PUBLISHED February 28, 2026
According to the International Institute for Strategic Studies’ analysis “China’s Consumption Problem”, Beijing is increasingly prioritising domestic demand, but deep structural constraints continue to limit how quickly household spending can take over as the main engine of growth.
The report argues that while boosting consumption has become a central policy objective ahead of China’s next Five-Year Plan, the country’s current economic model still strongly favours production and investment, making rapid rebalancing difficult.
Trade-In Programmes Provide Only Partial Relief
One of the government’s main short-term tools has been a nationwide trade-in programme designed to stimulate purchases of cars, household appliances and consumer electronics. The initiative, launched in 2024 and expanded since then, has helped support specific retail categories.
However, the IISS analysis suggests these measures function more as tactical demand support than as a structural solution. While such subsidies can lift sales temporarily, they do not fundamentally change the underlying drivers of household consumption.
Structural Imbalance Remains the Core Issue
The report emphasises that China’s growth model remains heavily skewed toward investment and exports. As a result, household consumption still represents a relatively modest share of economic activity compared with many advanced economies.
This imbalance reflects long-standing policy choices that have prioritised industrial expansion, infrastructure and manufacturing competitiveness. According to the analysis, these structural features continue to constrain the speed at which consumption can take on a larger macroeconomic role.
A key barrier identified by the IISS is persistent household caution. Chinese consumers have shown a tendency toward elevated savings and restrained discretionary spending, reflecting concerns about income stability and the broader economic outlook.
The report indicates that without stronger confidence in income growth and social protection, policy efforts to stimulate consumption may deliver only limited and uneven results.
A key barrier identified by the IISS is persistent household caution. Chinese consumers have shown a tendency toward elevated savings and restrained discretionary spending, reflecting concerns about income stability and the broader economic outlook.
The report indicates that without stronger confidence in income growth and social protection, policy efforts to stimulate consumption may deliver only limited and uneven results.
In response to softer goods demand, policymakers are placing increasing emphasis on services consumption as a potential growth lever. The shift reflects changing demographics and evolving consumption patterns, as well as the recognition that traditional goods-focused stimulus is losing effectiveness.
Nevertheless, the analysis suggests that expanding services demand alone will not fully resolve the broader consumption gap unless deeper structural reforms accompany the policy push.
The IISS highlights a central dilemma facing Beijing. Measures that would significantly boost household consumption — such as stronger income redistribution or expanded social welfare — could conflict with other policy priorities, including fiscal discipline and industrial strategy.
As a result, China’s leadership is attempting to stimulate demand while preserving the existing production-heavy growth model, a balancing act that may limit the scale of near-term progress.
The overall conclusion of the IISS assessment is cautious. China is clearly moving to place greater emphasis on domestic consumption, and targeted stimulus measures are likely to continue. However, the structural nature of the imbalance means any meaningful shift toward a consumption-led model will take time.
Absent deeper reforms to income distribution, social safety nets and the broader growth framework, consumption is unlikely to replace investment and exports as the dominant growth driver in the near term.
Bottom line: Beijing is pushing to boost household spending, but structural features of China’s economy continue to hold back a rapid transition to consumption-led growth. Progress is likely to be gradual rather than transformational.
In response to softer goods demand, policymakers are placing increasing emphasis on services consumption as a potential growth lever. The shift reflects changing demographics and evolving consumption patterns, as well as the recognition that traditional goods-focused stimulus is losing effectiveness.
Nevertheless, the analysis suggests that expanding services demand alone will not fully resolve the broader consumption gap unless deeper structural reforms accompany the policy push.
The IISS highlights a central dilemma facing Beijing. Measures that would significantly boost household consumption — such as stronger income redistribution or expanded social welfare — could conflict with other policy priorities, including fiscal discipline and industrial strategy.
As a result, China’s leadership is attempting to stimulate demand while preserving the existing production-heavy growth model, a balancing act that may limit the scale of near-term progress.
The overall conclusion of the IISS assessment is cautious. China is clearly moving to place greater emphasis on domestic consumption, and targeted stimulus measures are likely to continue. However, the structural nature of the imbalance means any meaningful shift toward a consumption-led model will take time.
Absent deeper reforms to income distribution, social safety nets and the broader growth framework, consumption is unlikely to replace investment and exports as the dominant growth driver in the near term.
Bottom line: Beijing is pushing to boost household spending, but structural features of China’s economy continue to hold back a rapid transition to consumption-led growth. Progress is likely to be gradual rather than transformational.
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