BEIJING, July 7 (Reuters) – Chinese government advisers are intensifying efforts to prioritize the household sector’s role in broader economic growth within Beijing’s upcoming five-year policy plan, as trade tensions and deflation pose challenges to the outlook.
Leaders are compiling proposals for their 15th five-year plan, a comprehensive document outlining priorities up to 2030. The plan is anticipated to gain endorsement at a December Communist Party conference and receive parliamentary approval in March.
Policy advisers informed Reuters that while they expect the document to elevate household consumption to a top goal in principle, it may not include an explicit target.
Household consumption currently constitutes 40% of gross domestic product; some advisers suggest China should aim for 50% over the next two five-year cycles.
Economists have long encouraged Beijing to transition to a consumption-led economic model, reducing reliance on debt-fueled investment and exports for growth.
Although China has largely resisted pressures from higher U.S. tariffs, new concerns about industrial overcapacity, factory deflation, and the resulting impact on jobs and incomes have amplified calls for a shift in long-term strategy.
“Relying on external demand makes us vulnerable to global shocks,” an anonymous policy adviser noted due to the sensitivity of the topic.
“We should strengthen domestic consumption as a key driver of growth and economic transformation,” the source added, aligning with two other advisers interviewed by Reuters.
A fourth adviser indicated that his proposals would exclude this recommendation, stating, “this is not something that can be easily achieved without the correct policies and reforms.”
Calls for a more robust consumer sector are not novel.
While Beijing has pledged structural changes for over a decade, its household consumption share of GDP remains roughly where it was in 2005, significantly below the OECD average of 54%.
Analysts explain that the challenge lies in shifting resources from the business and government sectors to households, which could potentially slow growth. Japan’s household share of GDP was 50% in 1991, rising to 58% by 2013 before dipping back to 55%.
A 2023 progress report on the 14th five-year plan lamented “insufficient mechanisms” to boost consumption.
Advisers noted that the policy proposals for the 15th plan largely mirror those previously promised by Beijing.
These include enhancing welfare, relaxing an internal passport system blamed for deep urban-rural inequality, and other measures, including tax changes, to redistribute income towards those who have less and are more likely to spend it.
New proposals involve utilizing state-owned assets to bolster pension funds and stabilize the volatile stock market and crisis-hit property sector to enhance households’ investment earnings.
“We have to increase household incomes, we have to boost transfers to low-income groups, but we’ve seen wage cuts,” another adviser remarked.
He added that household demand has gained increased significance in the upcoming five-year plan, with discussions focusing on whether China should establish a specific consumption target.
Yang Weimin, vice-chairman of the China Centre for International Economic Exchanges think-tank, suggested last month that China should elevate household consumption to over 50% of GDP by 2035.
The advisers anticipate that the 14th plan’s objective to maintain the manufacturing share of GDP relatively stable will persist for another five years.
State-guided investment has transformed manufacturing into a key growth engine.
However, there is an emerging argument that investing further in an industrial complex already accounting for a third of global manufacturing yields diminishing returns.
A prominent Communist Party magazine recently advocated for a crackdown on price wars across various industries, addressing China’s overcapacity and deflation.
Peng Sen, chairman of the China Society of Economic Reform, stated in comments posted on the WeChat account of the Changan Avenue Reading Club, an informal body supported by senior officials, that sluggish consumption also harms manufacturing profits and jeopardizes jobs.
In March, Peng proposed that China should increase final consumption, encompassing household and government spending, as a share of GDP to 70% by 2035. The share stood at 56.6% in 2024.
Not all of China’s policy thinkers favor consumer-led growth.
In a June article in financial outlet Yicai, government economist Yu Yongding argued that the concept was “theoretically incorrect” and incompatible with long-term development.
“Without investment, there is no growth and without growth, sustained consumption is difficult to achieve,” Yu wrote.
As with the previous five-year plan, China is unlikely to set a specific GDP growth target for the next cycle, according to the advisers. China targets growth of around 5% this year, consistent with the goal set in 2024.
However, ambitions outlined in 2021 to double the size of the economy by 2035 remain, the advisers noted. Analysts suggest this might mean postponing necessary reforms required to rebalance the economy towards consumption.
“Growth during this period cannot be lower than 4%,” a third adviser emphasized. “We won’t accept anything less.”
— news from Reuters
— News Original —
Calls grow for China’s household sector to be bigger economic driver
BEIJING, July 7 (Reuters) – Chinese government advisers are stepping up calls to make the household sector ‘s contribution to broader economic growth a top priority at Beijing ‘s upcoming five-year policy plan, as trade tensions and deflation threaten the outlook. n nLeaders are gathering proposals for their 15th five-year plan, a voluminous document that lays out priorities up to 2030. The plan is expected to be endorsed at a December Communist Party conference and approved by parliament in March. n nSign up here. n nPolicy advisers told Reuters while they expect the document will elevate household consumption to a top goal in principle, it is likely to stop short of laying out an explicit target. n nHousehold consumption currently accounts for 40% of gross domestic product – some advisers propose China should aim for 50% over the next two five-year cycles. n nEconomists have long urged Beijing to switch to a consumption-led economic model and rely less on debt-fuelled investment and exports for growth. n nWhile China has so far largely withstood pressures from higher U.S. tariffs, fresh worries about industrial overcapacity, factory deflation and the resulting stress on jobs and incomes have heightened calls for a shift in long-term strategy. n n”Relying on external demand makes us vulnerable to global shocks,” a policy adviser said on condition of anonymity due to the topic ‘s sensitivity. n n”We should strengthen domestic consumption as a key driver of growth and economic transformation,” said the source, echoing calls from two other advisers Reuters spoke with. n nA fourth adviser said his proposals would not include this recommendation as “this is not something that can be easily achieved without the correct policies and reforms.” n nNEW URGENCY n nCalls for a more robust consumer sector are not new. n nWhile Beijing has pledged structural changes for more than a decade, its household consumption share of GDP is roughly where it was in 2005 and far below the OECD average of 54%. n nThe difficulty, analysts say, is that China has to shift resources from the business and government sectors to households in ways that could slow growth. Japan entered its decades-long stagnation period with a household share of GDP of 50% in 1991. That only grew to 58% by 2013, before dipping back to 55%. n nA 14th five-year plan progress report from 2023 lamented “insufficient mechanisms” to boost consumption. n nThe policy proposals for the 15th plan are largely the same ones Beijing had promised before, the advisers said. n nThese include bolstering welfare, relaxing an internal passport system blamed for deep urban-rural inequality, and other measures – including tax changes – to redistribute income towards those who have less and are more likely to spend it. n nNew proposals include using state-owned assets to shore up pension funds and propping up the wobbly stock market and the crisis-hit property sector to increase households ‘ investment earnings. n n”We have to increase household incomes, we have to boost transfers to low-income groups, but we ‘ve seen wage cuts,” said a second adviser. n nHe added household demand has taken on increased importance at the upcoming five-year plan with discussions focusing on whether China should set a specific consumption target. n nYang Weimin, vice-chairman of the China Centre for International Economic Exchanges think-tank, said last month China should raise household consumption to over 50% of GDP by 2035. n nBALANCING ACT n nThe advisers expect a goal from the 14th plan to keep the manufacturing share of GDP relatively stable will survive another five years. n nState-guided investment has turned manufacturing into a key growth engine. n nBut an argument is emerging that investing more in an industrial complex that already accounts for a third of global manufacturing brings diminishing returns. n nA prominent Communist Party magazine last week called for a crackdown on price wars in various industries, in a nod to China ‘s overcapacity and deflation. n nPeng Sen, chairman of the China Society of Economic Reform, said in comments posted on the WeChat account of the Changan Avenue Reading Club, an informal body backed by senior officials, that sluggish consumption also hurts manufacturing profits and endangers jobs. n nPeng said in March that China should boost final consumption, which includes household and government spending, as a share of GDP to 70% by 2035. The share stood at 56.6% in 2024. n nBut not all of China ‘s policy thinkers favour consumer-led growth. n nIn a June article in financial outlet Yicai, government economist Yu Yongding said the concept was “theoretically incorrect” and incompatible with long-term development. n n”Without investment, there is no growth and without growth, sustained consumption is difficult to achieve,” Yu wrote. n nAs with the previous five-year plan, China is unlikely to set a specific GDP growth target for the next cycle, the advisers said. China targets growth of around 5% this year, the same goal as in 2024. n nBut ambitions laid out in 2021 to double the size of the economy by 2035 remain, the advisers said. This, as in the past, might mean delaying painful reforms needed to rebalance the economy towards consumption, analysts say. n n”Growth during this period cannot be lower than 4%”, said a third adviser. “We won’t accept anything less.” n nEditing by Marius Zaharia and Sam Holmes