Spurring consumption remains top priority in 5-year plan

AI/CAI MENG/CHINA DAILY

China's top leadership has emphasized that expanding domestic demand is vital not only to economic stability, but also to economic security, making it a strategic priority rather than a temporary policy measure.

The State Council — the nation's Cabinet — recently issued the 15th Five-Year Plan for Expanding Consumption, which represents the first national-level special plan dedicated to consumption. Its release marks a shift in the role of consumption, from a short-term policy tool to a long-term strategic pillar of economic development.

The plan sets a target of increasing China's total annual retail sales of consumer goods to around 60 trillion yuan ($8.95 trillion) by 2030.

It outlines systematic measures in six areas: upgrading services consumption, expanding goods consumption, fostering new consumption scenarios, enhancing consumers' purchasing power, improving the consumption environment and strengthening related institutions.

Together, these measures chart a clear path for using consumption as an engine to facilitate the domestic economic cycle during the 15th Five-Year Plan period (2026-30).

From a theoretical perspective, consumption plays an irreplaceable role in the nation's economic cycle. A healthy economy depends on the interconnected functioning of production, distribution, exchange and consumption. Consumption is not only the end point of the cycle, but also the starting point for a new one.

On the one hand, expanding consumption creates stronger market demand, which in turn drives production expansion and industrial upgrading.

The rapid growth of new energy vehicle consumption, for example, has directly stimulated capacity expansion and technological innovation in industries including power batteries and automotive chips, helping China's NEV industry establish a leading position in global markets.

On the other hand, higher-quality consumption can push improvements in income distribution and the supply system, creating a dynamic balance in which demand drives supply while supply generates new demand.

In practice, consumption has already become a major driver and stabilizing anchor of economic growth. Since the 18th National Congress of the Communist Party of China in 2012, domestic demand has contributed an average of 93.1 percent to economic growth, with final consumption expenditure accounting for an average 55 percent.

In 2025, final consumption expenditure contributed 52 percent to economic growth, 5 percentage points higher than the previous year and exceeding the combined contribution of gross capital formation and net exports.

China has become one of the world's most promising consumer markets and, if measured by purchasing power parity, is the world's largest consumer market.

Against the backdrop of a more complex and challenging external environment and rising global trade protectionism, further tapping domestic demand — particularly consumption — to offset uncertainty in external demand is essential to maintaining stable and sustainable economic development.

Prioritizing services consumption can help meet the dual requirements of consumption upgrading and industrial transformation. The plan places "promoting higher-quality and more affordable services consumption" at the top of its six major tasks, with systemwide measures covering eldercare, childcare, culture and tourism, health, sports and education.

China's services consumption accounted for 46.1 percent of per capita household consumption expenditure in 2024, up from 39.7 percent in 2013. Yet the share remains about 10 to 30 percentage points lower than in developed countries, indicating substantial room for further growth.

By focusing on people's livelihood concerns, particularly eldercare and childcare, the plan proposes initiatives to improve eldercare services at the county level and expand affordable senior care and childcare services.

These measures address some of the most immediate needs of households while creating new momentum for the high-quality development of the services sector.

Artificial intelligence is also being harnessed to cultivate new sources of consumption growth and shift consumption from quantitative expansion toward higher quality.

The plan calls for deeper integration of "AI+consumption" and an initiative to enhance digital consumption, covering areas ranging from smart devices and intelligent connected vehicles to AI-enabled culture, tourism and medical services.

AI can reshape the consumer experience and match supply and demand more precisely. In the short term, it can directly stimulate consumption of smart hardware and digital content. In the longer term, it can connect data between consumers and manufacturers, enabling flexible and customized production and creating additional demand through new forms of supply.

China has built total intelligent computing capacity of about 1.59 million PFLOPS, ranking second globally. The deep integration of AI into smartphones, household appliances and automobiles provides a solid technological foundation for expanding and upgrading consumption.

At the same time, the plan seeks to combine short-term stimulus with long-term mechanisms to strengthen overall household consumption capacity. At the heart of consumption capacity are both household incomes and consumers' sense of security.

The plan addresses employment, income growth and social security by implementing an employment-first strategy, improving mechanisms for reasonable wage growth and steadily raising minimum wage standards.

It also calls for gradually increasing basic pension benefits for urban and rural residents and government subsidies for basic medical insurance, while promoting long-term care insurance to reduce households' incentives for precautionary saving.

Yet China's household consumption rate remains below that of developed countries, leaving significant space for improvement. The plan's explicit focus on raising the household consumption rate therefore addresses a fundamental issue in expanding domestic demand.

Expanding consumption is a systematic undertaking. Short-term policies are needed to activate the market, but lasting momentum requires long-term action.

The recommendations for the 15th Five-Year Plan period, adopted at the fourth plenary session of the 20th CPC Central Committee, stressed the need to "take expanding domestic demand as a strategic priority" and promote positive interaction between consumption and investment, as well as between supply and demand, to strengthen the endogenous momentum and reliability of the domestic economic cycle.

Institutional innovation can help unlock consumption potential. The plan calls for removing and optimizing unreasonable restrictions in areas including automobiles, housing and performing arts, while establishing management mechanisms suited to new forms, models and scenarios of consumption.

To address the problem of paid leave that is available in principle but difficult to take in practice, it proposes improving implementation mechanisms and encouraging flexible and staggered vacations. Such measures seek to remove institutional barriers on the supply side and create a stronger foundation for unleashing consumption potential.

Financial and fiscal coordination can also lower barriers to consumption. The plan calls for improving fiscal and financial support mechanisms, including interest subsidies for consumer loans and special bond support for consumption-related infrastructure, allowing financial resources to play a greater role in spurring demand.

Achieving the goal of raising total retail sales of consumer goods to around 60 trillion yuan by 2030 will require sustained efforts to strengthen consumption capacity, improve the supply of consumer goods and services, and refine the institutional environment for consumption. It will also require a positive interaction between short-term efforts to stabilize growth and long-term efforts to drive economic transformation.

Ultimately, households need the capacity, willingness and confidence to consume.

Only by enabling the citizenry to afford consumption, want to consume and feel secure enough to consume can China fully translate the advantages of its super-large market into a source of domestic demand, strengthen the endogenous momentum and reliability of its domestic economic cycle, and lay a solid foundation for advancing Chinese modernization and achieving the broader goals of national development and rejuvenation.

The writer is a senior research fellow at the Chinese Academy of Macroeconomic Research.

The views do not necessarily reflect those of China Daily.