China Bets on Services to Revive Sluggish Economy

China is shifting its economic strategy, turning to the services sector as a new engine for growth as the nation grapples with weak household confidence, a persistent property slump, and slowing exports.

The State Council recently unveiled a comprehensive plan to boost services consumption, signaling a pivot away from traditional stimulus measures that have proven less effective in compelling consumers to spend. The new policy framework targets a wide range of experience-based industries, including tourism, elderly care, and live events.

Beijing's New Plan: From Goods to Experiences

According to a cabinet notice, the government's work plan aims to "accelerate the cultivation of new growth drivers in service consumption" and "improve and expand the supply of services."

This initiative represents a deliberate move to tap into new areas of domestic demand. Key focus areas include:

• Tourism: Promoting self-drive travel, expanding visa-free entry, adding tax-refund points, and upgrading infrastructure like train stations and scenic rail routes.

• High-End Leisure: Advancing high-quality yacht consumption by overhauling safety regulations and building public docks and berths.

• Live Events: Increasing the supply of high-quality sports events and encouraging the introduction of top international competitions.

This shift comes as households show reluctance to purchase big-ticket items, even with subsidies for cars and appliances, pushing Beijing to explore new ways to unlock consumer spending.

Why China is Shifting Its Economic Strategy

The policy pivot is a direct response to persistent headwinds in the domestic economy. In 2025, retail sales grew by 3.7%, lagging behind the 5.9% growth in industrial output and the overall economic expansion of 5%.

Deflationary pressures remain a major concern. Consumer inflation was flat last year, while producer prices fell for the third consecutive year, squeezing corporate profits and weighing on wage growth.

Early data from China Beige Book indicated a sharp slowdown in services consumption in January, with travel, hospitality, and restaurant chains all reporting widespread weakness. Furthermore, concerns are growing that the export boom that previously supported the economy may be difficult to sustain.

Tapping into Changing Consumer Habits

Despite the challenging economic backdrop, policymakers see an opportunity in evolving consumer preferences. A quarterly survey by the People's Bank of China for the fourth quarter of 2025 revealed a notable trend: the share of respondents planning to increase spending on social and entertainment activities hit an eight-year high. In contrast, interest in major purchases remained significantly below pre-pandemic levels.

This shift toward experiential spending is gaining traction. "Emotional satisfaction is playing a bigger role in retail spending, with a growing focus on buying for self-expression and experiences rather than for materialistic possessions or brand prestige," noted analysts at S&P Global.

Policy and Financial Support for the Service Sector

To support this strategic shift, the State Council's plan includes dedicated financial measures. Banks will be encouraged to increase credit lines for service-sector firms, and qualified companies in culture, tourism, education, and sports will be permitted to raise capital through bond issuance.

Developing the service sector aligns with China's long-term policy objectives. Services consumption per capita reached 46.1% last year, a figure that still trails many advanced economies, indicating significant potential for growth.

Moreover, the service industry is more labor-intensive than manufacturing and stands as China's largest source of employment. This is a critical consideration for policymakers trying to address high youth unemployment. According to the 2020 census, the tertiary sector accounted for over 48% of jobseekers aged 16 to 24.

Will the Services Push Be Enough?

While the government's focus on services is clear, some economists caution that this approach alone may not be a silver bullet. The success of the plan hinges on tackling deeper structural problems, particularly those related to household income and social welfare.

"Boosting consumption requires restoring consumer confidence to free up high saving rates," said Ludovic Subran, chief investment officer at Allianz, in a CNBC report. He added that a true rebalancing toward domestic demand requires "giving jobs, time and income to consumers."

Logan Wright, a partner at Rhodium Group, argued for strengthening the social safety net. "If the government were to invest more in social services, households would feel safer and be more likely to spend more liberally," he said.

Final consumption expenditure in China accounted for 56.6% of GDP in 2024. While this is an increase from 49.4% in 2010, it remains well below levels in the United States, the UK, and Japan. Economists suggest it will take years for growth in services consumption to fully offset the decline in the property market, meaning weak domestic demand could continue to weigh on the economy in the near term.