QNB Expects Continued Consumption Growth in China

QNB predicted that private consumption in China will likely continue to rise, supported by a large accumulation of savings, increasingly consumption-oriented policies, and major reforms aimed at reducing the economic uncertainty faced by households.

In its weekly report, QNB argued that the Chinese consumer is a much larger growth driver than the consensus among analysts suggests. The report noted that consumer spending in China slowed significantly in the second quarter of 2025, following a strong start to the year. 

In recent months, real growth dropped to its lowest level since the beginning of the year. Despite new measures to stimulate consumption, household savings rates have remained stable, suggesting it is difficult to alter deeply ingrained habits.

 Household consumption in China has long been considered the missing link in the country's economic chain, an issue that goes beyond cyclical economic trends.

The report said that, although the government has announced efforts to shift from investment-led growth toward services and consumption, analysts and policymakers still see persistently weak consumption as an obstacle to growth, particularly in a country with 1.4 billion people and high income levels. 

This cautious consumer behavior is understandable, the report explained, as Chinese households have faced multiple waves of economic disruption, including the pandemic, a prolonged correction in the property market, and unpredictable policy changes.

However, QNB argued that there is a general misunderstanding about the size and importance of China's private consumption. 

While the ratio of consumption to GDP in China is not comparable to high-consumption, private sector-driven economies like the United States, it is not vastly different from ratios seen in other advanced economies. particularly in export-oriented and advanced manufacturing economies such as Japan, South Korea, Taiwan, and Singapore, which follow a similar growth model to China's.

Moreover, Chinese consumers have significantly outperformed their peers in terms of growth dynamics, even compared to large, fast-growing emerging economies in the BRICS group (Brazil, Russia, India, China, and South Africa) and the MIST group (Mexico, Indonesia, South Korea, and Turkey) over the past decade. QNB presented three main arguments highlighting the central role of Chinese consumers in the country's next phase of growth.

The first, according to the People's Bank of China, household deposits in the Chinese banking system rose from $11.8 trillion before the pandemic to $22.3 trillion in May 2025. 

This vast pool of private savings could be mobilized relatively quickly to boost consumption or investment in the medium term if confidence in the future improves further, helping sustain consumption growth and raising its share of GDP.

Still, the report acknowledged that a significant jump in consumer spending will not be easy to achieve, as Chinese households tend to take a cautious financial approach and save more, partly due to limited government social safety nets. 

Even so, only a small drop in the savings rate could have a substantial impact on both consumption and investment, especially as the government gradually expands the social welfare system.

Second, China is actively seeking to rebalance its growth model away from heavy infrastructure investment. While much recent focus has been on accelerating advanced manufacturing in industries like electric vehicles, batteries, and semiconductors, policymakers are equally clear about the need to strengthen household demand.

Beijing aims to raise the share of consumption in GDP from the current 40% to 50% by 2035. This target is supported by social policy reforms, housing support programs, revitalization of low-income cities, and household credit support, particularly in consumer finance. 

These measures are part of a long-term policy goal to stabilize growth through more sustainable domestic demand rather than temporary stimulus.

Third, structural reforms in China are gradually reshaping household perceptions of risk. Property sector reforms like tighter mortgage rules and developer debt reduction are addressing market imbalances.

 While this has temporarily slowed activity, it is helping to rebalance household finances, reduce systemic risks, and pave the way for more stable consumption driven by greater confidence in the future. 

At the same time, these reforms collectively help counter the entrenched tendency toward excessive precautionary saving, easing the restraint on household spending behavior.