Boosting service consumption a vital pro-growth lever

In April, a high-level meeting was held to analyze and study the current economic situation and economic development. The meeting emphasized that more proactive and effective macroeconomic policies must be urgently implemented.

The meeting called for more efforts to make "full and proper use "of a more proactive fiscal policy and a moderately loose monetary policy. Such a high-level meeting also included service consumption and pension refinancing loans into the policy toolbox for the first time, aiming to deepen counter-cyclical adjustments.

In the same month, the National Development and Reform Commission clarified at a press conference held by the State Council Information Office that efforts would be strengthened to ensure that existing policies are implemented effectively, including special actions to boost consumption, making good use of 5 trillion yuan ($685 billion) in national-level investment funds in 2025, and accelerating the establishment of a national venture capital guidance fund.

The NDRC encouraged companies to actively stabilize employment, increase vocational skills training, expand employment programs such as work-for-relief, and strengthen public employment services.

Recently, I said in an interview that China's current monetary policy can timely release long-term liquidity through measures such as reserve requirement ratio cuts and interest rate cuts, thereby reducing financing costs for the real economy.

Fiscal policy can also further expand the old-for-new subsidy project and consider extending it to the service sector to unleash service consumption potential. In addition, the coordination mechanism between fiscal subsidies and financial services needs to be explored, which will inject stronger momentum into key areas such as technology, consumption, and foreign trade.

To start with, macro policy needs to be strengthened. Implementing more proactive and effective macro policies, more proactive fiscal policy, and moderately loose monetary policy is the overall tone of economic work determined at the Central Economic Work Conference.

The statement on monetary policy continues the direction emphasizing "timely RRR and interest rate cuts, maintaining ample liquidity, and strengthening support for the real economy," which is dictated by the current situation.

On the one hand, current price levels remain persistently low. In Q1, GDP growth year-on-year was 4.6 percent, lower than real GDP growth at 5.4 percent. The GDP deflator has been negative for eight consecutive quarters.

As of March 2025, the consumer price index had been below 1 percent year-on-year for 25 consecutive months, and the producer price index had seen 30 consecutive months of negative growth, resulting in a passive rise in actual financing costs for companies.

On the other hand, ongoing global trade frictions may gradually impact China's economy, so macro policy efforts need to be increased in Q2 to provide support.

The meeting clearly signaled maintaining ample liquidity and timely use of quantitative tools. China still has room in monetary, fiscal, and market regulation tools and can, if necessary, lower the reserve requirement ratio or policy interest rates to release more long-term funds into the banking system, reducing financing costs for the real economy.

At the same time, fiscal tools, such as special government bonds and stabilization funds can be used to stabilize the market, expand domestic demand, support the real economy, and hedge external risks.

Second, structural monetary policy tools, coordinated with fiscal policy, are needed to strengthen financial support to specific sectors. The main goal is to adjust monetary policy to improve market liquidity and direct funds toward key areas to stimulate economic growth and competitiveness.

In technological innovation, the effective use of structural monetary policy tools, innovation loans, fiscal interest subsidies, and policy-based financing guarantees supports private enterprises — especially platform companies — in improving service quality and efficiency through technological, service, model, and organizational innovations.

The success of DeepSeek again validates the creativity and resilience of China's private enterprises. Improving the business environment for private firms is also crucial for driving innovation. Currently, private enterprises still face market access restrictions in many fields, and platform companies face difficulties in listing. China's economy still has room to improve innovation models, regulatory arrangements, and business environment for private enterprises.

In expanding consumption, the old-for-new project primarily uses ultra-long-term special government bonds for purchase subsidies, but besides purchase subsidies, there are interest subsidies for trade-in loans.

The People's Bank of China has arranged 500 billion yuan in innovation and technology transformation refinancing loans for this purpose. Various institutions are actively developing consumer credit and exploring financial support models for trade-in of consumer goods, but financial institutions face high risk management pressures and narrowing interest spreads.

To better implement the policy to vigorously boost consumption and better utilize consumer finance, especially consumer credit, to stimulate consumption, it is necessary to explore coordination mechanisms between fiscal subsidies and financial services.

In stabilizing foreign trade, there are currently few structural tools, mainly guiding banks to increase loan support to foreign trade micro and small-sized enterprises more affected by external factors, providing short-term liquidity to help them overcome difficulties.

For affected enterprises, shifting to the domestic market is a feasible choice. In some consumer goods sectors, China's market size has already significantly surpassed that of the US. For example, in 2024, China's annual auto sales reached 31 million units, while the US had only about 16 million.

Last, I believe there is still room to increase consumption-boosting policies. On the one hand, the potential for service consumption needs further activation. Estimates show a large gap between China and the US in service consumption's share of GDP in 2023.

China's service consumption accounted for only 17.9 percent of GDP, far lower than the US at 45.8 percent. The consumption structure gap is also obvious: in 2024, service consumption accounted for 46.1 percent of total consumption in China, versus 68.5 percent in the US.

Compared to goods consumption, service consumption is less likely to overdraft future consumption capacity and can also help absorb more employment. Further expanding the old-for-new project and considering its extension to the service industry could unleash the potential of service consumption.

On the other hand, pension and social security still have room for improvement. Currently, there is a significant internal gap between urban and rural residents in pension, healthcare, and affordable housing, and these public service disparities also hinder consumption growth, especially rural consumption.

For example, in 2023, the average monthly pension for retirees from government agencies and public institutions was about 6,000 yuan, for urban enterprise retirees about 3,000 yuan, but for rural residents only about 220 yuan.

This contributes to China's high household savings rate. Accelerating hukou, or household registration, reform to narrow gaps in medical care, education, pensions, housing, and other public services between rural residents and urban workers and civil servants would further unleash rural residents' consumption potential.

The views do not necessarily reflect those of China Daily.

The writer is vice-president of JD and chief economist of the research institute of JD Technology Group. This article is a translation from an interview with National Business Daily.