China has shifted the focus of boosting its domestic market from goods to "services" consumption. The Chinese government had actively supported goods consumption through policies such as yigu huanxin (以旧换新, subsidies paid when exchanging an old product for a new one), but as growth in this area showed limits, it turned its attention to services such as leisure, education, health care, and culture.
According to China's state-run Xinhua News Agency on the 17th, China's Ministry of Commerce and eight other ministries on the 16th announced "policy measures to expand services consumption," presenting 19 specific measures across five sectors. ▲ Creating demand for services consumption ▲ optimizing the services environment ▲ strengthening financial support are the main points.
First, the measures will create demand by improving service quality. The government will support platforms so they can provide better services and, when necessary, directly build platforms and take the lead in setting service standards. It will include more service corporations on the catalog encouraging foreign investment to encourage corporations to provide differentiated services.
It will also push to open sectors such as internet, culture, health care, and education to expand the size of the services industry. It plans to build pilot cities for new industries in the services sector. Since 2015, China has steadily implemented related steps, and on 4th it added nine cities—Dalian, Ningbo, Xiamen, Qingdao, Shenzhen, Hefei, Fuzhou, Xi'an, and Suzhou—as new pilot cities.
Lastly, it will support the construction of service facilities in culture, tourism, care, childcare, and sports by using the central government budget and local government special-purpose bonds, and encourage financial institutions to expand unsecured loans to the services consumption sector. The People's Bank of China, the Central Bank, has already set up a 500 billion yuan (about 97 trillion won) lending fund to guide financial institutions to support services in lodging and dining, culture, travel, sports and entertainment, and education and care.
Specific examples of measures to spur services consumption include ▲ extending operating hours and optimizing reservation systems at museums and scenic spots ▲ encouraging bids to host international sporting events and supporting their staging ▲ fostering famous events, pro leagues, and performance brands ▲ supporting kindergartens that admit children aged 2 to 3 ▲ adjusting students' vacation schedules.
Earlier, at its July meeting, China's Politburo emphasized expanding services consumption as it laid out the direction of economic policy for the second half. It recognized the limits of the goods-centered yigu huanxin policy. Academia has also noted that the yigu huanxin policy risks pulling forward and exhausting goods demand, arguing that future domestic market activation should be led by services consumption rather than goods.
According to the securities industry, in 2024 services consumption accounted for 57% of China's gross domestic product (GDP), far lower than the roughly 80% in the United States. However, its growth trend is higher than that of goods consumption. From January to August, services retail rose 5.1% year over year, 0.3 percentage points higher than the growth rate of goods retail.
According to China Business News, the most important task to expand services consumption is improving quality. Tan Yongsheng, deputy director of the Institute of Industrial and Technological Economics at the Chinese Academy of Macroeconomic Research, said, "China's services consumption development continues to show qualitative improvements, but there are still tough challenges such as a lack of high-quality service supply, insufficient effective demand, and an inadequate consumption environment," adding, "Only by improving the consumption structure and joining forces collaboratively on the supply, demand, and market fronts can we create a market where consumers 'can consume and want to consume.'"
Some also said that even if high-quality services are provided, an environment where people can consume them must be in place. Luo Zhiheng, chief economist at Yuekai Securities, noted, "Services consumption is a key means for growth, employment, and people's livelihoods, but it faces constraints such as unstable income expectations and a lack of leisure time," adding, "To expand services consumption, efforts are needed on both income security and supply quality, along with improving the vacation system, raising the level of social security, and addressing shortfalls in elder care and medical services supply."