Since the beginning of 2025, in the backdrop of a complex and volatile external environment, China has placed greater emphasis on boosting consumption to comprehensively expand domestic demand. Various policies to stimulate consumption have been gradually implemented with tangible results, consolidating the steady growth in consumption and the positive trends in structural adjustments.

Overall, the fundamentals of China's long-term economic growth, namely great potential, strong resilience and ample vitality, remain unchanged. While the consumer market continues to stabilize and improve, efforts to boost consumption are still constrained by relatively complex structural contradictions, which require close attention and effective resolution.

First, the growth of consumer spending lags behind income, with consumers showing greater caution. In the first three quarters of 2025, nationwide per capita disposable income registered a real growth of 5.2 percent, roughly equal to that of the previous year. However, per capita consumption expenditure increased by only 4.7 percent in real terms, significantly lagging behind income growth and also notably lower than the previous year's 5.1 percent growth.

Second, the growth of goods consumption and service consumption is uneven, with policy impacts worth attention. Due to the consumer goods trade-in policy and some noneconomic factors, from January to September, China's household goods consumption expenditure grew by 5.9 percent, while service consumption expenditure only increased by 4.4 percent, 1.5 percentage points lower than goods consumption, and 0.3 percentage point below the overall consumption expenditure growth rate of 4.7 percent.

The slowdown in service consumption may further lower the currently rising share of service consumption in total consumer spending and the ongoing upgrade of the consumption structure. Official data showed that China's household per capita service expenditure accounted for 46.1 percent of residents' per capita consumption expenditure by the end of 2025, unchanged from the figure by the end of 2024, making it more urgent to strengthen policies in promoting service consumption.

Third, the differentiation of consumption across demographics has become increasingly evident, and structural contradictions in supply and demand remain severe. Influenced by factors such as income levels, age differences, education levels, and family structures, China's consumption is increasingly diversified and segmented.

Significant differences exist among high-, middle-, and low-income groups. Low-income individuals focus more on basic necessities, and increase their purchases of affordable, value-for money products. In contrast, middle and high-income groups pursue quality-oriented consumption, driving greater demand for mid-to-high-end goods and experiential services.

Compared with the traditional supply of low — and mid-end products, this has led to structural contradictions, with excess low-end supplies and insufficient mid-to-high-end supplies.

Fourth, the "small, scattered, and weak" market entities are unable to support consumption innovation and market prosperity. Despite the emergence of some large chain commercial enterprises, platform companies, and even unicorn enterprises in recent years, a large number of micro, small, and medium enterprises, as well as individual merchants, still account for a large share of the consumer industry, especially in the consumer services sector.

Faced with the current transformation, upgrading and accelerated divergence of the consumer market, coupled with rising store and labor costs, many MSMEs in the social services sector lack the capacity for development, and are short of the competitiveness or adaptability to new technology. In many cities, commercial store closures and relocations are very common, highlighting an urgent need for effective development policies and empowerment mechanisms.

At present, the external environment has become significantly more complex, severe, and uncertain, and the pressure to stabilize growth remains substantial, and the task of boosting consumption and promoting its sustained expansion remains challenging.

The Recommendations of the Central Committee of the Communist Party of China for Formulating the 15th Five-Year Plan (2026-30) for National Economic and Social Development emphasize adhering to the strategy of expanding domestic demand, working toward improving living standards while increasing consumer spending, and combining investment in physical assets with investment in human capital.

The blueprint points out that new demand drives new supply, new supply helps create fresh demand, and positive interactions are fostered between consumption and investment and between supply and demand. All these will help enhance the dynamism and reliability of the domestic economy.

To that end, in 2026, consumption should remain the priority of economic development. Special initiatives to boost consumption should be further implemented, with strengthened inclusive policies directly benefiting consumers. Supply-side structural reform and policy innovations should be continuously advanced to steadily enhance consumers' spending power and willingness, promoting a stable increase and shifting the incremental economic growth to innovation-driven forms.

Continue to strengthen countercyclical macroeconomic policies in 2026 and provide more support for service consumption. While maintaining the subsidy funds for the trade-in policy, efforts should also be made on multiple fronts to boost service consumption: to begin with, support housing rentals, with a focus on providing rental subsidies for recent vocational college and university graduates, new urban residents, and migrant workers.

This can be done through direct subsidies or rental vouchers, offering subsidies for a certain percentage of housing rental expenses. Moreover, support home renovations, especially comprehensive home renovations and age-friendly renovations. Based on renovation contracts, support should be provided through a combination of subsidies and housing provident fund withdrawals to better unlock the housing consumption potential of real estate owners.

In addition, support education and training consumption. Following the principle of investing in people, subsidies should be offered to promote quality education and training programs for primary and secondary school students, reemployment training for laid-off workers, and vocational skills training for young people by integrating consumption vouchers and subsidized loans. Finally, local governments should be encouraged to issue service consumption vouchers, unlocking consumption potential in cultural and sports events, fitness and wellness, transportation and travel, dining, and accommodation.

Accelerate the establishment of an institutionalized empowerment mechanism that integrates policy support, digital empowerment, and industrial funds to better support the development of micro and small enterprises. In terms of policy, in conjunction with the "Three New" policies for new industries, business formats and business models, subsidized loans should be provided to key commercial districts, innovative business formats, and start-ups in relevant cities.

Fiscal, tax, and financial support for micro and small service enterprises should be enhanced, by expanding tax and fee relief, providing financial subsidies and financing support for store renovations, equipment purchases and other investments. Increased financial support should be provided for service skills training, qualification acquisition, and compliance advisory services.

For digital empowerment, financial subsidies should be offered to support the digital transformation of MSMEs and various wholesale markets and farmers' markets. Platform enterprises should be encouraged to establish special action plans to provide technical support and innovation guidance for the digital and intelligent development of SME clusters and business districts.

Regarding industrial funds, local governments should receive guidance on establishing dedicated industrial funds or leveraging existing ones to give greater support for innovation, entrepreneurship, and brand development in consumer services.

The writer is former director and a senior researcher of the Institute of Market Economy at the Development Research Center of the State Council.

The views do not necessarily reflect those of China Daily.