Chinese economy rides the crest of new consumer phenomena

A talk about China's shift toward consumption-driven growth often begins with the myths that households, scarred by the COVID-19 pandemic, made precautionary savings, and that property market adjustments dented confidence, leading to weak consumer inflation.

When seen from this perspective, China's rebalancing toward consumption appears hesitant. But the narrative sits uneasily with what has unfolded on the ground in 2025.

From viral collectibles such as Labubu dolls, packed cinemas for blockbuster animations Ne Zha 2 and Zootopia 2 and hit online games, to the explosive rise of short dramas and the swelling popularity of domestic supermarket chain Pangdonglai, China has seen a rapid succession of new consumer phenomena, alongside a broader surge in experiential and lifestyle spending.

Reality has outpaced myths. To label China's strong commitment to bolstering consumption as "underwhelming" is akin to misjudging its focus and direction, and the notion that the country is "not ready to shift to a consumption-driven economy" is off the mark. The truth of China's consumption story is written in the data.

In the first three quarters of 2025, the final consumption expenditure contributed 2.8 percentage points to China's 5.2 percent year-on-year GDP growth. In other words, consumption accounted for more than half of the nation's economic growth, up from 44.5 percent for the whole of last year, according to the National Bureau of Statistics.

This highlighted a clear transition — consumption is no longer a supplementary driver, but the primary engine of China's economy and one whose role is gradually expanding.

Recovery unfolds

"Consumption demand is the main driver of economic growth. Consumption potential is continuously released," said Zheng Xuegong, head of the Department of National Accounts at the NBS.

Such resilience has been particularly visible in services. From January to November, retail sales of services increased 5.4 percent year-on-year, with cultural, sports and recreational services, as well as communication and information services, registering double-digit growth, NBS data showed.

Meanwhile, driven by sectors such as home appliances, furniture, communication products, jewelry and cultural products, retail sales of consumer goods increased 4 percent year-on-year during the same period, exceeding the 3.5 percent growth recorded for the whole of 2024.

Cheng Shi, chief economist at financial services provider ICBC International, described the overall picture as one of "moderate recovery with structural improvement".

More important, the recovery unfolded even as the impact of trade-in incentives for durable goods began to ease, suggesting that consumption growth is increasingly supported by improved income expectations, a revival in services spending and structural changes in consumer behavior, rather than only short-term stimulus, Cheng added.

Stella Li, investment director of China equities at Aberdeen Investments, a global asset manager, noted that "a wave of new consumer brands — many of them targeting younger demographics — is continuing to emerge".

"The strength of domestic brands is no longer solely based on lower prices or superior value for money. They understand the domestic consumers far better than before, and this deeper alignment is becoming a key source of competitive advantage," she said.

Li's assessment has been borne out by market performance. In the Hong Kong stock market, the craze for Pop Mart's Labubu helped the first-half net profit surge nearly 400 percent; bubble tea giant Mixue Group's listing drew strong investor interest; and jewelry maker Laopu Gold's stock was among the standout performers since its 2024 debut — all underscoring robust sentiment in Chinese consumer and lifestyle trends.

However, signs of pressure remain. In November, retail sales of consumer goods grew 1.3 percent year-on-year, marking the sixth consecutive month of deceleration. Despite being resilient, retail growth of services moderated from last year, with the January to November expansion of 5.4 percent staying below the 6.2 percent pace recorded during the whole of 2024.

The headwinds are most evident in automobiles and property-related consumption. In the first 11 months of 2025, retail sales of building and decoration materials dropped 1.5 percent year-on-year amid ongoing property market adjustments, while automobile sales declined 1 percent, underscoring continued caution toward big purchases.

"The most direct factor affecting consumption is income," said Huang Hanquan, head of the Chinese Academy of Macroeconomic Research, adding that the decline in consumer confidence, the slowdown of middle-income group expansion and the insufficiency of social security also weigh on spending.

On the supply side, Huang said, the largest gap lies in high-quality services, where provision remains insufficient.

New proposals

Looking at 2026, the annual Central Economic Work Conference held in Beijing earlier this month prioritized expanding domestic demand, including consumption, with new proposals on formulating and implementing urban-rural income growth plans and removing unreasonable restrictions in the consumption sector, which analysts said point to improvements in holiday arrangements.

An official at the Office of the Central Commission for Financial and Economic Affairs said that China's plan to increase incomes for urban and rural residents would include actions to promote full and high-quality employment and further raise their basic pension benefits.

In an interview with Xinhua News Agency, the official said that authorities will also remove unreasonable restrictive measures, support eligible regions in introducing spring and autumn breaks for primary and secondary school students, and ensure that staggered paid leave for employees is more effectively implemented.

Johnny Yu, a macro strategist at global investment firm Wellington Management, said the share of consumption in GDP could continue to grow in 2026 "if we see effective policies to stabilize the property sector and household incomes".

"It's important that policies focus on lifting long-term income growth over one-off windfalls. This way we could see consumption recovery entering a self-sustaining cycle, rather than needing constant fiscal support," Yu said, adding that the consumer trade-in program is likely to expand to services and nondurable goods next year.

Alfred Yin, consumer products and retail assurance leader at EY Greater China, said the income-boosting plan could focus on three fronts — strengthening wage growth mechanisms through industry-level wage bargaining and guidance; improving social security coverage, including pension, healthcare, childcare and education, to ease precautionary savings; and bolstering property-based income through more robust wealth management products and better regulated capital markets.

Trade-in incentives may be extended to areas such as green building materials and energy-efficient home renovations, with greater flexibility granted to local governments, Yin added.

Wang Wei, a senior researcher and former director of the Institute of Market Economy at the Development Research Center of the State Council, said that additional measures could include expanding public holidays and strengthening the implementation of paid leave.

"Paid leave is implemented relatively well in some State-owned enterprises, foreign companies and certain government agencies, but many private and smaller firms still do not enforce it," she said, adding that with limited paid leave, people lack the time for travel, vacations, or even weekend shopping.

As these policy efforts filter through, Wang said that domestic demand is set to become an even more important driver of growth, and that she expects China's annual final consumption expenditure to exceed 90 trillion yuan ($13 trillion) during the 15th Five-Year Plan (2026-30) period.

That would account for around 60 percent of the country's GDP, compared with 56.6 percent in 2024, and contribute more than 60 percent to economic growth, Wang said. She added that the share of household service consumption in total consumer spending is expected to reach 50 percent, compared with 46.8 percent in the first three quarters of 2025.

Policy push

Cheng, from ICBC International, said that sectors linked to people's pursuit of a better life — such as healthcare, elderly care, child care, education and training — are likely to hold the greatest growth potential, alongside companies that cater to consumers' emotional and psychological needs, including emotional comfort and health security.

These views echo China's latest policy push. In November, authorities unveiled a new action plan to better align consumer goods supply with demand. By 2027, the plan aims to nurture three 1-trillion-yuan consumption sectors — elderly care products, intelligent connected vehicles and consumer electronics — alongside 10 100-billion-yuan consumption categories, including baby care products, fitness equipment, pet supplies, trendy toys and Chinese-style clothing.

For global companies, the expanding and maturing consumer landscape is creating fresh opportunities.

"China's consumption potential remains robust, driven by a growing middle-income group and policy incentives like duty-free expansion," said Nancy Liu, president of DFS China, the retail travel arm of French luxury conglomerate LVMH Group.

Liu said that DFS is particularly confident in playing a vital role in the Hainan Free Trade Port's development, where the recent launch of the island-wide special customs operations — expanding zero-tariff coverage and easing entry for overseas goods — further enhances the business environment for global consumer brands.

Taken together, these shifts point to a more consumption-driven Chinese economy — one that is increasingly seen as a stabilizing force not only for China's own development, but also for a global economy grappling with weak demand, rising protectionism and persistent downside risks, economists said.

Kristalina Georgieva, managing director of the International Monetary Fund, recently said in Beijing that China has the opportunity to reach a new stage of development, in which its growth engines switch from investment and exports to domestic consumption and its economy reorients from goods to services.

"It's a great opportunity. Seizing it requires brave choices," she said, suggesting that China take "more determined, more decisive" measures to address the protracted property sector slowdown, which has been a significant drag on consumer confidence.

"A better balanced Chinese economy, internally and externally, also means a stronger and healthier global economy," Georgieva added.

Contact the writers at zhoulanxv@chinadaily.com.cn