Explainer | China consumption: how important is it to the world’s No 2 economy?

As China’s middle class has expanded over the past two decades, consumption has become a key driver of growth

Under its ‘dual circulation’ strategy, Beijing wants consumer spending to become more prominent in future

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Consumption accounts for more than half of China’s gross domestic product. Photo: AP

Published: 2:30am, 30 Oct 2021Updated: 4:52pm, 30 Oct 2021

How important is consumption to the Chinese economy?

Consumption, which measures the final purchase of goods and services by households, accounts for more than half of China’s gross domestic product (GDP) and its share continues to increase. In the first three quarters of this year, consumer spending contributed 64.8 per cent of GDP, the biggest driver of growth for the Chinese economy.

Consumption was at its peak in 2000, when its annual share of China’s GDP was 63.9 per cent. But that figure gradually decreased over the next decade. In 2010, it began to grow again, but at a rate of less than 1 per cent annually, before reaching 54.3 per cent last year – a similar level with 2005.

In developed economies, consumption as a share of GDP hovers around 70 to 80 per cent.

China’s top leadership sees boosting consumer spending as an economic priority in the five-year plan to 2025, as well as the nation’s long-term vision through 2035. Flooding the economy with monetary and fiscal spending is no longer a favoured growth strategy for the central government.

How has consumption evolved in China?

Over the past two decades, as tens of millions of Chinese have been pulled out of poverty and the middle class has swollen, more people have had disposable incomes to spend.