China's Economy on a Roller Coaster, Shaking and Sliding Downward (Graphic by People News)
[People News] On July 13, the State Council of the Communist Party of China officially released the "14th Five-Year Plan for Expanding Consumption," marking the first time that consumption has been elevated to the level of the national five-year plan. This initiative quickly ignited intense discussions in the market, particularly as the plan explicitly states that by 2030, the total retail sales of consumer goods are expected to reach approximately 60 trillion yuan, with housing consumption included in the policy framework. In an effort to stimulate domestic demand, the Communist Party seems to be resorting to desperate measures.
This plan serves as a reactive response to the structural imbalance characterized by "strong supply and weak demand," as it remains entrenched in the traditional approach of "stabilizing expectations, making adjustments, and increasing tasks." It is still far from addressing the core issues that genuinely impact residents' income, employment quality, and distribution structure. Essentially, it represents the Communist Party's attempt to ignore the underlying problems while superficially boosting certain data, showing a reluctance to confront deep-rooted institutional flaws.
The plan elevates the focus on consumption: shifting from short-term stimulus to medium- and long-term governance.
The "14th Five-Year Plan" integrates consumption into the national five-year plan, with a target aimed at achieving a total retail sales figure of 60 trillion yuan by 2030. This signifies an official acknowledgment that previous initiatives, such as trade-in programs and consumption subsidies, have completely failed, necessitating a shift in how consumption is viewed as a medium- and long-term governance issue. Notably, housing consumption is explicitly included within the framework of commodity and service consumption, attempting to shift the real estate sector from an "investment logic" back to a "consumption logic."
According to interpretations of the plan, based on an estimated figure of approximately 50.1 trillion yuan for 2025, an additional consumption scale of about 10 trillion yuan is required during the '14th Five-Year Plan' period, suggesting an average annual growth rate of around 3.66%. From a purely mathematical standpoint, this interpretation is not unreasonable and is even lower than the nominal growth levels observed in certain previous years. However, in the current economic climate, it represents a risky policy that necessitates ongoing repairs to residents' income, confidence, and the balance sheets of millions of households.
The ambitious goals of the plan sharply contrast with the current data, indicating that this is yet another instance of grand promises. In the first half of 2026, following the recovery of government consumption, the year-on-year growth of retail sales from January to May was merely 1.4%, with a year-on-year decline of 0.6% in May alone. Additionally, retail sales of goods in units above the designated size experienced a year-on-year decrease of 5.2%. The slowdown in consumption of durable goods, such as home appliances, has laid bare the fragility of domestic demand recovery. In this context, the announcement of a target of 60 trillion yuan appears more as a guiding direction for statistical and policy departments amid persistently weak demand, rather than a means to expand residents' financial capacity.
The issue at hand is not whether people want to consume, but whether they have the courage to do so.
Many people tend to explain weak consumption by suggesting that Chinese individuals have a propensity to save money, but this reasoning is fundamentally flawed. The current issue is not that the public has an inherent preference for saving, but rather that countless families are compelled to view savings as a protective measure against risks. When employment is unstable, income expectations are low, housing assets are continuously depreciating, and the burdens of social security, healthcare, and education are significant, defensive savings become the most rational and unavoidable choice.
In the first half of the year, GDP data has clearly revealed the structural characteristics of 'strong supply and weak demand.' While the supply side can maintain a degree of resilience through industrial policies and technological mobilization, the demand side is hindered by various factors. The slow growth of residents' disposable income, a shortage of job opportunities, and rising unemployment pressures have resulted in a lack of income growth. Additionally, the downturn in the real estate market has directly led to a reduction in residents' asset holdings, erasing the wealth effect for middle- and low-income families and causing a reevaluation of expectations for future asset returns. This situation not only suppresses large-scale consumption and improvement expenditures but also heightens caution regarding long-term spending.
A deeper issue is the prevailing lack of confidence. Market signals are continuously weakening, and private enterprises are facing ongoing pressure. Entrepreneurs are subjected to stringent regulations, including offshore fishing-style supervision, direct arrests, extensive tax audits, and demands for social security payments. Many private enterprises find themselves in distress or opt to downsize, leaving entrepreneurs either financially ruined or imprisoned. Public data indicates that approximately 70% of exports are supported by state-owned and central enterprises, which severely undermines the vitality of private enterprises. Employment is the primary source of residents' income, and the willingness of private enterprises to hire and expand has diminished, making it increasingly difficult for ordinary families to achieve wage growth. The fundamental requirement for consumption is stable disposable income and positive expectations, rather than mere slogans or subsidies. The public is not unwilling to spend money; rather, they are afraid to do so. It is not that they do not know how to spend, but that they lack a consistent increase in income.
The weaknesses and inequities in the social security system further exacerbate this dilemma. Retirement pensions for urban and rural residents have remained unchanged for many years, while the base for social security contributions has been steadily increasing, with the number of individuals losing coverage now reaching 58 million. The government is relentless in its efforts to employ various tactics, including raising taxes and fines, to generate revenue, yet the fundamental unfairness of the distribution system remains unaddressed. The reliance on the government for a safety net has shifted from being a 'dream' to a 'fantasy.' Trusting that the future will improve, much like believing in certain empty promises, often results in increased uncertainty. Consequently, residents' savings have become the last line of defense against risk, rather than a reflection of habitual preferences or national traits.
Incorporating housing into consumption: a new narrative or an old remedy?
Integrating housing consumption into the framework of durable goods consumption is one of the most prominent aspects of this plan. It seeks to reposition the real estate sector, shifting its focus from being solely an investment asset to supporting consumer goods. This adjustment appears to offer considerable potential for marginal improvements in cash flow for real estate companies, particularly if the government can effectively implement supportive measures such as credit, mortgages, trade-ins, and renovations with real financial backing. If so, the housing market may experience some positive changes.
However, the reality is quite harsh; repositioning does not imply that the government is suffering financial losses, and integrating consumption does not necessarily indicate a hopeful recovery in the real estate sector. Instead, it primarily involves adjustments to policy narratives and promotional slogans, serving as political advantages rather than genuinely enhancing purchasing power. For residents, encouraging spending on improved housing may increase leverage ratios, but such improvements are largely irrelevant to young people, as they mainly reflect the purchasing power of middle-aged and older individuals. Young people continue to represent a significant gap in the housing market's purchasing power. Conversely, middle-aged individuals seeking to upgrade their homes must sell their smaller units, but young people lack the financial means to purchase; who will step in to take over? This situation represents an ecological chain affecting society as a whole. If residents remain pessimistic about their future income, the idea of recovering their balance sheets becomes utterly unrealistic.
Residents are becoming increasingly cautious with their leverage, and a high propensity to save will not suddenly reverse due to a simple planning document. Over the next five years, housing consumption will at best only delay the decline and stabilize certain areas, making it difficult to reverse the structural pressures of high industry debt and housing oversupply.
Regarding overall domestic demand, the new role of housing consumption is essentially an unrealistic attempt to elevate the demand curve through the real estate chain. The greater risk lies in continuously advancing future demand, which could lead to a deeper cycle of weakness and complete disappointment among consumers about the future.
The structural gap in the 60 trillion target.
The goal of 60 trillion yuan appears operational on the surface, but the structural foundation is crumbling, rendering the achievement of this target entirely unfeasible. Currently, the weakness in consumption can be attributed to three main gaps: the income gap, characterized by insufficient employment and wage growth, which means that residents' disposable income is not keeping up with the required growth rate; the expectation gap, where the downturn in the real estate market, employment pressures, the challenges faced by private enterprises, and the external environment collectively dampen risk appetite, leading to an increase in savings as a rational defense; and the security gap, where high expectations for social security, healthcare, education, and pension expenditures compel families to save more as a hedge against uncertainties.
This approach addresses symptoms rather than root causes, making grand promises without delivering substance.
Chinese-style policies are adept at setting targets, imposing tasks, and creating scenarios. They can rapidly concentrate resources in sectors like technology and advanced manufacturing, with administrative mobilization proving more effective than institutional restructuring. Consequently, the more plans that are made, the more it resembles merely changing the soup without altering the medicine for the patient.
The underlying issue is the lack of fairness in the distribution system and social security. The growth model that relies on exports and is supported by state-owned enterprises is becoming increasingly strained. The true solution lies in returning to common sense, enabling private enterprises to flourish, increasing income, and ensuring equitable coverage of social security. Only when ordinary families have stable confidence in the future will consumption transition from defensive savings to proactive spending. Otherwise, no amount of planning and data will do more than raise a flag and make empty promises.
(First published by the People News)△
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