China’s economy is turning inward, but will weak domestic demand undermine Xi Jinping’s vision?

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China is shifting its economic strategy to focus more on its huge domestic market as the international environment becomes more challenging

But analysts say China has a long way to go to boost weak consumer spending and cut its reliance on exports and state-led investment

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Weak domestic demand in China could prove an obstacle to Xi Jinping’s inward-looking economic strategy. Photo: AFP

Frank Tang

Published: 6:30pm, 4 Aug 2020Updated: 9:56pm, 4 Aug 2020

China’s new strategy of domestic demand-led growth in the face of growing international uncertainty will be an uphill battle due to weak demand at home and heavy state intervention, according to analysts.

President Xi Jinping has made it clear that China will rely more on domestic consumption and home-grown technologies as the nation’s rivalry with the United States intensifies.

China’s Politburo, the supreme decision-making body of the ruling Communist Party, decided last week its “dual circulation” strategy – which does not turn away from the international market, but will lean more on domestic consumption – would guide economic policies in the decades to come.

However, China faces numerous obstacles before it can establish a sustainable consumer market and cut its reliance on exports and state-led investment for growth.

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Total retail sales, which cover both consumer spending and government purchases, shrank 11.4 per cent in the first half of this year to 17.2 trillion yuan (US$2.4 trillion) because of the coronavirus shock, according to the National Bureau of Statistics (NBS).

Per capita consumer spending fell 5.9 per cent to 9,718 yuan (US$1,392) in the first half, meaning total consumer spending in China was just US$13.6 trillion over the period if multiplied by the country’s 1.4 billion people. That is less than 30 per cent of gross domestic product (GDP).

Fu Peng, the chief economist of brokerage Northeast Securities, said the consumption power of China was far below its production capabilities.