The Chinese conundrum: Consumption glut versus export-driven growth

China's private consumption expenditure has been stagnating in the range of 34-40 per cent for the last two decades

China’s economy has been grappling with stagnation in private final consumption expenditure for the last two decades, with the country’s growth target being met largely by its growing reliance on exports and high levels of fixed investment.

 

Chinese president Xi Jinping, in his 2026 New Year message, said that the country was on track to achieve the target growth rate of 5 per cent and that China will roll out “more proactive” policies in 2026 to stimulate economic growth.

 

The share of private final consumption expenditure in China’s GDP was consistently over 50 per cent from 1960 to 1977. In the next decade, the share hovered around 50 per cent, occasionally going over that point. However, since 1990, the share of gross fixed capital formation in China’s GDP started rising steadily, with a gradual commensurate decline in the share of private final consumption expenditure.

 

In 2005, private final consumption’s share went below 40 per cent for the first time and the share of gross fixed capital formation was also almost the same. From 2005-10, the share of net exports of goods and services in China’s GDP also reached its peak. On the other hand, the share of government final consumption expenditure has remained almost constant, with minor fluctuations from 1960-2024.

 

Since 2006, fixed investment’s share has exceeded the share of private final consumption, except in 2024, when the former fell below 40 per cent for the first time since 2009. This implies that China’s GDP, in the 21st century, is increasingly reliant on fixed investment and net exports, with private consumption expenditure stagnating in the range of 34-40 per cent for the last two decades. 

 

Its economy has been grappling with soft household consumption, long-drawn deflation and overcapacity, particularly in the real estate sector.

 

China’s trade surplus recently crossed $1 trillion for the first time in 11 months of 2025, further corroborating China’s increased dependence on exports to prop up its weak-consumption-induced economic slowdown. This has also led to trade tensions with the European Union (EU), as the bloc has called on Beijing to rebalance its economy in the wake of EU’s burgeoning trade deficit with China.

 

Moreover, the International Monetary Fund has also urged China to speed up structural reforms to shift towards a consumption-led economic growth, as continued reliance on export-led growth risked furthering global trade tensions.

 

China’s decline in private final consumption expenditure is in sharp contrast to consumption-dependent economies like the United States (US) and India, with their share of private final consumption reaching 68.39 per cent (in 2022) and 61.38 per cent (in 2024) of their GDP, respectively. Among the top five economies of the world, China has the least share of private final consumption in its GDP.

 

On the contrary, China has the highest share of fixed investment in its GDP – almost 10 percentage points higher than India’s share. Further, China has the largest share of net exports, after the EU. Meanwhile, the US has the biggest share of net imports among the top five economies. 

 

According to China’s National Bureau of Statistics, the contribution of final consumption expenditure in China’s annual GDP growth reached its lowest of 44.5 per cent in 2024, before rising to 53.5 per cent in the first three quarters of 2025.

 

At the same time, the contribution of net exports in GDP growth peaked at 30.3 per cent in 2024, followed by a marginal decline to 29 per cent in the first nine months of 2025.