China’s economic plans prioritize consumption—but only on paper
For the past six months, Chinese President Xi Jinping and his minions have repeatedly raised the prospect of a fiscal stimulus large enough to lift China out of its economic doldrums. But expectations of a turnaround powered by renewed consumer confidence have been dashed several times when the leadership has failed to deliver. So, at last week’s meeting of the National People’s Congress (NPC), China’s rubber-stamp legislature, the government declared consumption the No. 1 priority for the coming year, ahead of even Xi’s vaunted goal of making China a global technology powerhouse.
“We will take a people-centered approach and place a stronger economic policy focus on improving living standards and boosting consumer spending,” declared Premier Li Qiang in his work report to the gathering.
A close look at the spending plans unveiled at the NPC suggests far less than full bore support for consumers and businesses that are trying to keep their heads above water after several years of desultory demand and falling prices. The plans are unlikely to restore the household wealth destroyed by China’s real estate crash or provide jobs to millions of unemployed college graduates.
The announced government outlays won’t exactly light a fire under an $18 trillion economy. There will be $41 billion for an enhanced trade-in program for consumers and businesses. That initiative was introduced last year and lifted sales of cars, household appliances, and business equipment. The additional subsidies will cover new smartphones and home renovations. In addition, seniors will receive an additional twenty renminbi ($2.76) a month in old-age benefits—the same increase they received last year—and two subsidies for healthcare will rise by a combined thirty-five renminbi. This, in a society where high hospital costs can ruin a family’s finances.
Certainly, the overall spending plan is expansionary, with plenty of infrastructure investment. The budget deficit has been raised to four percent of gross domestic product from three percent in 2024, and one estimate that includes off-budget spending and borrowing shows the deficit totaling 9.9 percent of gross domestic product. Beijing insists that this will keep China’s economic growth at “about five percent” this year—the same level it claimed last year. However, many economists take that achievement with a grain of salt. Rhodium Group colleagues estimate that last year’s growth was actually between 2.4 and 2.8 percent.
The 2025 budget again includes vast sums for high-tech industries. About 11.9 trillion renminbi of “special funds” is earmarked to “support the high-quality development of key manufacturing sectors,” an increase of 14.5 percent from 2024, according to the budget report to the NPC—although the time frame for those expenditures is not specified. There will be expanded credit for exporters hit by US tariffs, and a 7.2 percent increase in spending on China’s military—a number that the US government says significantly understates the real level of military expenditures. In addition, the government announced several trillion renminbi of special purpose bonds to continue restructuring local governments’ vast debt burden over the next three years. There is also 500 billion renminbi dedicated to state-owned banks to shore up capital reserves depleted by the country’s property crisis. On top of that, the central bank has announced that it is prepared to continue cutting interest rates and bank reserve requirements at the “appropriate time,” and the Ministry of Finance has said it has the ability to increase spending as needed. Both of those statements have been made regularly since last September.
A lot of the planned spending—for example, the local government bailout—will be unproductive since it will go to restructure debts. Admittedly, the rising fiscal tide inevitably will lift some boats, especially businesses with ties to Xi’s high-tech dream for China. But most Chinese citizens earn their livings outside of these industries, and their immediate prospects remain far more uncertain. One-third of white-collar workers told a recent poll that their wages fell last year.
Indeed, the daily problems facing China’s citizenry have become severe enough that the government was forced to acknowledge them before the NPC—no small admission for a communist party whose propagandists normally offer a steady diet of hubris. The premier’s reference to “weak public expectations” in his work report, and the decision to spotlight the importance of consumption, were a bow to public opinion in a country where the public normally has no way of expressing itself.
However, Xi clearly remains deeply committed to his core economic policies—a point underlined on the eve of the NPC with the publication of a speech he delivered in December. While also acknowledging “consumption shortcomings,” he made clear that the highest priority must remain “more world-class enterprises and leading technologies.” The speech also insisted that the government’s response to China’s economic problems had already “boosted the property market, stock market, market expectations, and social confidence,” suggesting that China’s paramount leader is skeptical about opening the taps too much for those struggling to make ends meet. Xi is well known for his criticism of policies that encourage “welfarism.”
Xi’s laser focus on technology can only be heightened by rising US-China tensions. President Donald Trump’s imposition of twenty percent tariffs on Chinese exports, continued restrictions on semiconductor sales to China, and a recent presidential memorandum outlining policies that would further restrict investment flows between the two countries all point to greater pressure on Beijing to pursue economic and technological self-sufficiency. As the Wall Street Journal’s Lingling Wei and Alex Leary reported last week, Xi is privately concerned that Trump’s policies could isolate China. So, while stronger domestic demand would make the Chinese economy more resilient, the signals from the NPC suggest that the many unfunded social safety net programs outlined at the NPC likely will remain that way.
In the meantime, Beijing may be betting that public sentiment already has started to return to optimism—just somewhat later than the shift in “social confidence” that Xi claimed was underway back in December. Last month’s unveiling of the DeepSeek artificial intelligence program shook global markets and caused Chinese technology stocks to go on a bull run.
How much this shot in the arm for China’s artificial intelligence (AI) development ends up affecting the whole economy remains to be seen. Some investment banks are raising their forecasts for the country’s “potential growth,” at least in the short term. But the government certainly made every effort to talk up AI at the NPC.
All that helped fuel the premier’s optimism when he declared that the “giant ship of China’s economy will continue to cleave the waves and sail steadily toward the future.” But for now, China’s consumers appear to be stuck in steerage.
Jeremy Mark is a nonresident senior fellow with the Atlantic Council’s GeoEconomics Center. He previously worked for the International Monetary Fund and the Asian Wall Street Journal.
At the intersection of economics, finance, and foreign policy, the GeoEconomics Center is a translation hub with the goal of helping shape a better global economic future.
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