Nation will deepen reforms to increase incomes, bridge urban-rural wealth gap
China will step up its policy support to increase consumer spending and unleash the country's purchasing potential, a key force that propels the nation's economic recovery and underpins its endeavors toward modernization and prosperity, experts said.
The policy push, including the removal of administrative restrictions in the housing and automobile markets, is among China's priorities in order to revive the vibrancy of its consumer market because the central leadership has identified insufficient domestic demand as an acute challenge facing the nation's economic and social development, especially after three years of COVID-19 disruptions.
Policymakers are also expected to deepen reforms to boost household incomes and bridge the wealth gap between urban and rural residents, as President Xi Jinping has emphasized the importance of expanding the country's consumption demand supported by stable income growth.
Experts said they believe that strong and sustainable development of the Chinese consumer market underscores the country's larger strategic move toward building the dual-circulation development pattern because a healthy and prosperous consumer market is an integral part of China's domestic economic circulation, which actively interacts with the global markets.
In his article published in April in Qiushi Journal, a flagship magazine of the Communist Party of China Central Committee, Xi urged the country to better coordinate the expansion of domestic demand and supply-side structural reform in order to enhance the strength and reliability of domestic economic circulation, increase its driving force and vitality, and boost its interaction with the international markets.
Xi also called on policymakers to form a complete domestic demand system as soon as possible, and establish and improve a long-term mechanism for expanding residents' consumption, so that residents can consume with a stable income, dare to consume without worries and are willing to consume due to the excellent consumption environment and strong sense of gain.
Consumption growth reflects people's increasing desire for a better life and is closely linked with the country's goal of achieving common prosperity and building a modern socialist country in all respects, which is why the central and local authorities have spared no efforts in introducing policies to boost consumption, said Fu Yifu, a senior research fellow at the Star Atlas Institute of Finance.
China has started to implement the outline of the strategic plan for expanding domestic demand (2022-35), which was issued in December by the central leadership. The action plan has identified boosting consumer spending and accelerating consumption upgrading as key tasks of the central government.
"There is significant room for rebound in the consumer market, especially when China's exports are facing uncertainties and domestic investment is gradually reaching saturation. The resurgence in consumer demand can drive the recovery of industrial production and business operation, and further promote China's economic growth," Fu said.
The strong policy push shows that China is further defining the crucial role of consumption as a persistent pull on the economy and a lasting driving force for growth. It reflects that the country's consumer market will usher in a new development paradigm in which consumer demand is constantly upgraded, requiring high-quality products and services to satisfy material and spiritual consumption needs, global accounting firm Deloitte said in its 2023 China Consumer Insight and Market Outlook report.
Consumption in China has rebounded strongly since the country lifted its COVID-related restrictions. Retail sales in the first quarter rose 5.8 percent year-on-year, reversing the decline of 2.7 percent year-on-year in the fourth quarter of 2022, according to the National Bureau of Statistics.
To further promote consumption growth, policymakers will likely remove administrative restrictions that impede people's consumption abilities in areas such as automobile and housing, and offer more policy incentives such as lower mortgage rates and smaller down payment requirements for home buyers in lower-tier cities, said Wang Yun, a senior research fellow at the Chinese Academy of Macroeconomic Research.
"The (central) government should increase fiscal support through greater tax relief, improve social security coverage and more targeted transfer payments to effectively bridge urban-rural income gaps, improve the country's overall social welfare program and substantially raise the income of low-income families," Wang said.
China's prosperity, with its 1.4 billion consumers, affects the fates of domestic and foreign businesses and the prospects of global economic growth. The country's demand has served as a crucial driver of global growth in the past decades and will continue to do so in the years to come, experts said.
Over the next decade, China may add more consumption than any other country, and is expected to generate more than one quarter of the total global consumption growth, according to projection by global management consulting firm McKinsey& Company.
By 2035, the population of China's middle-income group will likely surpass 700 million, up from the current size of about 400 million, which will provide a strong base for the Chinese consumer market to grow substantially, according to a report by the Development Research Center of the State Council.
US investment bank Morgan Stanley has forecast in a report that China's private consumption is likely to reach about $12.7 trillion by 2030, making the country a global consumption powerhouse and matching the size of the current US market.
The further expansion of China's consumer market will help promote the country's greater integration with global markets and bring changes in international trade as upgraded demand of Chinese consumers will mean more imports, experts said.
Meanwhile, thriving private consumption in China will also spur shifts in global supply chains, as there will be a greater incentive for foreign companies to move their manufacturing and production operations to China to be closer to the consumers who are at the forefront of technology adoption, demographic shifts and new purchasing behavior, they said.
Josie Zhang, president of British luxury brand Burberry in China, said that China's expanding consumer market is one of the world's most important markets and remains highly dynamic. The country's high-level opening-up continues to provide the world a chance to share the potential and opportunities of the Chinese market, and will play a meaningful role in driving the recovery and growth of the world economy.
"They (Chinese consumers) are digitally savvy and more eco-conscious than ever before. They are also increasingly turning to innovative products and culturally relevant experiences. All these bring development and growth opportunities for the industry," Zhang said.