Opinion | China needs smarter, not less, investment to unlock household demand

The idea that investment and consumption are in zero-sum tension overlooks how confidence, not income, is the true bottleneck

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A doctor examines a patient on a medical vehicle in Libao Village, Zhejiang province on July 8. Consumption grows most sustainably not through subsidies or slogans, but through better jobs, stronger safety nets and more accessible services. Photo: Xinhua

Published: 4:30pm, 5 Aug 2025

“Boosting consumption” has become one of the most familiar refrains when it comes to discussing China’s economy. From official statements to think tank reports, the idea that China must pivot away from its decades-long reliance on investment and exports towards a more consumer-driven model has gained near-universal traction.

However, this growing consensus risks simplifying a far more complex question: what exactly is the role of consumption in China’s growth, and is its perceived weakness truly the root of the country’s economic challenges?

China’s supposed failure to unlock household demand is viewed not just as an internal policy misstep – it’s the structural flaw underpinning everything from global overcapacity to unfair trade advantage. Critics argue that Beijing’s preference for supply-side expansion – more factories, more infrastructure, more exports – has crowded out domestic demand at the expense of foreign producers, justifying protectionist responses.

In more ideological corners, this economic trajectory is portrayed as the result of a development playbook that prioritises national power and industrial dominance over household welfare. The implication is clear: China will never become a “normal” consumer-driven economy because it lacks the political incentives to do so.

Ironically, even within China, the post-Covid policy discourse has begun to echo this narrative. Since 2022, “expanding domestic demand” has re-emerged as a central theme of economic policymaking. That shift has been welcomed by many economists, who view it as overdue recognition that China must transition from an investment-led growth model to a more balanced one.

Moreover, in public perception, building a “consumption-oriented economy” has begun to sound like the end goal in itself – a necessary badge of economic maturity and a way for China to finally enter the ranks of developed economies.

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.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}The idea that investment and consumption are in zero-sum tension overlooks how confidence, not income, is the true bottleneck

The idea that investment and consumption are in zero-sum tension overlooks how confidence, not income, is the true bottleneck