Cracking the Chinese Consumption Code: Why China’s Growth Model Needs to Flip

China’s remarkable economic rise has primarily been driven by investment, whether in

factories, infrastructure, or real estate built at unprecedented speed. But for more than a

decade, Beijing has aimed to shift toward household consumption as the core driver of

growth. Progress has been limited. Today, consumption accounts for just around 39% of

GDP, which is far below major advanced economies, and remains overshadowed by

investment and exports.

Why is household consumption so weak?

A major factor is household caution. In 2022, Chinese households deposited roughly

¥18 trillion in the banks, which was equal to more than 13% of GDP. Such high savings

reflect low confidence in income prospects, housing market stability, and the country’s

social safety net, which remains relatively thin. With consumers reluctant to spend,

domestic demand struggles to take the lead.

Then there is investment- the old driver of expansion. From January to August 2025,

investment into fixed assets grew by a mere 0.5% year-on-year- its slowest pace in years.

The struggling property sector continues to weigh heavily, while investment in

infrastructure is offering diminishing returns. As growth stimulated by traditional

drivers falls, the urgency to build a more consumption-led economy becomes clearer.

This worsening imbalance has the potential to inflict significant consequences. An

economy packed with industrial capacity but lacking high levels of consistent consumer

demand risks long periods of slow growth. Beijing can assist in the short-term by

providing boosts through exports or state-directed investment, but stagnant household

spending power prevents long-term resilience of the Chinese economy. In 2024, final

consumption contributed only 2.2 percentage points to GDP growth, down from about

3.6 points in 2019- evidence that the rebalancing efforts remain incomplete.

A successful transition would rest on three pillars.

• Strengthening household incomes and social protections, making families feel

confident spending rather than saving.

• Modernising China’s services sector, which remains underdeveloped relative to

its manufacturing potential.

• Redirecting investment from property and heavy industry toward high productivity sectors such as technology and innovation.

The challenge will not be easy. China’s growth target of “around 5%” for 2025 reflects a

more modest expectation, one where spikes in investment cannot single-handedly carry

the economy forward. But if China can promote domestic demand and gradually pivot

away from depending on investment, a more balanced and sustainable growth model

may finally emerge.

Cracking the consumption code is crucial- not just for China’s future, but for the

trajectory of the global economy.