Last year, right before 2024’s Central Economic Work Conference, we wrote an essay arguing that domestic consumption had finally been elevated to a high priority in China’s policy hierarchy. At the time, the signals looked real. Consumption was mentioned more often. There were even policies that, at least symbolically, pointed in the right direction.
That essay did not age particularly well.
By the end of 2025, few people would seriously argue that domestic consumption had become China’s top priority. Yes, consumption mattered. Yes, there were incremental pro-demand policies that would have been unthinkable a few years earlier—childbirth subsidy program, being the most visible example.
But taken together, these measures felt too small and too cautious. Even the birth subsidy program felt too modest. The familiar hesitation was still there. Consumption was encouraged, but never fully embraced.
And yet, over the past weeks, something genuinely different has begun to emerge.
First came Qiushi, the theoretical journal of the CPC Central Committee, publishing a curated series of Xi Jinping’s speeches from the past decade on domestic consumption. This was not a casual archival exercise. Several things stood out immediately. Consumption—more precisely, domestic demand—was explicitly framed as a strategic issue, not merely a desirable outcome. More importantly, a 2023 passage was highlighted in which Xi stated plainly that the key to boosting consumption is boosting income.
This matters because it eliminates any ambiguity about diagnosis. The leadership understands the problem. It understands the causal chain, so there is no intellectual confusion here. If execution fails, it is not because Beijing does not know what needs to be done.
Soon after, a senior official from the Central Office for Economic and Financial Affairs went further, stating outright that:
扩大内需是明年排在首位的重点任务。
“Expanding domestic demand will rank as the foremost priority next year.”
At the same time, People’s Daily, CPC’s main mouthpiece, just issued an explainer on why domestic demand ranks at the No.1 spot of all eight main priorities of next year:
Looking ahead, it is essential to genuinely enhance households’ consumption capacity and improve the social security system.
The investment structure should be optimized, with greater emphasis on consumption-related sectors, to promote a virtuous cycle between investment and consumption.
The official signaling can’t be clearer. So why is the market still not paying enough attention?
Because for years, the story of “boosting China’s domestic demand” has been a textbook case of that boy who cried wolf. More than a decade of speeches and urgings about consumption, demand, and rebalancing (including the Xi articles from Qiushi) can just as easily be read as proof that recognition has never been the constraint. It’s all about execution. If the problem has been so well understood for so long, why hasn’t it been decisively solved?
From this perspective, skepticism is entirely understandable.
Still, I think this time may be different—and that this possibility is being under-discussed. Let me explain.
First, I need to introduce a mental framework I use when thinking about China’s policymaking system. I sometimes call it the “Zhongnanhai Priority Framework.”
China is an all-encompassing state. Party documents touch everything: the economy, national security, education, technology, healthcare, the environment, ethnic policy, ideology. On paper, everything is always important.
In reality, nothing ever works that way.
A system this large cannot pursue a hundred objectives simultaneously. What matters is not what appears in documents, but what sits at the very top of the priority list on the leadership’s work desk—and that list is reordered constantly. When an issue genuinely rises to the top, the system can be astonishingly effective. Environmental enforcement in 2015–2016 is one example. Poverty alleviation was another. Anti-corruption at its peak was a third.
China does priorities extremely well. But the flip side of that is that it does non-priorities poorly.
For something as fundamental and sticky as shifting the fundamental growth engine from investment to consumption, partial prioritization is not enough. This is not a small technocratic tweak. It requires consumption to sit at the absolute top of that priority list, because there is immense institutional inertia against it.
Put yourself in the shoes of a mayor or county chief. You have a roughly three-year term. You want GDP growth, fiscal revenue, and employment stability. Do you focus on attracting a factory line that shows up cleanly in investment and output statistics? Or do you distribute cash or income support to households, hoping it turns into consumption rather than the more likely destination of even more savings?
The rational choice is obvious. Investment is fast, measurable, and politically safe. Consumption is uncertain, indirect, and often fiscally unrewarding for local governments. Even when households spend more, China’s tax structure means local governments capture little of the upside. Not to mention, China’s local governments have been severely underfunded for the past few years due to the real estate slump, making fiscal resources even more precious.
The local pushback is thus structural, and it is why exhortations alone do nothing. Overcoming it requires overwhelming top-down force, coordination across ministries, and meaningful changes to fiscal and tax incentives. Anything less simply dissipates.
Seen through this lens, it becomes obvious why 2025 did not see real action on demand. The core priority of 2025 was unmistakable. Everyone knows: it’s none other than the second Trump administration and the renewed trade war. The entire government sector braced itself for the impact of this event. Everything else, including consumption, was secondary. That was not a close call.
Here is where the setup for 2026 begins to look different.
By the end of 2025, China had not “won” the trade war in a triumphant sense, but it clearly had not lost. More importantly, it had absorbed the shock. It is now widely accepted that the U.S. cannot easily strangle China’s economy through trade pressure alone, and that expectation of relentless external escalation has faded.
The same shift is also visible in attitudes toward technology. Self-sufficiency remains a high priority, but the pressure has considerably eased. Developments around AI, including DeepSeek, have materially altered confidence. The narrative has moved from fear of bottlenecks to confidence that no single choke point can halt China’s progress. A recent remark by Xi Jinping during CEWC that “it has proven that it’s impossible to bottleneck us“reflects this profound psychological shift.
That matters because it frees up political bandwidth.
There is also a social dimension. 2024 and 2025 may look similar in macro data—deflation, weak confidence—but they felt very different on the ground. In 2024, social anxiety was palpable. Rising extreme crimes and instability briefly pushed domestic conditions back to the top of the priority list in late Q3.
In 2025, external pressure dominated attention instead. The country entered a quasi “war mode.” Paradoxically, that diversion boosted confidence. Society felt mobilized, even energized to some degree. The pressure valve worked. Domestic economic malaise felt less urgent, and certainly less destabilizing.
That valve will not necessarily exist in 2026.
If domestic demand does not meaningfully recover, China risks sliding back into the kind of social and economic tension seen in 2024 Q3. And without a credible external distraction, the system will have nowhere to shift its attention. At that point, action becomes unavoidable anyway.
This is why 2026 looks fundamentally different from 2025. Beijing may, for the first time in years, have both the willingness and the necessity to treat demand not as something nice to have, but genuinely as a core strategy. This is also why, in our 2026 China Equity Outlook published yesterday, consumption also ranks at the very top of our list.
2026 is certainly going to be exciting for all of us.
Thank you for reading. On behalf of the entire Baiguan team, let me extend to you a sincere Merry Christmas and Happy New Year!
im not gonna go into the politics of it. consumption is a way of expression and tied to free will. i think we talked about it here. you can't tell people how to spend their money. in the end they will just put it in the bank.
put that aside, i think fundamentally market is aware that you cant conjure consumption out of thin air, or out of rhetoric. the ability to spend is driven by something real.
there are of course more academic ways to define consumption or spending im sure, but i would like to start with a commonsensical definition: one man's spending is another man's income. when you look at society as a whole, spending sorta= income.
but that certainly cant be the full picture, we all know that. not all income transfers into spending and people without income still spend. so to paint a fuller picture, without complicating things too much, i resort to the following equation:
consumption = income + sentiment - cost of living
income: salary, anything thats regular and predictable.
sentiment: property price, stock price, wealth, even expected wealth. anything that may not be regular and un-predictable.
cost of living: expenses, social security, child bearing, medical, elder care etc....
the market knows, it takes more than talk to raise consumption. increase income, you get more consumption. improve sentiment, people consume more. reduce cost of living, more money to spend. not magic but also not rocket science.
that brings me to what really changed this year. under the section about raising domestic demand and consumption, priority number 1 in the CEWC, it mentioned "drafting a plan to increase urban-rural resident income" (制定实施城乡居民增收计划). it is the first time decision makers had referred to increasing income in relation to consumption. measures have been taken to improve the sentiment element (stabilize financial market) and cost of living element (subsidies and cash handouts to special group and for child care). but the income element has never been addressed.
yet, it's all still talk, pending execution like you said. but it is at least a meaningful and welcomed pivot.
There is the ring of conviction in what you have written and your argument is persuasive. Let's hope that the way forward is found, consumers gain in confidence and loosen their purse strings.