China’s new plan to get consumers spending again

As Chinese households remain reluctant to spend on big-ticket goods, Beijing is leaning on a new lever to revive consumption: experiences and everyday services.

China’s cabinet on Thursday rolled out a work plan to boost services consumption — from cruise and yacht tourism to elder care services and more sports events — as policymakers sought to boost the share of consumption in its economy over the next five years.

The plan aims to “accelerate the cultivation of new growth drivers in service consumption” and to “improve and expand the supply of services,” the notice said.

Beijing’s renewed push came as officials try to shore up domestic demand amid a prolonged property slump, bleak job market and income uncertainty that have kept consumers cautious about major purchases. Concerns are also growing that the export boom that cushioned the economy from U.S. tariffs last year may prove difficult to sustain.

While Beijing has rolled out trade-in subsidies to spur sales of cars and appliances, the rebound in spending has been uneven.

Retail sales grew 3.7% in 2025, lagging industrial output growth of 5.9% and broader economic expansion of 5%. The consumption gauge eased to 0.9% in December while consumer inflation was flat last year and producer prices declined for a third straight year, extending a deflationary stretch that has weighed on corporate profits and wage expectations.

Early indicators compiled by China Beige Book showed services consumption slowed sharply in January, with most sub-sectors, including travel, hospitality and chain restaurants, reporting broad-based weakness.

Even so, economists pointed to an apparent shift in household preferences, with consumers increasingly allocating spending towards services rather than goods.

A quarterly survey by the People’s Bank of China for the fourth quarter of 2025 showed the share of respondents planning to increase spending on social and entertainment activities over the following three months reached an eight-year high. Interest in spending more on “big-ticket” items remained well below pre-pandemic levels.

Meanwhile, consumer priorities appeared to be changing.

“Emotional satisfaction is playing a bigger role in retail spending, with a growing focus on buying for self-expression and experiences rather than for materialistic possessions or brand prestige,” according to a team of analysts at S&P Global.

The rating agency expects China’s retail sales, excluding petroleum, to increase 2.7% in 2026 from last year, with services to grow 5.5%.

In a work plan released Thursday, China’s State Council said it would support “tourism-oriented” upgrades to train stations and scenic rail routes, as well as improvements to yacht infrastructure, including public docks and berths.

Authorities also said they would expand visa-free entry for more countries and add tax-refund points at border crossings to boost inbound tourism.

The plan also called for nurturing newer forms of service consumption tied to “emotional experiences,” and urged policymakers to innovate rules while taking a more prudent approach toward regulating emerging sectors.

For live performance and sports events, authorities said they would increase supply, encourage the introduction of top international competitions and promote high-quality outdoor sports destinations.

Banks were urged to expand credit to service-consumption firms and allow eligible companies in culture, tourism, education, sports and household services to raise funds through bond issuance.

A more developed service sector aligns closely with China’s political goals at a time when stimulating retail demand through conventional methods such as price cuts and promotions have proved “ineffective,” according to Economist Intelligence Unit.

Chinese policymakers are drawn to services for a mix of reasons. Share of services consumption per capita inched higher last year to 46.1%, but still remains significantly lower than many global peers, suggesting room for growth.

Services are also typically more labor-intensive than manufacturing and remain China’s largest source of employment, according to the EIU. Expanding the sector could help stabilize the youth unemployment rate, which has risen to concerning levels in recent years.

The tertiary sector accounted for more than 48% of jobseekers aged 16 to 24, according to China’s 2020 census.

But economists appeared skeptical about the effectiveness of Beijing’s plans to boost services spending, cautioning that the plan’s success hinges on deeper reforms to raise household income and strengthen social welfare.

Boosting household consumption requires “restoring consumer confidence to free up high saving rates,” said Ludovic Subran, chief investment officer at Allianz. Rebalancing towards domestic demand will also require “giving jobs, time and income to consumers,” he said.

Subran estimated that if China were to raise its household disposable-income share in GDP from the current 58% towards the 70% to 75% range observed in advanced economies, private consumption could rise by around 10 percentage points in GDP.

Chinese households have resorted to saving a higher proportion of their incomes for emergencies or retirement as social services remained “underinvested” and out-of-pocket medical services costs remained elevated in rural areas, said Logan Wright, a partner at Rhodium Group.

“If the government were to invest more in social services, households would feel safer and be more likely to spend more liberally,” Wright added.

Final consumption expenditure accounted for 56.6% of China’s GDP in 2024, according to the World Bank data, up from the trough of 49.4% in 2010, compared with 82.9% in the U.S., 81.7% in the U.K. and 74.7% in Japan.

Growth in services consumption outpacing goods expenditure largely reflects rising average income levels and would likely have occurred even without policy support, said Duncan Wrigley, chief China economist at Pantheon Macroeconomics.

It will take years for the modest gains in services consumption to fully offset the declines in home sales, Wrigley said, adding that weak domestic demand is likely to continue weighing on prices.