Consumption remains key for China to achieve its growth target in 2024

According to official data, consumption expenditure contributed 82.5 percent to China’s GDP growth in 2023, up by 43.1 percent from the previous year. Total retail sales of consumer goods, a major indicator of the country’s consumption strength, climbed 7.2 percent year-on-year. 　

Yet compared to consumption, the investment and export sectors, the two other pillars of the economy, have had a turbulent year. In 2023, China’s exports only grew 0.6 percent year-on-year to 23.77 trillion yuan (US$3.31t). Taking into account the depreciation of the Chinese yuan in 2023, exports measured in US dollar terms actually declined by 4.6 percent. 　

In the first two months of 2024, exports in US dollar terms rose by 7.1 percent from the same period of last year, but mostly due to the low base effect, as export growth in January-February 2023 was -6.8 percent. It is unlikely that China’s overall exports will see major growth in 2024, given the ongoing geopolitical tensions between China and its major trade partners in the West. 

China’s investment sector also experienced a tough year. In 2023, foreign direct investment into China totaled US$33 billion on a net basis, down by 82 percent from 2022. As the central government has to tackle the property crisis and local government debt woes, its capacity to expand spending and launch a large-scale stimulus package will be constrained in 2024. 　

Therefore, boosting domestic consumption remains key for China to achieve its target growth rate. On March 13, China announced a plan of massive renewal and trade-in of equipment and home appliances to boost investment and consumption. By 2027, investment in equipment of several key sectors, including industry, agriculture and healthcare, will rise by more than 25 percent from 2023. More recycled materials will be used. 　

China also needs to substantially increase its support to family households in order to boost domestic consumption. Many micro and small business owners and their employees still face major financial stress. Given increasing uncertainties in China’s economy, even families with purchasing power have increased their savings cushion, leading to an extremely high savings rate. In 2023, China’s households stashed away 16.67 trillion yuan (US$2.3t) in savings accounts, despite several rounds of interest rate cuts. 　

To effectively unleash consumption power, the government needs to increase its inputs into social safety nets, including childcare, education, healthcare and pension funds. The government should in addition make a long-term plan to increase household disposable income, especially for low- and middle-income families. 　

In the meantime, the government should substantially increase its support for the private sector. The government must recognize that the resilience of the Chinese economy stems from its decentralization. Governments at various levels should endeavor to help families fill income gaps and assist local small enterprises to restore and grow their businesses. This will be more helpful than initiating large-scale infrastructure investment projects.