China's Shift to Consumer-Driven Growth: A New Economic Era

China is shifting its economic policy to boost household consumption, a significant change from its investment-heavy model. Beijing's new plan involves issuing sovereign bonds to subsidize consumer goods and child support. This strategic move aims to make consumption a sustainable driver for growth, although challenges remain to fully rebalance the economy.

China is making a pivotal shift in its economic strategy by focusing on stimulating household consumption for growth, departing from its long-standing investment-heavy model. Reuters reported that Beijing intends to issue sovereign bonds worth about 2 trillion yuan ($284 billion) this year, partially to subsidize consumer goods purchases and child support, transferring funds directly to households.

This policy change marks a significant move towards consumption-led growth, which economists have advocated for over a decade. Notably, Tianchen Xu from the Economist Intelligence Unit termed it a 'landmark event' in reversing the traditional policy mindset. However, China's journey towards rebalancing its economy is fraught with structural challenges and decades-old economic policies.

Despite these efforts, achieving long-term economic balance will be no easy feat. China's household spending is only 40% of its economic output, far below the global average. Historical data from Japan suggests that raising this share significantly could take years. Experts like Michael Pettis from Carnegie China caution that without a substantial shift in the economic model, Beijing may face persistent imbalances akin to previous challenges.

(With inputs from agencies.)