Economists say structural reforms needed to shift China’s focus to consumption
HKUST professor tells ‘Summer Davos’ panel that opportunities can be found in services sector and smaller Chinese cities
While eye-catching technological breakthroughs – led by the DeepSeek artificial intelligence (AI) model – have boosted confidence in China amid intensifying rivalry with the United States, economists at the Annual Meeting of the New Champions in Tianjin have called for structural reforms to make China a consumption-driven economy.
“We can talk about technological supremacy, like AI and all these, but China is never going to be a rich country unless it becomes a big consumer country,” Jin Keyu, a professor at Hong Kong University of Science and Technology’s school of business and management, said at the World Economic Forum event, which is also known as “Summer Davos”.
China’s political economy mechanism is largely geared towards subsidising production to gain competitiveness, Jin said during a panel discussion on Thursday.
“Chinese goods are so competitive, and everyone’s importing Chinese goods, then China is going to have a real problem, not just with the US, but with the rest of the world, because it’s no longer about just efficiency, it’s about harmony,” she said. “It’s about giving other countries an opportunity to be part of the global supply chain in every single sector.”
Jin said China should raise its internal consumption to harmonise its trading relationships, with opportunities to be found in the services sector and in the smaller Chinese cities that young people were flocking back to.
“It will be fantastic if the yardstick competition on the local governments can put consumption as one of the measurements of success,” she added.
Eswar Prasad, an economics professor at Cornell University in New York, said during the same panel discussion that pushing ahead with deeper structural reforms is a critical issue for the Chinese government.
“The brief surge in confidence that we have seen thanks to the shift in narrative might be difficult to sustain if you don’t get the macroeconomics right,” he said. “So technology is great, but you need macroeconomics to support it.
“Some deeper-rooted structural reforms, which seem to have been taken off the table for now, really need to be brought back on the table. And with that, I think consumers might end up becoming much more confident.”
While DeepSeek has increased confidence in China’s capital market, it has not had the same effect among young people or in the labour market, said Joseph Luc Ngai, Greater China chairman at management consultancy McKinsey & Company.