故宫博物院院长自称“看门人” 踏遍紫禁九千房

Editor's Note: New consumption is growing in China's consumer market but traditional consumption remains sluggish. In a recent interview with ThePaper.cn, Jin Keyu, professor of finance at Hong Kong University of Science and Technology, emphasized that for China to become a prosperous nation, it must transform into a consumption-driven economy. She proposed boosting consumption through the following measures: Increasing labor income, redirecting fiscal support toward households, developing the service sector, reforming the tax system and strengthening social security. Following are excerpts from the interview. The views don't necessarily represent those of China Daily.

Although total retail sales in China reached 48.8 trillion yuan ($6.79 trillion) in 2024, year-on-year growth was a modest 3.5 percent. Final consumption accounted for just 55.7 percent of GDP in 2023, significantly below the 80 percent range typical of developed economies.

This imbalance largely stems from an overemphasis on production and investment over a certain period of time during which household income growth and the development of the consumption environment in some places have lagged behind the overall economic growth on average.

Some local governments focus on industrial output and GDP growth and that has to some extent reinforced a supply-heavy structure that naturally puts demand on the back burner.

Three core barriers prevent China's consumption from realizing its full potential. First, although the country has seen a marked rise in its labor price, the average income of wage earners and farmers still has room to grow to narrow the gap with the better-off social groups.

Second, people lack the willingness to spend. Despite the remarkable progress the country has made to build a nationwide social safety net, it is an undeniable fact that compared with the labor price, many households still need to save a considerable part of their earnings for future family expenditures such as medical care and education.

Third, there are structural limitations on consumption scenarios. Inadequate public service provision, weak implementation of paid leave policies, and the limited availability of diversified urban spaces and consumer-oriented infrastructure in some places all affect consumption.

Another key factor suppressing consumption is that over 70 percent of Chinese family wealth is tied up in property, making them vulnerable during housing market downturns. With property prices falling, families are seeing net wealth decline. Local governments' reliance on land sales has entrenched this model.

To break out of this cycle, the government needs to continue to increase minimum wage standards and link wages more closely to productivity, as well as raise the tax-free income threshold to expand disposable income. Also, fiscal resources should be directed more toward households, particularly the low-income families. In addition, the improvement of the pension system and adjustment of real estate policies can encourage people to spend more.

A crucial reform is adjusting local government performance metrics. Instead of only rewarding GDP and industrial output, officials should be evaluated on the basis of consumption growth, service quality and wage gains. Doing so would align administrative incentives with the national goals of rebalancing the economy and enhancing people's livelihoods.

Meanwhile, consumer expectations need to shift as well. For example, if people expect inflation, they are more likely to spend in advance, whereas if they expect deflation, even stimulus measures may fail to generate a sustainable consumption cycle.

While China places strong emphasis on manufacturing, the rise of automation and machines means that manufacturing alone may not create enough jobs. There must be greater emphasis on creating jobs. This is why service sector employment should be stressed. It typically offers more job opportunities than manufacturing.

In the short term, people remain cautious due to the fast changing job market. Therefore, strong policy measures are needed to adjust the vocational training and education system to better adapt the people to the changing employment landscape.

Fundamentally, the notion that the nation must first become prosperous before it can consume is incorrect because becoming a consumption-driven economy and a prosperous nation should proceed in tandem. Stimulating household spending is not merely a short-term macroeconomic adjustment, it is a structural imperative. If implemented correctly, this shift could create a virtuous cycle: consumption generates employment, which boosts income, which in turn fuels more consumption.