How economists have underestimated Chinese consumption

“CONSUMPTION is the sole end and purpose of all production,” Adam Smith pointed out. But his “perfectly self-evident” maxim has never held much sway in China. Earlier this year the country’s statisticians revealed that household consumption accounted for only 37 per cent of China’s gross domestic product (GDP) in 2022, its lowest since 2014.

Although removing strict Covid-19 controls should have helped lift that percentage a bit, improvements in Chinese data analysis could lift it rather more. China’s headline statistics may understate both household income and consumption. Look closer and both appear higher than often reported – and both have risen faster.

For almost two decades, Chinese policymakers have sought to “rebalance” the economy from exports and investment towards spending on more immediate gratifications. “We will work to restore and expand consumption... and increase personal income through multiple channels,” the finance ministry declared in this year’s Budget, for example. Yet, progress has been slow. In recent years, the International Monetary Fund has graded China’s efforts on a colour-coded “rebalancing scorecard”. The latest card, published in February, was mostly red.