China's Consumption Conundrum Clouds Next Five-Year Plan

The Paradox of Empty Baskets

In Chengdu's bustling Lunar New Year shopping festival, vendors hawked everything from braised ducks to washing machines, hoping to catch consumers in a holiday spending mood. Yet beneath this vibrant marketplace lies China's most pressing economic puzzle: how do you make people spend when they'd rather save?

For the first time in its planning history, Beijing will formally target "significantly boosting household spending" in its next five-year plan, to be finalized in March. It's what economists have been demanding for years—a shift from export-driven growth that has sparked global trade tensions to domestic consumption as the primary engine.

The Numbers Tell a Different Story

China's retail sales growth continues to decelerate, weighed down by a persistent property downturn. Consumer inflation cooled in January, raising deflation concerns. Producer prices remain in negative territory, signaling weak domestic demand across the supply chain.

This isn't just a cyclical downturn—it's a structural challenge. China's economy grew 4.5% in recent quarters, but much of that came from exports and government investment, not the household spending that Beijing desperately wants to cultivate.

The Nikkei survey projects China's growth will further slow to 4.5% in 2026, putting even more pressure on policymakers to find new growth drivers.

Policy Meets Reality

Here's the fundamental tension: you can mandate economic targets, but you can't mandate consumer confidence. Chinese households are sitting on record savings, but they're not spending. Why? Property market uncertainty, inadequate social safety nets, and general anxiety about the future.

Younger Chinese consumers are particularly cautious, preferring selective, value-driven purchases over the conspicuous consumption of previous generations. This behavioral shift can't be solved with stimulus checks or shopping festivals alone.

For global businesses, this creates a complex calculus. A successful Chinese consumption boom would benefit everyone from Apple to Nike. But the transition period could be rocky, especially as China simultaneously faces trade pressures and an AI-driven job market transformation.

The Bigger Picture

China's consumption challenge reflects a broader global trend: the difficulty of engineering economic transitions through policy alone. Japan tried similar consumption-boosting measures in the 1990s with mixed results. The U.S. has grappled with saving versus spending imbalances for decades.

What makes China's case unique is the scale and the timeline pressure. With an aging population and slowing productivity growth, Beijing has a narrow window to complete this economic model transition.