are starting to recover.”
Some analysts are encouraged by Beijing’s seriousness in targeting longer-term challenges like falling birth rates as more young couples opt out of the costs of parenthood.
A 2024 study by Chinese think tank YuWa estimated that raising a child to adulthood in China costs 6.8 times the country’s GDP per capita – among the highest in the world, compared to the US (4.1), Japan (4.3) and Germany (3.6).
These financial pressures have only reinforced a deeply ingrained saving culture. Even in a struggling economy, Chinese households managed to save 32% of their disposable income in 2024.
That’s not too surprising in China, where consumption has never been particularly high. To put this in perspective, domestic consumption drives more than 80% of growth in the US and UK, and about 70% in India. China’s share has typically ranged between 50% to 55% over the past decade.
But this wasn’t really a problem – until now.
Source: BBC
