Chinese officials on Sunday announced a plan containing various policy measures aimed at boosting domestic consumption in 2025, while the latest economic data indicate that previous measures are beginning to produce results.

Data released on Monday by China’s National Bureau of Statistics indicate that the strategic shift towards increased consumption is starting to pay off as total retail sales of consumer goods from January to February of this year have increased 4% year on year, which is at the higher end of market expectations.

Sales through online distributors have increased by 7.3% compared with the same period last year. Meanwhile, electric vehicle unit sales in the January-February period, according to the China Passenger Car Association, saw strong growth of 35.5% year on year.

Industrial and investment data are also positive. The manufacturing purchasing manager index, a leading indicator of manufacturing activity, reached into the expansionary range of 50.2% in February, and private sector investment, excluding investment in real estate development, grew by 6%.

Supportive policies

China increased its bet on domestic consumption last September when, policymakers anticipating trade uncertainty following Donald Trump’s US presidential election win last year, offered subsidies for the purchase of retail goods, such as consumer electronics, and durables, such as home appliances and automobiles, which will continue throughout this year.

In Sunday’s plan, the state council, China’s cabinet, rolled out its plan to stimulate domestic consumption that included 30 key strategies focusing on eight different economic themes, including boosting residents’ income, supporting the trade-in of consumer goods and strengthening consumption in specific areas, such as lifestyle and entertainment, etc.

The move shows China’s decision-makers are reinforcing their commitment to boosting domestic consumption as a key aspect of the country’s economic growth formula, a move that replaced the previous export-led growth model, which faced challenges from Trump’s tariffs and other restrictive trade policies.

The reinforced commtment is also a follow-up to the annual “two sessions” meetings of China’s top legislature, which concluded last Tuesday, and made GDP growth of 5% the target for 2025 and boosting consumption the government’s number-one priority for the year.

To support the 5% GDP goal, the government decided to adopt a more active fiscal policy by increasing the fiscal deficit level from 3% to 4%, adding 11.86 trillion yuan ( US$1.64 trillion ) to the national debt. Officials expressed confidence with the move as the level is still well below that of the US, 6.4% as of end-2024, and leaves China plenty of room for further government borrowing to fuel any further economic growth.

In addition, the central bank, the People’s Bank of China, has indicated that it will maintain a moderately easy monetary policy and has promised to lower the reserve ratio and interest rates within the year to free up more liquidity. 

Headwinds remain

Despite the high-profile strategic focus on consumption and the encouraging data points in the first two months of 2025, China still faces multiple economic challenges that deserve the attention of policymakers and investors.

For example, the unemployment rate of 5.4% for February is still at a 24-month high, which will not aid domestic demand. Meanwhile, the consumer and producer price indices for February both slipped below zero, indicating overhanging deflationary pressure. Stabilizing employment and boosting consumption, therefore, are the most pressing issues to be addressed by the government.

Indeed, the mention of consumption and employment appeared 32 and 31 times respectively in this year’s government working report delivered during the “two sessions” meetings, more frequent than last year’s, 21 and 26 times, suggesting that more policies will may be in the works to support these two areas.