MNI: China Needs Services, Childcare Subsidy To Boost Spending

China will need to increase consumption’s contribution to GDP to about 60% from 2024’s 44.5% to ensure 5% growth this year and offset potentially weaker exports, advisors told MNI, calling for additional funding support to boost services and a quicker introduction of childcare subsidies of at least CNY100 billion.

“Given the contribution from net exports were unlikely to maintain last year’s 30.3% of economic activity due to rising trade barriers, measures are needed to boost final consumption – comprising household and government spending – to around 60%,” said Gong Liutang, professor of Applied Economics at the Guanghua School of Management, Peking University.

Retail sales are expected to reach 3.5-4.5% y/y growth in 2025, up from last year’s 3.5%, said Shen Jianguang, chief economist at JD Group and adjunct professor at Fudan University, noting they may accelerate before slowing in H2 due to a higher comparison base and trade uncertainty. 

“The 5% GDP target is achievable, supported by the planned consumption stimulus and the anticipated improvement in investment,” Shen said. Should the target appear to be at risk, additional measures – such as further special treasury issuance – could be considered, he added. (See MNI: China Borrowing Plan Keeps Policy Space Given Trade Risks)

Shen expects the central government to deliver CNY100 billion in childcare subsidies this year, possibly funded by the CNY1.3 trillion special treasuries that may include monthly handouts of about CNY800 for an estimated nine million births. Governments could offer cash, a voucher system, or a Finnish-style baby-product package to prevent households from saving the money, he noted. 

Liu Qiao, dean of the Guanghua School of Management at Peking University, suggested childcare subsidies should total as high as CNY560 billion if the nation’s 28 million infants aged 0-2 years old receive CNY20,000 each per year.

Hohhot in Inner Mongolia announced subsidies of up to CNY100,000 for children of registered locals who live and work in the city, following this month’s Two Sessions meeting’s childcare subsidy proposals.

SERVICE CONSUMPTION

The Two Sessions prioritised consumer demand support via social security enhancements, boosting incomes, and doubling special treasury aimed at consumer goods trade-ins to CNY300 billion. 

However, Gong noted that the trade-in scheme’s efficacy had weakened after home appliance sales in the first two months slowed to 10.9% y/y, compared to the over 20-30% seen in the last four months of 2024. 

“There is space to issue additional special treasuries and to expand the scheme into the service sector,” said Gong, emphasising that current local government subsidies for tourism were limited in scope and scale, and could potentially worsen regional imbalances.

Shen argued the trade-in program would continue to offer underlying support as it expands to more items, including electronic devices. 

The sales of communication equipment in the Jan-Feb period rose by 10 percentage points to 26.2% from the same period last year, he noted.

This year’s CNY4.4 trillion local government special bonds aimed at resolving off-balance-sheet debt and boosting infrastructure investment, together with unused bond funds from last year, will provide opportunities for local authorities to expand the issuance of consumer vouchers, especially for spending on services, he noted. 

Gong urged the central government to increase transfer payments to enhance the livelihood of low-income groups, whose per capita disposable funds remain about CNY9,000 annually.

He also underscored the importance of enhancing residents' property income by increasing dividends from listed companies and reforming the distribution system to elevate the share allocated to households, whose property income only grew 2.2% y/y in 2024. He argued that the growth rate should exceed that of GDP. (See MNI INTERVIEW2: China Support To Drive 2-3-Yr Rise In Equities)