Can China really make its consumers spend?

China’s economy has been built on major investments in infrastructure, manufacturing, and exports for decades, but 2025 marks a pivotal shift. GDP growth has moderated, and household spending’s contribution to growth remains below pre-pandemic levels despite ongoing policy support. With new subsidies and stimulus measures being deployed, Beijing is clearly prioritizing consumer-driven growth. Here’s an analysis of the key structural and cultural changes needed to make this transition successful, and how brands are positioning themselves to capitalize on these shifts. Structural reforms: Building the foundation for consumer spending The traditional investment-led model faces diminishing returns due to high debt levels, declining productivity gains, and demographic headwinds. To transition successfully to consumption-driven growth, China must address income inequality, strengthen social safety nets, and stabilize the property market — particularly in smaller cities where declining home values have undermined consumer confidence. The persistently high savings rate reflects Chinese households’ caution regarding healthcare coverage, job security, and retirement planning. Expanding pension systems to include gig workers and migrants in urban areas, while improving rural benefits, could encourage greater spending. China is moving in this direction, though implementation remains gradual due to fiscal constraints. Policy measures in 2025 include significant fiscal stimulus directed toward health and welfare programs to boost consumer confidence. Mortgage rates have been reduced to support housing market stability and reduce household debt burdens. Early 2025 data shows some positive momentum, with retail sales growth supported by trade-in subsidies that have boosted appliance and electronics purchases. However, overall consumption growth remains modest. Deeper structural reforms — such as implementing progressive taxation that focuses more on income and property rather than indirect taxes — could help redistribute wealth and encourage spending among lower-income groups. Without these changes, growth may remain constrained by trade challenges and export dependencies. Consumer sentiment on the ground suggests continued caution. Recent observations in Beijing reveal many upscale restaurants and retail outlets operating below capacity, indicating that despite policy support, consumers remain hesitant to increase discretionary spending. Cultural evolution: From saving to strategic spending Beyond economic policy, cultural attitudes toward saving and risk must evolve. Job security concerns affect a significant portion of shoppers, particularly urban millennials dealing with asset price volatility and rising living costs. While confidence in government stimulus measures is high, actual spending behavior remains conservative rather than expansive. Notable shifts are emerging, however. Rural income growth has sparked greater optimism in those markets, while urban Generation Z prioritizes experiences such as travel and wellness over material accumulation. Sustainability has become a key consideration, with half of consumers willing to pay premium prices for environmentally friendly products, aligning with initiatives like Healthy China 2030. Health consciousness is driving spending patterns, with consumers increasing fresh food purchases and supplement usage, indicating a shift from pure cost-cutting to selective, value-driven consumption. Digital platforms are facilitating this change, with AI-powered recommendations and social commerce platforms like Douyin driving brand discovery and purchase decisions. Yet, trading down remains prevalent across categories. FMCG volumes grew while prices declined as consumers in lower-tier cities sought value amid deflationary pressures. To build a sustainable consumption culture, China needs to normalize credit for major purchases and leverage the substantial wealth transfer to younger generations expected over the next decade. Brand response: Innovation and adaptation drive growth Brands are not passive observers but active participants in this economic transition, building consumer trust and stimulating demand through strategic innovation. In a challenging year for premium goods, successful companies have focused on innovation, market expansion, and cultural relevance. Domestic brands are leading this charge. Blue Moon, the detergent manufacturer, targeted Tier 3 and 4 cities with concentrated formulas and livestream marketing on Douyin, achieving solid growth and market share gains by capitalizing on rural consumption trends. Babycare expanded into premium diapers with enhanced materials and mall presence, engaging millennial and Generation Z parents while tapping into health and aspirational family trends. Vinda successfully pursued a dual strategy, with its Tempo line showing strong growth in premium tissues and toilet paper through product innovation and upscale marketing, balancing mass market appeal with premium positioning. International brands are adapting their strategies as well. Coca-Cola achieved growth in juice and coffee segments by emphasizing nutrition and convenience, aligning with wellness trends and essential consumption patterns that remained resilient. Luckin Coffee expanded significantly with affordable, health-focused beverages delivered through apps, fitting perfectly with cautious urban consumers' preferences. In the automotive sector, BYD and other Chinese EV manufacturers outpaced foreign competitors with substantial sales increases, leveraging technological innovation and environmental features to encourage upgrades amid government subsidies. These success stories demonstrate brands’ strategic approaches: combining AI personalization, sustainability initiatives, and social media storytelling to build consumer relationships and normalize spending behavior. For international brands, partnerships around niche products or AR experiences help avoid price competition while capturing the additional spending that affluent urban consumers are considering. Building momentum: The path forward Transitioning to a consumption economy requires bold structural reforms to empower consumers and cultural initiatives to make spending both appealing and sustainable. Current data highlights encouraging developments in tourism and household appliances, even as overall caution persists. Brands like Blue Moon’s rural expansion and Coca-Cola’s health positioning are translating policy initiatives into consumer habits, potentially establishing sustainable growth patterns. Success ultimately depends on addressing fundamental structural imbalances and consumer anxieties. Get these foundations right, and China’s consumption economy is positioned to thrive again. The transition is underway, but sustained effort across policy, culture, and business strategy will determine whether this shift creates lasting economic transformation.

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Can China really make its consumers spend?