Cash, Confidence, Consumption: How China's policy kit fuels consumers' wallets?

As the world's second-largest economy navigates domestic and external headwinds, policymakers are betting that empowering 1.4 billion consumers will provide greater support to its growth.

China unveiled a comprehensive policy package over the weekend to boost consumer spending, signaling a further push to solidify consumption as the major driver of economic growth. The 30-point plan aims to strengthen consumer confidence by a whole set of measures including promoting income growth and reducing financial burden.

Analyst describes this as China's "most comprehensive directive on stimulating consumption" since the 1970s, adopting a holistic approach that combines fiscal, financial, and regulatory tools, as domestic and global headwinds weigh on growth.

The holistic initiative aligns with priorities outlined in this year's government work report, which positioned "expanding domestic demand" as a top priority.

A key innovation lies in its "greater determination" to tackle prominent constraints on consumption, prioritizing the demand side to boost household incomes and ease financial burdens.

As the world's second-largest economy navigates domestic and external headwinds, policymakers are betting that empowering 1.4 billion consumers will provide greater support to its growth.

GREATER CAPACITY, WILLINGNESS TO SPEND

Central to the plan is an unprecedented emphasis on household consumption capacity, with measures to foster reasonable wage increases, expand channels for property income, and boost farmers' earnings.

For the first time in a consumption-boosting policy document, the plan explicitly emphasizes stabilizing both the stock and property markets, outlining targeted measures in a bid to "enhance spending power, stabilize expectations, and strengthen consumer confidence."

"There's considerable focus on increasing both the capacity and willingness of households to consume," Lynn Song, ING Chief Economist for Greater China, said in a recent note.

"Enhancing spending capacity is the cornerstone of boosting consumption, which requires both promoting sustained income growth for urban and rural residents and strategically reducing their financial burdens while strengthening public service guarantees," said Wang Yun, a researcher on macro economy.

The plan integrates consumption promotion with livelihood improvements, introducing measures to reduce household burdens in childcare, parenting, education, medical care and old-age insurance, Li Chunlin, deputy director of the National Development and Reform Commission, told a press conference one day after the release of the initiative.

Such measures include promoting pediatric services, strengthening full-care support for completely disabled elderly citizens, and raising subsidy standards for student groups.

The plan's elevated emphasis on tackling livelihood problems aligns with this year's government work report's pledge to "direct more funds and resources toward investing in people to meet their needs."

Increasing fiscal spending on human development and social safeguards not only helps build a sustainable consumption expansion mechanism, but also reflects a regulation thinking in which economic growth and the enhancement of people's well-being are mutually reinforcing, according to Jin Li, vice president of Southern University of Science and Technology.

FROM TRADE-IN SURGE TO LASTING VITALITY

In a broader push to bolster domestic demand, China renewed its consumer goods trade-in program, raising funding from last year's 150 billion yuan (about 21 billion U.S. dollars) to 300 billion yuan through ultra-long special treasury bonds.

This year's initiative also extends subsidies to more electric gadgets and home appliances including smartphones, tablets, and smartwatches.

The push is built on 2024's success, where 150 billion yuan in subsidies drove over 1.3 trillion yuan in sales across autos, home goods, and electronics, signaling the program's role as a near-term economic stabilizer.

Amid strong policy support, e-commerce giant JD.com reported a 13.4 percent year-on-year revenue increase in Q4 2024, marking its highest quarterly growth in nearly two years, while its operating profit skyrocketed to 8.5 billion yuan from the 2 billion yuan recorded in the same period the previous year, the company's latest performance report showed.

With a steady recovery in consumer sentiment, the firm will continue to unlock high-quality growth potential, JD.com's CEO Xu Ran said, voicing optimism for this year.

This optimism echoes broader trends among consumers. Deutsche Bank's survey released on Tuesday found 54 percent of Chinese consumers feel financially better off than a year ago, a 10-percentage point leap from 2024's average, while 60 percent anticipate higher incomes, climbing the second quarter in a row.

Deutsche Bank said government stimulus since September likely improved income expectations among urban residents, particularly those in Beijing, Shanghai, Guangzhou and Shenzhen.

Beyond immediate stimulus, policymakers are aiming "bigger-picture themes" that take time to unfold. The plan stressed the need to implement paid annual leave system, ensuring that workers' rights to rest and vacation are legally protected.

"More flexible leave policies could encourage the more crowd-averse consumers to travel and spend," Song explained, expecting that reform in holiday system will result in "more aggregate demand."

Furthermore, the policy bets big on tech-driven consumption, prioritizing "AI+" innovations like self-driving vehicles, brain-computer interfaces, and robotics, underscoring China's vision to integrate high-tech advancement with premium consumer experiences.

SUSTAINABLE CONSUMPTION GROWTH

China's stepped-up shift toward domestic demand not only emerges as a necessity but also creates a wealth of opportunities.

The urgency is evident as external shocks coincide with challenges in old growth engines. Yet within these challenges lies unparalleled potential. China's 1.4 billion consumers, bolstered by an expanding middle class of 400 million, the world's largest, forms a powerhouse with vast purchasing potential.

Against this backdrop, the country's shift to transform domestic demand into the main engine and anchor of economic growth represents a blueprint for sustainable growth.

Effective implementation of pro-consumption action plan is of utmost importance, said Li, noting that challenges such as subdued consumer confidence and unmet consumer demands remain, which require "significant" efforts to address them.

Synergy between dozens of central departments will be strengthened to roll out specific policies, while local governments are encouraged to put forward nuanced measures in light of local conditions, the NDRC vice director noted.

"This year's attention to boosting consumption, combined with last year's relatively low base, will help consumption growth recover to mid-single-digit growth in 2025," Song noted. "Further upside would likely hinge on a sustainable recovery of consumption."

Echoing Song's opinion, Lim Tai Wei, associate professor at the Soka University of Japan, said concrete measures combined with solid implementation could steer China's economy toward a consumption-driven model.

As the world watches, China's consumption stimulus could redefine not only its own future, but deliver much-needed stability and certainty to the global economy.

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