Will boosting consumer spending ease China’s economic slowdown?

The nation aims to cut reliance on manufacturing and boost its economy.

Consumer industry plays a role in driving China's economic growth as the country faces challenges from a struggling property market and declining exports, according to GlobalData.

The report said the country seeks to reduce its dependence on manufacturing and boost its economy.

“After stringent COVID-19 restrictions for three years, China’s foodservice industry has been struggling, with many restaurant operators reporting losses,” said Neralla Rama Ravi Teja, Consumer Analyst at GlobalData. 

“An uptick in household consumption will give a push to the consumer footfall at these outlets. In addition, with the property sector and exports struggling, the country’s economic stability is dependent on increasing consumer spending and restoring consumers’ confidence,” he added.

In April 2024, the World Bank projected a slowdown in China’s economic growth, with GDP expected to decrease from 5.2% in 2023 to 4.5% in 2024. Despite the end of COVID-19 restrictions in early 2023, domestic demand has remained weak, contributing to low business confidence and suppressed consumption. China is currently experiencing both structural and cyclical economic slowdowns.

To address these issues, China has released 20 directives on its official website, guiding local authorities and ministries in creating a favorable environment to accelerate household consumption growth.

GlobalData’s “China PESTLE Insights – A Macroeconomic Outlook Report” highlighted that the property market, burdened by oversupply and a declining population, saw new home sales fall in the first quarter of 2024. China’s population dropped by 0.1% in 2023 and is expected to decline by 0.2% in 2024. Exports also decreased annually in March due to ongoing trade tensions and new US tariffs.

The foodservice sector, severely impacted by the pandemic, also saw 460,000 restaurant closures in early 2024. Consumers have cut back on dining out due to economic uncertainty and income losses. China plans to enhance financial support for small businesses in this sector, promote food festivals, and attract foreign companies.

“With many major markets around the world going through recession fears, China’s reliance on export growth alone will be insufficient to propel its economy, even if the US eases its punitive tariffs,” said Teja.

He added that the situation is expected to worsen due to escalating conflicts in the Middle East and rising tensions between Taiwan and China. Additionally, a possible return of Donald Trump to the US presidency could present further challenges for China.

“In such a scenario, China will have to reduce its dependence on manufacturing and shift its focus towards the services sector. The government is likely to introduce more measures to boost its household consumption in the near future,” he said.