China has announced a new economic initiative, the “Special Action Plan to Boost Consumption,” aimed at stimulating domestic spending as the country battles weak confidence and deflationary pressures. The plan, unveiled late Sunday Beijing time, outlines efforts to raise incomes, stabilise the stock and real estate markets, and improve public services, though details on fiscal measures remain limited.
The announcement follows President Xi Jinping’s directive for policymakers to prioritise demand-driven growth after years of focus on industrial expansion. It also comes after last week’s “two sessions” parliamentary meetings, where boosting consumption was reaffirmed as a key economic priority.
Stock markets generally responded positively on Monday, with Hong Kong’s Hang Seng index rising 1.03% and Brent crude futures climbing 0.84% to $71.17 a barrel. The CSI 300 index of Shanghai- and Shenzhen-listed stocks is 0.27% lower.
Consumer spending and economic pressures
China’s consumer spending has remained subdued since the end of COVID-19 lockdowns more than two years ago, with households exercising caution amid economic uncertainty. February’s consumer price index (CPI) fell into deflation, though seasonal factors related to the Lunar New Year holiday also played a role.
The country’s prolonged property sector downturn, driven by government-led deleveraging, has further dampened confidence. Calls for stronger measures to support domestic demand have intensified, particularly after previous stimulus packages focused mainly on stock markets and failed to revive household spending.
Key measures in the new plan
The initiative includes commitments to:
- Increase wages, particularly minimum wages, to improve household purchasing power.
- Expand education and childcare support, including subsidies to ease financial burdens on families.
- Promote inbound tourism, with expanded visa-free travel policies to attract foreign visitors.
- Encourage recreational industries, including development of winter tourism destinations such as indoor ski resorts.
Official data released on Monday showed retail sales grew 4% year-on-year in January and February, an improvement from December’s 3.7% increase and in line with analyst forecasts. Industrial output rose 5.9% year-on-year, beating expectations of a 5.3% increase, but slowing from December’s 6.2% growth.
Mixed investor response and global outlook
Despite optimism surrounding the announcement, some analysts remain sceptical about its impact. Lynn Song, ING’s chief economist for Greater China, said the plan places “considerable focus on increasing both the capacity and willingness of households to consume” but warned that effective implementation is key.
Xu Chenggang, a senior research scholar at Stanford University’s Center on China’s Economy and Institutions, noted that while Beijing’s shift toward consumption reflects recognition of economic difficulties, the government has yet to take significant steps to directly stimulate demand. “Although they acknowledge the problem, they are still placing more emphasis on supply-side measures,” he said.
Broader market impact
The announcement contributed to a modest rally in regional markets, with Japan’s Nikkei 225 gaining 1.19%, South Korea’s KOSPI rising 1.5%, and Australia’s ASX 200 climbing 0.83%. However, concerns over US trade policies and global recession risks tempered enthusiasm.
