‘Boosting China’s domestic demand key to growth’

China should make expanding domestic demand its top priority in 2025, with consumption and services emerging as rising priorities, a leading economist has said.

Li Xunlei, chief economist at Zhongtai Financial International, told the 21st Century Business Herald that if incoming US President Donald Trump carries out his threat to introduce import tariffs then China’s exports will suffer. He said: “If the size of exports shrinks, the domestic market will face the pressure that many goods will shift from exports to domestic sales. Additionally, the export sector is related — directly and indirectly — to the employment of approximately 150 million in China. A reduction in export volume could hit employment in the export sector.”

He added: “Internal demand, on the contrary, can be adjusted autonomously. The policy focus for the coming year should be on expanding domestic demand, including investment and consumption. I suggest reducing reliance on investment and promoting consumption growth. Policy efforts should continue to stimulate consumer spending.

“We also need to further encourage the development of the services sector. In short, China’s response in the next year to the US policy uncertainty should be expanding consumption and reducing institutional constraints that impede the services sector from further development.”

Li said China’s growth model over the past 30 years or so has been investment-driven. Transitioning to a more balanced growth model will face significant resistance, so it is essential to advance various reforms, especially fiscal and tax reforms.

He said: “Through income redistribution mechanisms, the country can increase the income level of low- and middle-income groups and expand fiscal spending in social welfare areas such as eldercare, employment, healthcare and public services. All these will help create more secure livelihoods for the public, shape more optimistic expectations and thereby promote consumer spending.”

The economist said that the services sector lies at the core of stable employment, which can create significantly more jobs than the manufacturing industry when it contributes the same amount of economic growth.

He said: “The services sector has tremendous potential to drive economic growth. A notable characteristic of the services sector is that it involves transactions between residents, leading to a variety of new service demand. The growth of such demand does not rely on the development of specific industries, but is realized as household savings rates decrease while willingness to consume increases.

“Releasing service sector development potential is not something that can be done overnight, but a long, gradual process. No simple decisions can drive the rapid development of the services sector in the short term. To develop the services sector effectively, we must increase household incomes.”

Li added: “The problem facing China is that household incomes account for a relatively low proportion of the country’s total GDP, making the development of the services sector somewhat challenging. Therefore, the country must increase household incomes through multiple channels — increased social spending, job creation and tax and fiscal reform.”

China continues to drive digital transformation

China will steadfastly advance the digital transformation of its financial institutions and accelerate the construction of digital finance infrastructure.

An action plan, issued by among others the People’s Bank of China and the National Development and Reform Commission, said that the target is to establish a financial system highly aligned with the growth of the digital economy by the end of 2027.

Financial institutions will significantly enhance their digital management capabilities, while digital financial products and services will improve in adaptability and inclusiveness to support major strategies, key economic sectors and weak links in the economy, according to the plan.

To achieve these goals, the country will encourage cooperation between financial and sci-tech departments within financial institutions to develop demand-driven digital technologies.

A digital public service platform will be established to provide technological support for the digital transformation of financial institutions in the securities and futures sectors, according to the plan.

The country will also accelerate the regulated use of cloud computing and artificial intelligence to provide accurate and efficient support for the digital transformation of the financial sector, according to the plan.

Digital finance is one of China’s five key pillars to boost high-quality financial development, along with sci-tech finance, green finance, inclusive finance and elderly-care finance.