What happened
China's consumer market is struggling due to the country's political system, which concentrates resources and control in the state. Despite China's large trade surplus, its household consumption is weak, with retail sales growing by only 0.4% in August, while industrial output expanded by 5.2% year-on-year.
The International Monetary Fund and other economists have suggested that Beijing should redirect resources from industry and investment toward households, but this would require a significant shift in the relationship between Chinese citizens and the state. Currently, support is generally granted from above to serve goals chosen by the state, rather than being a right that citizens can claim.
China's household savings are also unevenly distributed, with the top 2.5% of retail customers holding about 81.9% of the assets under management. This deep gap in household resources makes it difficult for the country to unlock its consumer spending power.
The Chinese government's efforts to stabilize the economy have focused on supporting firms and public investment, rather than providing broad transfers to households. This approach has contributed to the country's consumption crisis, which is unlikely to be overcome without a shift in resources toward households.
The situation is further complicated by President Xi Jinping's centralization of power, which has made it more difficult to implement the political changes needed to correct the imbalance. As a result, China's consumer market is likely to continue underdelivering, while the country remains dependent on foreign markets to absorb its excess industrial output.
