The Chinese government has adopted a new strategy by investing funds in population-related areas, hoping households will increase spending to stimulate the economy back to vibrancy.
At an important political meeting known as the "Two Sessions," Chinese authorities set a 2026 economic growth target of 4.5%-5%, the lowest since 1991, while policymakers unveiled a new strategy aimed at boosting household spending.
Previously, China used various strategies such as building housing, roads, industrial zones, expanding exports, and investments to revive the economy. However, these approaches were not always sustainable. Chinese policymakers now plan to adopt a strategy called Investing in People.
The question remains whether China's leaders can truly encourage people to spend more, and if household spending can become a genuine economic driving force.
Investing in People is a policy where the Chinese government invests in social welfare, such as expanding elderly care centers, increasing elderly allowances, providing childcare subsidies, and proposing income plans for retirees. This policy aims to make households and individuals feel secure about retirement and confident in starting families, encouraging increased spending.
Although China's 15th Five-Year Plan focuses on developing and exporting technologies like artificial intelligence and boosting industrial production, it may not be enough to drive the economy amid global demand weakness and economic imbalances. China must adapt to revive its economic growth.
Chinese households spend a smaller share compared to other countries, accounting for 40% of China's GDP, versus the global average of 55% and 60% in developed countries.
Research indicates the government can stimulate higher household spending, but results during the Lunar New Year festival were mixed. Despite the government investing over one billion yuan to encourage travel, tourism revenue increased 19% year-on-year, yet average tourist spending per person surprisingly declined, showing cautious household spending.
This serves as a warning for Chinese leaders to adapt quickly before history repeats itself. In the past, massive household stimulus spending failed, leaving only large debts for the government.
Economists suggest China must urgently plan to transform household spending into a long-term, strong economic driver rather than relying on short-term subsidies.
Chinese netizens have raised questions online about paid leave, with one posting, "Taking leave is not resting at home but going out to spend money," while another said, "China should enforce an eight-hour workday but only five days a week first."
Another group questioned leave policies for weddings and childbirth. One called for a minimum of 10 days leave for weddings nationwide, noting some provinces only allow three days. Another commented, "Having children involves high costs; people need stable jobs and income before deciding to have kids."
One reason household spending remains low is the prolonged slowdown in the real estate market, which accounts for 25% of China's economic activity. Several years ago, real estate developers faced massive debt problems, halting or delaying projects, causing home prices in many cities to fall sharply in 2021.
Over decades, homes have symbolized wealth for Chinese families. Psychologically, rising home prices make people feel wealthier and willing to spend more, so falling prices reduce perceived wealth and spending willingness. The real estate slowdown also increased unemployment among construction workers and related sectors in many cities.
Other challenges China faces include a significant drop in newborn birth rates, rising unemployment among recent graduates, and a sharp decline in household demand.
Over four decades, China's economy grew through urbanization, infrastructure, and industries. Now it's time for China to enter a new phase where economic growth is driven mainly by household spending.
Source:BBC