Past is prologue for Beijing’s five-year consumption plan

Beijing is doubling down on its failed approach to consumption.

In its five-year plan (FYP) on expanding consumption, published July 13, the State Council said it would:

• "Expand domestic demand as the strategic bedrock...and better leverage consumption's foundational role in economic development"

To achieve that, the plan mostly focuses on unlocking latent demand.

ICYDK: Policymakers believe households want to consume more, but structural supply-side barriers are stopping them – like an inadequate supply of high-quality services, or a lack of trust in domestic manufacturers.

To that end, the plan calls for:

• Boosting public trust in Chinese products by enforcing standards and protecting consumer rights
• Expanding the supply of healthcare, tourism, education, and other services
• Creating innovative new consumer products
• Building infrastructure that enables consumption

The FYP acknowledges that unlocking latent demand isn’t enough and that there’s a role for wealth redistribution. It calls for:

• Adjusting minimum wages
• Strengthening social security
• Increasing spending on education, healthcare, elder care, and childcare
• Pursuing full employment

None of this is new: Unlocking latent demand has been at the center of Beijing’s consumption strategy since late 2022, and Beijing has endorsed the same redistribution efforts for years.

• Neither approach has revived household spending, which has gotten progressively weaker.

Our take: Beijing is wedded to a supply-side solution for a demand-side problem.

• Until the material well-being of Chinese households improves, no amount of product innovation will loosen their wallets.