Officials reportedly working on new measures to strengthen China’s manufacturing sector

Those hoping Beijing is planning to rebalance China's economy toward greater consumption will be disappointed.

On Monday, Bloomberg scooped that officials are working on new measures to strengthen China's manufacturing sector, including by:

• Targeting to maintain manufacturing’s share of GDP in the upcoming 15th Five-Year Plan (2026-2030) (FYP)
• Preparing an updated version of Made in China 2025 to push for global leadership in key industrial sectors

Meanwhile, policymakers are reportedly wary of including a target for consumption's share of GDP in the FYP (Bloomberg):

• “Authorities are concerned they lack effective tools to spur spending by households and are reluctant to commit to a specific number.”

The underlying issue: China’s economic structure is out of whack.

• Investment – much of which flows into manufacturing – contributes 40% of China’s GDP,  compared to just over 20% in the US and EU.
• Household consumption, on the other hand, contributes less than 40% – versus nearly 70% in the US and well over 50% in the EU.

That imbalance creates a variety of problems for Beijing: Chinese manufacturers are heavily dependent on export markets, making them vulnerable to a host of risks, with surging exports fueling trade tensions and a protectionist backlash abroad.

Get smart: In theory, both household consumption and manufacturing investment can grow as a share of GDP – if net exports shrink.

Get smarter: In practice, for manufacturing to grow in a meaningful way, exports would almost certainly need to rise, since domestic demand is nowhere near enough to absorb current output, let alone new growth. 

• That all but ensures net exports will at least stay flat, and likely expand, as a share of GDP.

The bottom line: Top leaders view industrial and supply chain risks as a much greater threat to China's development and national security than sluggish household consumption.

• Efforts to meaningfully rebalance China's economy won't progress until that changes.