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China has announced a plan to boost consumption by increasing people’s income. The move comes a few days after the Communist country set a 2025 GDP target of “around 5%” for this year. China has been facing a structural slowdown and this plan is among the flurry of steps that the country has announced over the last six months.
Over the weekend, China announced a “Special Action Plan to Boost Consumption” to “enhance consumption capacity by increasing income and reducing burdens.” Among others, the country will take steps to promote inbound and domestic tourism particularly in areas that get snow.
The broad-based plan also expands “cash-for-clunkers” program wherein the country encourages trade in for old cars and gadgets. The note says that Chinese authorities should “study and establish a childcare subsidy system.”
It also talks about setting up pediatric outpatient clinics at night in general hospitals and encouraging community and employer-run childcare services. Notably, China has been grappling with an aging population and efforts to cajole people to have more kids have not yielded the desired results.
China Reported Retail Sales Data
Separately, China said that the country’s retail sales rose by 4% in the first two months of 2025 which while being in line with estimates was higher than the growth in December. The country’s industrial production rose 5.9% over the period which easily surpassed the 5.3% growth that analysts were expecting.
Notably, China provides the consolidated economic data for January and February due to the country’s Lunar New Year Holidays which can begin in either of the two months and makes monthly comparisons distorted.
In his note, Zichun Huang, an economist at Capital Economics, said, “China’s economy had a decent start to the year, likely driven by fiscal stimulus.” He added, “We expect the recovery to continue over the coming months, but given the wider headwinds weighing on China’s economy, we don’t expect any near-term improvement to be sustained for long.”
China Targets 5% GDP Growth
China is targeting a GDP growth of “around 5%” this year which is similar to what it achieved last year. While the country’s GDP growth sagged in the first half of 2024, it announced a bazooka of stimulus measures beginning in September which helped propel growth in the back half of the year.
China took both monetary and fiscal measures to support its economy, which is suffering from structural issues ranging from slow growth in domestic consumption, an aging economy, a property market slump, and external risks emanating from tariffs on Chinese exports by several countries, including the US, which is its biggest trading partner.
The additional US tariffs on Chinese imports came into effect earlier this month. China too retaliated against the tariffs and imposed counter tariffs on imports from the US. The Chinese embassy in the US tweeted, “If war is what the U.S. wants, be it a tariff war, a trade war or any other type of war, we’re ready to fight till the end.”
Lou Qinjian, spokesperson for the third session of the 14th National People’s Congress, told reporters “We hope to work with the U. S. side to address each other’s concerns through dialogue and consultation on the basis of mutual respect, equality, reciprocity, and mutual betterment.”
He however added, “At the same time, we never accept any act of pressuring or threatening, and will firmly defend our sovereignty, security, and development interests.”
In his speech at the opening of the annual meeting of the country’s parliament, Chinese Premier Li Qiang cautioned that “changes unseen in a century are unfolding across the world at a faster pace”. He added, “An increasingly complex and severe external environment may exert a greater impact on China in areas such as trade, science, and technology.”
China Increased Budget Deficit Target
China raised its 2025 budget deficit target to “around 4%” of GDP which is in line with estimates and 100 basis points higher than the last year. While there are concerns over high debt, last year the country said that it still has much room to raise fiscal deficit.
China has been taking several measures to improve sentiments and bolster confidence. Last month, Chinese President Xi Jinping met the country’s entrepreneurs including Alibaba’s co-founder Jack Ma at a symposium, which was seen as a sign of support for the country’s tech sector. The meeting was quite notable as Xi cracked down on tech companies including Alibaba in 2020 and 2021 which made Chinese stocks “uninvestible” for many foreign investors.
Will China’s Plan to Boost Consumption Work?
Notably, while China has taken several measures to support its economy, many analysts believe that the country needs to take more radical measures especially as the US tariffs are expected to put further strain on its economy.
According to Lynn Song, ING’s chief economist for Greater China, “Households can’t spend what they don’t have.” Song added. “While there are few new details on how the government will increase spending, the details of the plan show a greater determination to tackle China’s consumption problem this year.”
However, Jefferies analysts noted, “Compared to previous plans focused solely on supply-side improvements or old-for-new policies, the plan also touches on the need to improve income.” The note added, “We believe the government is placing more focus on securing the welfare of lower-income groups.”
