BEIJING, March 20, 2025 (Reuters) — Economists from Peking University and a former adviser to China’s central bank are urging the government to expand its support for the growing services sector in order to drive domestic consumption, a key priority for Beijing this year amid ongoing trade tensions with the United States.
China’s leadership has increasingly focused on boosting household consumption to support economic growth. To this end, the government has significantly increased fiscal stimulus, raising the budget for consumer goods subsidies to 300 billion yuan ($41.46 billion). This scheme covers electric vehicles, home appliances, and other consumer goods.
However, experts suggest that the scope of this initiative should be broadened to include services. Yan Se, associate professor and deputy director of the Institute of Economic Policy at Peking University, voiced this suggestion at a recent meeting. “The subsidy program could easily extend to the services sector,” Yan remarked, emphasizing that unlike durable goods like electronics, services have lasting appeal and provide ongoing value. “You may not buy a new television every year, but services have a level of ‘stickiness’—they are not a one-off purchase.”
The latest official data, released earlier this week, showed that sales of home appliances and audiovisual devices grew 10.9% year-on-year in January and February. This represents a slowdown from December’s 39.3% surge and November’s 22.2% growth, underscoring the challenge of sustaining demand for durable goods.
In contrast, services consumption has shown steady growth. Official statistics reveal that in 2024, household spending on services amounted to 13,016 yuan per capita, reflecting a 7.4% increase from the previous year. Services now account for nearly half (46.1%) of total household consumption expenditure in China.
Liu Qiao, dean of the Guanghua School of Management at Peking University, highlighted that services spending remains relatively low compared to China’s overall economic output. Liu argues that in order to sustain long-term growth, China needs to raise household consumption’s share of GDP to nearly 60% by 2035, up from under 40% today. Services consumption, he predicts, will constitute around 60% of total household spending by that time.
“The services sector will play a pivotal role in future employment opportunities,” said Chen Yuyu, director of the Institute of Economic Policy Research at Peking University. “Even though China’s manufacturing sector has made significant strides, what the country truly needs is not simply a large manufacturing base, but one that is innovative and globally competitive.”
Liu Shijin, a former adviser to the People’s Bank of China, also underscored the importance of expanding services consumption. Speaking at a forum last week, Liu called for a greater emphasis on services as a key driver of domestic demand, noting that rising urbanization would be crucial for improving the incomes of rural migrants. “While goods consumption is relatively stable, services consumption directly correlates with the level of urbanization,” Liu said.
As China continues to pivot towards a consumption-driven economy, experts agree that bolstering the services sector will be essential for fostering sustainable growth and creating new employment opportunities.
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