At the World Economic Forum’s “Summer Davos” meeting in Tianjin last month, Premier Li Qiang said that China is evolving into a “mega-sized consumption powerhouse”. This was more than a rhetorical flourish. It marked a reaffirmation of Beijing’s long-standing ambition to change its growth model, placing domestic demand, rather than exports or real estate, at the heart of the economy.
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This vision is not new. Policymakers have been talking about rebalancing for over a decade. But the timing of Li’s message is noteworthy: global demand is faltering, supply chains are shifting and geopolitical tensions are reshaping the global trade landscape. For China – and much of Asia – this consumption pivot could be transformative, provided it is backed by strong structural reform.
As for now, China’s efforts could go either way. On one hand, retail sales rose 6.4 per cent year on year in May – consumer spending saw the strongest growth in nearly 18 months – buoyed by the 618 shopping festival and a suite of policy incentives. Electric vehicle purchases have surged. JD.com reported a double-digit increase in sales of household appliances. These are encouraging signs that Chinese households are cautiously returning to the market. According to the National Bureau of Statistics, retail sales reached 4.1 trillion yuan (US$572 billion) in May.
The broader context is more complicated. Imports declined for a second straight month in June, indicating that internal demand – while recovering – is still uneven. As of last year, China’s per capita savings stood at 24.5 per cent, lower than the Covid-era peak of 2022 but still quite high.
Meanwhile, the purchasing manager’s index edged up to 49.7 in June but remained in contraction territory, reinforcing the urgency of domestic demand as a stabilising force. These figures underscore the reality that China faces: a steady return to consumption tempered by structural frictions that inhibit a full economic handoff.
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Part of the caution stems from structural factors. Chinese households still save at high rates, shaped by a legacy of limited social safety nets and concerns around healthcare, education and retirement. Disposable income rose 5.5 per cent in the first quarter of 2025, but that growth has yet to translate into broad-based confidence.