MNI: China To Bolster Service Consumption With Greater Supply

China’s latest round of consumption stimulus will emphasise boosting services, with local governments taking the lead as near-term, large-scale central-government subsidies remain unlikely due to supervision difficulties that could dilute their effectiveness, advisors told MNI.

“Policymakers are increasingly aware that room for additional consumption lies in the service sector, as the policy effect of subsidising purchases of durable, big-ticket items is fading,” said Tang Yao, associate professor at Peking University’s Guanghua School of Management. China’s household consumption-to-GDP ratio stood at 39% versus 68% in the U.S., reflecting Beijing’s underinvestment in services rather than goods, where spending levels are comparable, he noted. 

The service industry has strong growth potential, with per capita spending accounting for 46.1% of total expenditure in 2024 and contributing 63% to overall consumption growth, said Hong Tao, vice-chairman at the China Consumer Economics Society. 

From January to July, service retail sales rose 5.2% y/y, outpacing goods at 4.8%, according to National Bureau of Statistics data. Hong said policymakers will now focus on expanding services supply, along with the Ministry of Commerce (MOFCOM)’s pledge to roll out measures in September expected to include tailored travel products for the elderly, standardised housekeeping, increased healthcare imports and greater openness in telecoms and education. 

“There will be a combination of national and local-level subsidies, and every CNY1 subsidy is expected to drive CNY2.1 of spending on services,” he said, warning fraud and high-quality supply shortages may blunt results. Tang downplayed prospects for an additional CNY1 trillion special treasury issuance within the year with part of the funds aimed at subsidising service consumption, saying extraordinary fiscal expansion was unlikely as the economy remained on track to meet its 5% growth target. Unlike goods, service spending is harder to trace, particularly in education and healthcare, he added. (See MNI: China's Fiscal Expansion Needs Decrease As 5% GDP Eyed)

SUPPLY-SIDE FOCUS

Major cities are already rolling out service-sector programmes, with Beijing earmarking CNY20 million to subsidise theatre performances from this month, while Guangdong will issue CNY20 million in tourism coupons covering scenic spots and hotels from Sept 12.

MOFCOM’s initiative will lean toward the supply side strategy of the central government, which intends to ease restrictions and give local governments more autonomy to expand services, Tang said, pointing to Guizhou’s village football league as an example that is also in line with the State Council’s parallel call to build a CNY7 trillion sports industry by 2030.

Gong Liutang, director at Wuhan University’s Institute for Advanced Study, said local governments should use investment guidance funds to channel private capital into services to boost supply, alongside vouchers and broader health insurance coverage to include dental and physical exams. He estimated CNY300 billion in subsidies would be effective if shared across central, local and corporate budgets, but stressed the longer-term need to stabilise household wealth, and boost wages and investment returns. (See MNI: China Stocks To Test Higher Levels, Drive Confidence)

KEY CITIES

Still, retail sales weakness in Beijing and Shanghai – where catering revenues fell 3.6% and 2.9% y/y in Jan-Jul – underscored fragile consumer confidence amid the property downturn and job market concerns. 

The catering declines in particular reflected cautious household spending and reduced position-related consumption by officials and businesspeople under austerity policies, Tang argued. 

Hong, also director of Institute of Commercial Economics at Beijing Technology and Business University, attributed it partly to a shortfall in tourists, especially foreign visitors relative to 2019 levels and called for measures to attract them, such as smoother customs clearance, more exchange shops and tax refund facilities.