China’s new plan to encourage consumers to spend again

As Chinese households remain reluctant to spend on big-ticket items, the Chinese government is turning to new tools to revive consumption: experiences and everyday services.

The Chinese government on Thursday announced a work plan to boost consumption of services, from cruises and yacht tourism to elderly care services and sporting events, as policymakers seek to increase consumption as a share of the economy over the next five years.

The plan aims to “accelerate the development of new growth drivers in service consumption” and “improve and expand the supply of services,” the notice said.

China’s new push comes as authorities seek to shore up domestic demand as a prolonged real estate recession, tough job market and income uncertainty make consumers wary of large purchases. There are also growing concerns that the export boom that softened the economic blow from U.S. tariffs last year may be difficult to maintain.

The Chinese government has offered trade-in subsidies to boost sales of cars and electronics, but the recovery in spending has been uneven.

Retail sales rose 3.7% in 2025, lagging industrial output growth of 5.9% and broader economic expansion of 5%. Although consumption indicators fell to 0.9% in December, consumer inflation was flat last year and producer prices have fallen for the third consecutive year, prolonging the deflationary trend and weighing on corporate profits and wage expectations.

Early indicators compiled by China Beige Book showed that consumption of services slowed sharply in January, with most subsectors reporting widespread weakness, including travel, hospitality and chain restaurants.

Still, economists said there was a clear shift in household preferences, with consumers shifting their spending towards services rather than goods.

According to a quarterly survey conducted by the People’s Bank of China in the fourth quarter of 2025, the proportion of respondents planning to increase spending on social and entertainment activities in the next three months reached an eight-year high. Interest in increasing spending on “big ticket items” remained well below pre-pandemic levels.

Meanwhile, consumer priorities appear to be changing.

According to S&P Global’s analyst team, “emotional gratification is playing a larger role in retail spending, with an increasing focus on buying for self-expression and experiences rather than material possessions or brand prestige.”

The rating agency predicts that China’s retail sales, excluding oil, will grow 2.7% year-on-year in 2026, with service industry growth 5.5%.

In a work plan released on Thursday, China’s State Council said it would support “tourism-oriented” renovations of railway stations and scenic railway lines, as well as improvements to yachting infrastructure, including public piers and berths.

Officials also said they would expand visa-free entry to more countries and add tax refund points at border crossings to boost inbound tourism.

The plan also called for fostering new forms of service consumption linked to “emotional experiences” and urged policymakers to update the rules, taking a more measured approach to regulating emerging sectors.

Regarding live performances and sporting events, authorities said they will increase supply, encourage the introduction of top international competitions and promote quality outdoor sports destinations.

Banks were asked to expand lending to service-consuming enterprises and enable eligible enterprises in culture, tourism, education, sports, and domestic services to raise finance through bond issuance.

A more developed services sector is closely aligned with China’s political goals, while traditional methods of stimulating retail demand such as price cuts and promotions have proven “ineffective”, according to the Economist Intelligence Unit.

Chinese policymakers are attracted to services for a variety of reasons. While the per capita rate of service consumption has edged up to 46.1% over the last year, it remains significantly lower than many of its global peers, suggesting there is room for growth.

Services, which are typically more labor-intensive than manufacturing, remain China’s largest source of employment, according to the EIU. Expansion in this sector could help stabilize youth unemployment rates, which have risen to alarming levels in recent years.

According to China’s 2020 census, more than 48% of job seekers aged 16 to 24 were in the tertiary industry.

However, economists appeared skeptical about the effectiveness of the Chinese government’s plan to increase spending on services, warning that its success depended on deepening reforms to increase household incomes and strengthen social welfare.

Allianz chief investment officer Ludovic Subran said growing household consumption requires “recovering consumer confidence to unlock higher savings rates.” Rebalancing toward domestic demand will also require “giving jobs, time and income to consumers,” he said.

Sablan estimated that if China raised household disposable income as a share of GDP from the current 58% to the 70% to 75% range seen in developed countries, private consumption could increase its share of GDP by about 10 percentage points.

Rhodium Group partner Logan Wright said Chinese households are saving a higher percentage of their income for emergencies and retirement, as investment in social services remains “understaffed” and out-of-pocket medical costs remain high in rural areas.

“If the government invested more in social services, households would feel more secure and more likely to spend freely,” Wright added.

According to World Bank data, final consumption expenditure in China will account for 56.6% of GDP in 2024, up from a low of 49.4% in 2010, compared to 82.9% in the United States, 81.7% in the United Kingdom, and 74.7% in Japan.

Duncan Wrigley, chief China economist at Pantheon Macroeconomics, said the growth in services consumption outpacing goods spending primarily reflects rising average income levels and would likely have occurred even without policy support.

Wrigley said it will take years for modest increases in service consumption to fully offset the decline in home sales, adding that weak domestic demand will likely continue to weigh on prices.