China Turns to Consumers to Boost Growth, But Households Are Wary

Household nominal consumption in Q1 grew 5.2% year over year, compared with 4.5% in Q4

- Hannah Miao

To weather a trade war with the U.S., China is looking to its own consumers to keep the economy churning. Beijing has made bolstering domestic consumption a top policy priority for the first time, promising efforts to boost household spending. In one initiative this year, the government allocated 300 billion yuan, equivalent to around $42 billion, to expand a program that pays shoppers to trade in old vehicles or electronics for new ones.

While the program has boosted short-term economic activity, economists say it does little to rebalance a Chinese economy that has long favored manufacturing as a driver of growth. Economists and policy advisers have called on Beijing to address the deep-rooted impediments to consumption, including a threadbare social-welfare system that incentivizes households to save and a financial system geared toward channeling investment to manufacturing.

Meanwhile, an epic property bust, slowing growth, deflation and high youth unemployment are all weighing on the economy and curbing consumers' inclination to spend.

The bid to rebalance the economy toward consumption is all the more urgent as a trade war with the U.S. pressures China's ability to export its way to strong growth.

"In the past, our finances mainly supported investing in projects. Now, we need to shift to investing in people," said Peng Sen, president of the China Society of Economic Reform, a state-affiliated think tank, at a recent economic forum.