In their preparation for what may be a trade battle with the United States, Chinese officials are moving away from decades of tradition. The Chinese government is appealing to its people to help get the world's second-biggest economy out of its slump.
Previously, the government has ridden out economic downturns by increasing investment in infrastructure, manufacturing, and inexpensive loans. That does not look viable now. There are currently more houses, roads, and trains in many regions of China than are necessary.
And in a globe leaning towards protectionism, it's unclear who would purchase China’s goods even if its manufacturers produced more of them.
Will the Chinese finally start spending?
Analysts say increasing domestic spending is the most obvious strategy to bolster growth and stall a spike in unemployment. However, the question of how to entice the country's 900 million working-age residents remains unanswered.
A country used to steadily rising living standards was taken aback by the aggressive pandemic restrictions that stalled the economy for nearly three years. Millions of Chinese have seen their wealth erode due to the prolonged property crisis. Now, a majority view their job stability and future prospects with a sense of pessimism.
In 2024, a series of stimulus programs proved ineffective because households continued to save for potential economic downturns. More importantly, it is not clear if President Xi Jinping is prepared to take all necessary steps to usher in a new age of domestic demand-driven growth.
The previous two decades have seen a meteoric rise in incomes, with GDP per capita increasing by a factor of 10. But the Chinese have a long history of saving a significant portion of their income — about a third — every year.
Household spending at roughly 45 per cent of GDP falls short of 60 per cent to 80 per cent in the majority of OECD nations. The main reason is that China's social benefits for households are weak. Cash and other benefits are lower than in other major economies.
Could China revive household demand by incentivising citizens? That will answer China's growth dynamics in a world leaning towards protectionism.
(With inputs from the agencies)