China plans 5 year plan to boost consumption and fix supply-demand gaps

China plans to roll out a fresh set of policies from 2026 to 2030 aimed at lifting domestic consumption and addressing what officials describe as “prominent” imbalances between supply and demand, with a sharper focus on the services sector, the country’s top economic planner said on Tuesday.

The move comes as policymakers grapple with slowing momentum in the world’s second-largest economy, where strong industrial output has continued to outpace household spending, raising concerns about the sustainability of the current growth model.

Consumption to take centre stage in next five-year period

Chinese leaders have pledged to significantly increase the share of household consumption in the economy over the next five years, although they have stopped short of setting a numerical target.

Wang Changlin, vice head of the National Development and Reform Commission (NDRC), said the imbalance between robust supply and weak demand had become a defining challenge.

“The issue of having strong supply but weak demand in the current economic operation is indeed a prominent problem,” Wang told a press conference.

China’s economy expanded at its slowest pace in nearly three years in the fourth quarter, underscoring the pressure on policymakers to shore up domestic demand.

Gross domestic product grew 4.5% in the October-to-December period, down from 4.8% in the previous quarter, according to data released by the National Bureau of Statistics on Monday.

Despite the slowdown, full-year growth came in at 5%, matching the government’s target, as a strong performance in exports helped offset sluggish consumption at home.

Economists, however, warn that this balancing act may be difficult to sustain amid rising global trade frictions and a prolonged downturn in the property sector.

Supply-demand gap remains a concern

Official data highlight the extent of the imbalance.

Industrial output rose 5.9% in 2025, well ahead of the 3.7% increase in retail sales, pointing to excess capacity and subdued consumer appetite.

In response, the finance ministry said on Tuesday it would extend interest subsidies for consumers, consumer-service firms, and businesses seeking equipment upgrades through the end of 2026.

The policy aims to lower borrowing costs and encourage spending.

The ministry said the extension would help boost consumption, expand domestic demand, and enhance households’ willingness to spend.

It also announced up to two years of interest subsidies for loans to micro, small, and medium-sized private enterprises, alongside a 500 billion yuan ($71.83 billion) guarantee programme over two years to support private investment.

Services sector emerges as policy priority

While trade-in subsidies for goods such as electric vehicles will continue, officials signalled a shift toward services as a new growth engine.

Zhou Chen, an NDRC official, said services including elderly care, healthcare, and leisure offered substantial room for expansion.

“The services sector has now become a key focus in efforts to expand domestic demand,” Zhou said.

In December, China allocated 62.5 billion yuan from special treasury bonds to support its 2026 consumer trade-in scheme for appliances and new-energy vehicles.

Economists argue that deeper reforms are needed to reorient the economy toward consumption-led growth and reduce reliance on exports and investment.

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