Back in March, when China unveiled a 5% growth target for 2023 that (at the time) appeared easily attainable, household consumption was identified as the key driver for growth this year – given that weakness in the housing market was likely to constrain investment and slower growth in advanced economies would limit exports. However, policy measures unveiled at the National People’s Congress were directed at the supply side of the economy – largely intended to improve the flow of goods following the disruptions of the COVID-19 pandemic – with nothing to address consumption. Subsequent proposals – including loosening monetary policy and tax incentives – similarly do little to address the underlying problem.

Consumers have not come to the party post-zero-COVID

Household consumption in China is difficult to track. Unlike most major economies, China does not produce quarterly GDP by expenditure data, meaning that it is necessary to rely on imperfect measures such as retail sales to indicate the underlying conditions. Retail sales excludes a broad range of services consumption (such as travel, education and healthcare among others) while also including goods consumption by the public sector.

For further details, please see the China Economic Update (September 2023)