China’s consumer spending ticks higher – helped by subsidies

How much are China's consumers willing to spend instead of save? Since 2024, subsidy policies have helped push consumption higher after a post-pandemic lull.

The recent subsidy programs (part of various measures to stimulate the economy) take various forms. Consumers can receive 15% rebates for various digital products, for instance; local governments also issue vouchers that promote spending on tourism and cultural experiences.

We define the "propensity to consume" as the ratio of per-capita consumption spending to disposable income. Our first chart tracks all three of these metrics. Unsurprisingly, Covid had a strong effect, with spending growth per capita falling into negative territory during the early-2020 shock.

Spending habits took some time to recover. Propensity to consume bottomed out at the very end of 2020, and has still not hit pre-pandemic levels, but it crept higher for much of 2024.

Subsidies have had a particularly notable effect in promoting demand for durable goods, such as home appliances, furniture, consumer electronics and automobiles. In January and February of this year, sales in some of these categories maintained two-digit year-on-year growth rates, as our heat map shows.

The stock market reflects these trends. Comparing the "consumer staples" to the "consumer discretionary" indexes in the benchmark CSI 300, trading of "discretionary" stocks has exceeded "staples" recently.

Consumption's share of gross domestic product remains relatively low when compared to the EU and the US. But the structure of Chinese consumption has been changing for decades: food accounted for almost half of household spending in the late 1990s, and that share has fallen to about 30% today. The share of services continues to rise as increasing incomes prompt greater spending on quality of life - improved healthcare, for instance.