Speaking at the World Economic Forum's Summer Davos meeting in Tianjin, Premier Li Qiang expressed strong conviction in China's capacity to sustain a relatively rapid economic growth rate. He highlighted the nation's ongoing transformation from a manufacturing hub into what he termed a "major consumption powerhouse," built upon its robust industrial foundation. These remarks underscore Beijing's determination to achieve its ambitious "around 5%" GDP growth target for 2025, even as global trade frictions intensify.
Consumer Spending Shows Momentum
Recent data points to a burgeoning domestic demand. China's retail sales experienced a notable surge of 6.4% year-on-year in May, marking the fastest growth since December 2023 and an acceleration from April's 5.1% increase. The National Bureau of Statistics attributed this robust performance to a confluence of factors, including government-backed trade-in programs, the influential "618" shopping festival, and expanded visa-free entry policies. Sales of household appliances and related goods, in particular, saw a significant jump of 53% in May, contributing 1.9 percentage points to overall retail growth. In 2024, consumer spending accounted for 44.5% of China's economic growth, surpassing the contributions from investment and exports.chg
Beijing has proactively implemented extensive policy support to invigorate consumption throughout the year. March saw the unveiling of a comprehensive 30-point plan, specifically targeting income enhancement and consumption subsidies. Furthermore, Chinese banks have been instructed to expand consumer lending, signaling a concerted effort to boost domestic demand.
Skepticism Amid Structural Challenges
Despite the government's optimistic outlook, many analysts harbor skepticism regarding China's ability to reach its 5% target without resolving ongoing U.S. trade tensions. The International Monetary Fund (IMF), for instance, projects that China's potential growth could decelerate to approximately 3.8% between 2025 and 2030 in the absence of significant structural reforms.
Consumer confidence, a critical component of consumption-led growth, remains fragile. Research by McKinsey indicates that 36% of respondents reported experiencing "job anxiety." Consequently, annual consumption growth is anticipated to reach only 2.3% in 2025, a pace similar to the 2.4% observed in 2024. As the Economic Times noted, "More policy support for households could ease the transition to consumption-led growth, but the shift remains politically sensitive for the ruling Communist Party."
Long-Term Transition Strategy
The strategic pivot towards consumption aims to mitigate China's reliance on exports, particularly in an era of escalating trade protectionism. Oxford Economics forecasts that China's average annual GDP growth this decade could halve from previous decades, settling at around 4.5%.
Premier Li Qiang emphasized this long-term vision, stating, "We aim to help China transition from a major manufacturing power to a colossal consumer market. This will open up vast and untapped markets for businesses from many countries." While China's official 5% growth target for 2025 reflects the government's resolve to maintain stable growth amidst global challenges, its realization will necessitate a delicate balance between stimulating domestic consumption, increasing investment, and navigating subdued net exports due to persistent trade frictions. Government intervention, fiscal stimulus, and infrastructure investment are expected to play pivotal roles in achieving this ambitious goal. However, external trade tensions and internal structural headwinds continue to present significant hurdles, leading many independent forecasts to project growth closer to 4.0-4.7%. The ultimate success will hinge on the interplay of consumption recovery, investment expansion, and a potential easing of trade frictions.
