China faces consumer caution despite growth push

[WORLD] China is intensifying efforts to shift its economic engine from manufacturing to domestic consumption, but households remain cautious amid lingering financial uncertainties.

Government Pushes for Consumer Spending

In a bid to bolster economic growth, the Chinese government has introduced a series of policies aimed at stimulating household consumption. A central component is the expansion of the consumer trade-in program, which offers subsidies for replacing outdated goods with newer, improved options. In 2025, the government has allocated 300 billion yuan (approximately $42 billion) to support this initiative, doubling the scale from the previous year. The program has already led to significant sales, including over 6.8 million vehicles and 56 million home appliances traded in during 2024.

Additionally, the government is focusing on increasing household income through measures such as raising minimum wages and providing subsidies for childcare and elderly care. These efforts align with President Xi Jinping’s “dual circulation” strategy, which emphasizes the importance of domestic demand in driving economic growth.

Despite government incentives, the consumption-driven growth model represents a significant structural shift for China, whose economy has long depended on exports and heavy industry. The transition requires not only boosting disposable income but also reshaping consumer behavior, which has historically favored saving over spending due to cultural factors and economic uncertainties. The lingering impact of the COVID-19 pandemic and recent regulatory crackdowns on sectors like technology and real estate have also heightened consumer caution.

Household Caution Persists

Despite these initiatives, consumer confidence remains subdued. A recent survey by Deutsche Bank revealed that only 54% of respondents felt financially better off compared to the previous year, up from 44% in 2024. This cautious outlook is influenced by factors such as high youth unemployment, stagnant wage growth, and concerns over the depreciation of real estate assets.

The household savings rate in China remains elevated at 31.7%, reflecting a preference for financial security over consumption. This trend is particularly pronounced among younger consumers, who face uncertainties in the job market and housing sector.

In addition, demographic trends pose challenges to domestic consumption growth. China’s aging population and shrinking workforce could suppress long-term consumer demand, as older generations typically spend less. The government has recognized this issue and is expanding social safety nets to reduce the need for precautionary savings. However, reforms such as pension system enhancements and healthcare improvements are progressing slowly, leaving many households to remain financially cautious.

Structural Challenges to Sustained Growth

Economists argue that short-term incentives are insufficient to drive a lasting shift toward consumer-driven growth. Structural reforms in areas such as social welfare, taxation, and income distribution are necessary to address the underlying factors contributing to low consumer confidence. Without these reforms, efforts to stimulate consumption may only yield temporary results.

Furthermore, the government's focus on strengthening manufacturing, particularly in high-tech sectors, may divert attention and resources away from initiatives aimed at improving household welfare. This dual focus could complicate efforts to achieve a balanced and sustainable economic transition.

Recent data also highlight regional disparities in consumption capacity. Urban centers like Beijing and Shanghai show stronger consumer spending growth compared to rural areas, where incomes and access to financial services lag behind. Bridging this urban-rural divide is critical for expanding the consumer base and fostering inclusive growth, yet infrastructure and social service gaps remain significant barriers.

While recent policies have provided a temporary boost to consumer spending, the path to a consumer-driven economy in China remains fraught with challenges. Addressing these challenges will require comprehensive reforms and a sustained commitment to improving the financial security and confidence of households. Only through such efforts can China hope to achieve a more balanced and resilient economic future.

Moreover, China’s evolving geopolitical landscape and global trade tensions may influence consumer sentiment and economic stability. Potential disruptions in supply chains and export markets could impact household incomes and employment prospects, underscoring the urgency for domestic consumption to become a reliable pillar of growth. Policymakers face the complex task of balancing external risks with internal reforms to steer China toward a more sustainable economic model.