China’s Shift Toward Consumer-Driven Economy Is Set to Slow

© Reuters.

(Bloomberg) — China’s rebalancing of its economy from investment-led growth to consumption is likely to slow in the coming five years as the population ages and the workforce shrinks, a government researcher said.

The share of consumption in gross domestic product is likely to rise at a slower pace compared with previous years, said Xu Hongcai, deputy director of the China Association of Policy Science’s economic policy committee, a think tank under the policy research office of the Communist Party’s Central Committee.

“Consumption has already past the phase of rapid increase and will only rise slowly in the future,” Xu said in an interview. “Economic growth still needs the support of investment.” The government will need to guide more funds into investing in infrastructure and facilities that enhance elderly care and promote urbanization, he said.

Beijing’s longer-term goal has been to reduce reliance on debt-fueled investment as a growth driver and boost consumer spending in the economy. While consumption as a share of GDP has steadily increased in the past decade, it dropped last year as spending collapsed during the pandemic.

Xu also warned China may face the risk of imported inflation as a stronger global economy pushes up commodity prices. A Bloomberg tracker of factory prices recorded its fastest increase in more than three years in March.

©2021 Bloomberg L.P.

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