China targets consumption in bid to drive growth

The Chinese government has vowed to make consumption the “main driving force” of the economy as hopes grow that Beijing’s abandonment of zero Covid policies will unleash a flood of spending by Chinese consumers, fuelling a global rebound.

“The greatest potential of the Chinese economy lies in the consumption by the 1.4 billion people,” Li Keqiang, China’s premier said during a meeting of China’s cabinet, the state council, according to a statement released late on Saturday.

“Boosting consumption is a key step to expand domestic demand. We need to restore the structural role of consumption in the economy.”

While China has long sought to boost consumer spending, the comments from its outgoing premier come at a crucial moment as Beijing seeks to rebuild the economy after years of punishing lockdowns.

The Chinese economy grew by just 3 per cent in 2022, underscoring the impact of the government’s zero-Covid strategy before it was abandoned last month. Last year’s collapse of the property market, which has contributed around one quarter of GDP over the past decade, has also added to economic stress.

Economists hope that China’s pent-up consumer activity will buoy global demand.

Multinationals including Unilever have said in recent weeks they were expecting a rebound in demand in the country and banks including Morgan Stanley have increased their Chinese growth forecasts. “We believe the market is underappreciating the far-reaching ramifications of reopening, and the possibility that a robust cyclical recovery can occur despite lingering structural headwinds,” the bank said in a January note.

Still doubts remain over the willingness of Chinese consumers to start spending again.

Experts have long warned that China’s desire to move away from property-driven growth towards greater consumer spending will be challenging. Household spending accounted for 38 per cent of Chinese gross domestic product in 2021. By comparison, it accounted for nearly 70 per cent of US GDP in 2022. The last few years of Covid has also bred economic caution as incomes and house prices came under pressure in the real estate crash.

The country’s already high gross national savings rate swelled during the pandemic. Renminbi deposits held by households nationwide grew in 2022 by a record Rmb17.8tn ($2.6tn), compared with growth of Rmb9.9tn in 2021, according to data from the People’s Bank of China.

Chinese citizens celebrated lunar new year last week for the first time since pandemic controls were lifted. While state media say 226m domestic trips were made, 74 per cent more than last year at the height of Covid restrictions, that is still just half the 420m trips made in 2019.