Chinese officials are mapping out plans for tapping the nation’s huge customer base, as US Treasury Secretary Scott Bessent prepares to refresh calls for Beijing to decrease its dependence on exports.

Chinese Premier Li Qiang led the charge on Thursday, urging China’s Cabinet to “vigorously” improve the supply of services in industries spanning education, healthcare, culture and sports, without elaborating. The world’s No 2 economy will rely more on lifting consumption to drive growth, he added, the official Xinhua News Agency reported.

“Large economies have an unique advantage of promoting an internal circulation, and a dominating role of domestic demand,” Li said at the State Council meeting, adding that promoting consumption is a “major move” for the economy’s longer-term transition. 

Encouraging residents to loosen their purse strings is critical to China’s economy, with officials expected to set an ambitious growth goal of around 5% for 2025. Weak domestic demand has led to sticky deflation at home and inflamed trade tensions abroad. Donald Trump’s tariff plans also threaten to erode Chinese export growth, which contributed to almost a third of economic expansion last year.

Beijing’s consumption push comes after years of economists abroad calling for China to rebalance away from investment-led growth. Bessent reiterated that message in an interview with Bloomberg Television, ahead of a kick-off call on Friday with his Chinese counterpart, without specifying who on the Chinese side he would speak to. His predecessor Janet Yellen previously engaged with Vice Premier He Lifeng.

“This is really just an introductory conversation,” Bessent said. “But as we go down the road, the Chinese need to rebalance their economy in favour of consumption,” he said. “They are suppressing the consumer in favour of the business community.”

The Guangdong province, the largest regional economy accounting for a 10th of national gross domestic product, joined the campaign laying out over 20 measures to promote services consumption in a document published on Thursday — the first province to release such a detailed road map. 

The wide-ranging policies stopped short of any direct subsidies, but included pledges to lower the barrier of entry, and open up the market further to foreign firms in sectors such as telecommunications, education, healthcare and elderly care. The document named a number of things the government would encourage, including more theatres for performances and creating famous restaurants. 

In China, the service sector’s output accounts for just over 50% of its economy, well below the average of about 75% for advanced economies, according to the International Monetary Fund (IMF). The country has more restrictions on the services industry than many other nations, and the government should tackle local protectionism and allow more businesses to enter, the IMF said in an August article. 

Expanding the services sector is key to creating more jobs and promoting inflation, according to a report by Standard Chartered plc published this month. While employment in the industrial sector peaked in 2012 and since remained largely stable, jobs in the tertiary sector — mainly made up of services industries — had risen steadily to about 48% of total employment in 2023, according to the report. 

Growing the services sector could also mitigate deflationary pressures, economists including Carol Liao wrote, as prices in that industry have risen in recent months, while those for goods dipped below zero.

Source: Theedgemarkets