China’s economic data shows an intensification of the imbalance between strong external demand and weak domestic demand. The National Development and Reform Commission of the Chinese Communist Party claims to introduce policies to expand domestic demand. However, experts and scholars believe that expanding domestic demand is not just a matter of “stimulation,” but rather a matter of “mechanism.”
On October 20, the NDRC held a press conference for the month. Deputy Director of the Department of National Economy Comprehensive, Zuo Gang, stated that they will promptly introduce and implement incremental policies with relevant departments to intensify efforts to expand domestic demand. They are currently studying and formulating a strategic plan to expand domestic demand, and will issue and promote its implementation. The stimulation plan includes combining livelihood and consumption promotion, expanding elderly care consumption, promoting the development of cultural performances, tourism services, and sports events.
The Chinese National Bureau of Statistics stated on October 19 that China’s Gross Domestic Product (GDP) grew by 4.6% year-on-year in the first three quarters. Economic recovery was mainly driven by the continuous strengthening of external demand and other factors.
At the same time, official financial data from the Chinese Communist Party show that in September, short-term consumer loans in China decreased by 8.3% compared to the same period last year, marking the largest drop on record. The balance of consumer loans in August also dropped to the lowest level since the outbreak. During the holiday period in early October, the average consumer spending by the public decreased by 2% compared to the same period in 2025.
Economists Luo Zhiheng and Ma Jia from the China Chief Economist Forum released a research report analyzing data from the first three quarters, stating that the “differentiation of K-shaped growth” in China’s economy has not yet converged significantly. This differentiation is not only between new and old industries but also evident in production, revenue, profits, investments, and aspects such as household income and consumption.
The report indicates that the AI-related industries maintain a high level of prosperity, but some traditional industries lack demand and have low capacity utilization. Growth in some industries does not translate into improved income and profits simultaneously, while other industries, despite benefiting from rising prices and significant profit growth, do not expand investments accordingly. This reflects issues such as strong supply and weak demand, the trend of internal competition, and weak expectations of investment returns. The pull on employment and income remains limited, with household income growing slower than the pace of economic growth; the growth rate of consumption expenditure is even lower, with a continuous decline in consumer trends. In the third quarter, the average consumer inclination (per capita consumption expenditure/per capita disposable income) was 66.8%, lower than the same period last year. If the export growth rate falls in the fourth quarter, and domestic demand does not significantly improve, economic growth may still be in a downward trend.
Wu Chaoming, Chief Economist of Caixin Financial Holding, told mainland media that the ongoing structural differentiation pattern in the economy, coupled with insufficient widespread increases in household incomes and employment, fundamentally suppresses consumption capacity and willingness, limiting the effectiveness of stimulus policies for consumption recovery.
Chief Economist of Qianhai Kaiyuan Fund, Yang Delong, stated that enhancing the wealth effect of residents is essential to boosting consumption. Data shows that certain consumer goods supported by policies exhibit faster growth, such as an 18.1% increase in retail sales of communication equipment, while consumption growth in sectors like catering is slower. Therefore, the key to promoting consumption is to increase household income levels and expectations of future income.
Liu Feng, Chief Economist of the Green Finance International Research Institute at Central University of Finance and Economics, believes that expanding domestic demand is not just a matter of “stimulation” but a matter of “mechanism.”
The article points out that the chain from “mechanism-income-consumption-domestic demand” is interlinked: production relations determine distribution patterns, which in turn influence household income, ultimately affecting consumption capacity and the size of domestic demand. Relying solely on measures such as distributing consumption vouchers or trade-ins cannot solve the upstream problem if the distribution mechanism is not streamlined, the household income lacks support.
The root cause lies in the initial distribution structure: China’s share of disposable income in GDP has long hovered around 43%. In the initial distribution, the share of labor compensation is increasing slowly, and income from ownership channels is not smooth, leading to a lack of confidence in residents to “be able to consume and dare to consume.” Moreover, the distribution model with a past government bias towards “accumulation, production, and exports” has made China an industrial power. However, currently, capacity expansion surpasses the growth of purchasing power, leading to an excessive reliance on exports. Therefore, expanding domestic demand must begin with the mechanism.
Analysts from international institutions generally believe that the current Chinese economy shows signs of being “hot outside and cold inside.” They have informed media outlets such as Bloomberg and Reuters that China’s exports and high-end manufacturing have supported growth. However, risks are accumulating due to reliance on a single external demand engine, and Beijing’s room for stimulus is limited. The authorities may not be willing or have the capacity to significantly expand at this point.