Services consumption to underpin economic growth

As external uncertainties continue to escalate, consumption, particularly in the services sector, is poised to assume an increasingly important role in underpinning the Chinese economy this year, analysts said.

A high-level meeting convened by China's top leadership in late April placed high premiums on efforts to boost services consumption and strengthen the role of consumption in driving economic growth.

The meeting held by the Political Bureau of the Communist Party of China Central Committee also called for a swift removal of restrictive measures in the consumption sector.

Before the tone-setting meeting, Commerce Minister Wang Wentao said in mid-April that "expanding services consumption will be instrumental in further tapping into untapped consumption potential and in creating a crucial engine to drive consumption growth, both in the near term and the longer run."

International evidence suggests that when a country's per capita GDP reaches around $15,000, its consumption structure transitions from being goods-dominant to being services-driven. Given that China's per capita GDP has already surpassed $13,000, the country's services consumption is now in a rapid growth stage, Wang said in a published article in Qiushi Journal, the flagship magazine of the CPC Central Committee.

In the first quarter of this year, retail sales of services grew by 5 percent year-on-year, outpacing the growth rate of goods retail by 0.4 percentage point, data from the National Bureau of Statistics showed.

Analysts believe that services consumption will be a primary area of focus in the government's forthcoming policy initiatives.

"The country's trade-in policies have predominantly targeted the consumption of durable goods, which might front-load future demand," said Xu Tianchen, senior economist at the Economist Intelligence Unit.

Services consumption not only has a higher frequency of usage, but also presents substantial untapped potential that can be cultivated through focused policy initiatives, Xu said, adding that trade-ins could be extended to cover the service sector.

In mid-April, the Ministry of Commerce, along with eight other government departments, jointly issued an action plan for improving services consumption this year, covering established areas like catering, accommodation, healthcare and tourism, as well as new consumption formats such as sightseeing trains, skydiving and micro-dramas.

According to data from the Ministry of Culture and Tourism, the five-day May Day holiday period saw 314 million domestic tourist trips across China, an increase of 6.4 percent compared to the same period last year. Domestic tourists also spent a total of 180.269 billion yuan ($25 billion) during the holiday, up 8 percent year-on-year.

Compared to the relatively mature goods consumption market, China's services consumption market still has some key areas that need to be strengthened, said Lian Ping, head of the Guangkai Chief Industry Research Institute.

"On the demand side, it will be important to take multiple measures to increase residents' disposable incomes, improve the social protection system and enhance consumers' services consumption abilities," Lian said.

Finance Minister Lan Fo'an said in a published article in Qiushi Journal on May 1 that China is emphasizing the integration of improving people's livelihoods and promoting consumption.

Key measures include appropriately increasing pension levels, raising the standards of basic medical insurance for rural and urban nonworking residents, issuing child care subsidies, and expanding the scale of student financial aid, all aimed at strengthening consumers' spending power and willingness to consume, Lan added.

Meanwhile, Lian from the Guangkai Chief Industry Research Institute noted that expediting the urbanization process and boosting the consumption capabilities of migrant populations will be crucial in unleashing the potential of services consumption.