Stronger services to inject more impetus

The State Council, China's Cabinet, recently approved a plan to expand consumption during the 15th Five-Year Plan period (2026-30). It marks the first time that expanding consumption has been incorporated into a dedicated national plan.

The plan calls for the overall size of the consumer market to expand further by 2030, with a marked increase in the household consumption rate and rapid growth in spending on goods and services. It also targets total retail sales of consumer goods of around 60 trillion yuan ($8.93 trillion) by 2030 and a stronger contribution from consumption to GDP growth. The plan also puts promoting higher-quality services consumption and improving people's well-being at the top of its tasks for boosting consumption.

International experience shows that when per capita GDP reaches between $10,000 and $20,000, the share of services in consumption tends to rise more rapidly and the consumption structure shifts more quickly from goods-led spending toward services. China's per capita GDP approached $14,000 in 2025 as the country moved closer to high-income economy status.

Against that backdrop, China's consumption structure is showing a series of new trends. While the structure of goods consumption is upgrading at a faster pace, the scale and share of services consumption are also rising markedly, with services becoming the main engine of consumption growth.

In major cities such as Beijing; Shanghai; and Guangdong province's Guangzhou and Shenzhen, services already account for more than half of household consumption, with the share reaching around 60 percent in some cities.

At the same time, China's household consumption rate remains relatively low, both compared with the international average and with major economies at similar stages of development.

China's household consumption rate stood at 40 percent in 2025, about 8 percentage points below the average for upper-middle-income countries and well below 68 percent in the United States, 52 percent in the European Union and 55 percent in Japan.

The structural gap between China's household consumption rate and international levels suggests there is still substantial room to expand consumption.

During the 15th Five-Year Plan period, China will be presented with major strategic opportunities while accelerating the development of services consumption and unlocking its potential.

First, the shift from goods-led consumption toward services-led consumption is accelerating.

China's goods consumption is relatively saturated, while the potential of services consumption remains far from fully tapped.

The plan explicitly calls for a steady increase by 2030 in the share of per capita services spending in total per capita household consumption spending.

Judging from current conditions, the 15th Five-Year Plan period is likely to be a phase of accelerated growth in services consumption, with per capita services spending potentially rising to around 50 percent of total household consumption spending.

Second, the new technological revolution centered on artificial intelligence is giving fresh impetus to services consumption.

The development of AI is converging with the upgrading of China's consumption structure at a historic juncture.

As AI technologies penetrate more broadly into consumer-facing sectors, new business models and consumption scenarios — such as smart education, intelligent eldercare, autonomous delivery and model-as-a-service — are expanding rapidly.

They are becoming an important force in driving services consumption, unlocking spending potential and meeting consumer demand.

In the first half, China's online retail sales of services rose 6 percent from a year earlier, 0.7 percentage point faster than overall services retail sales.

Third, the government is stepping up policy support and institutional innovation for services consumption.

On the policy front, the plan calls for stronger, more inclusive measures that directly benefit consumers, and for more government funds to be used for spending related to people's livelihoods.

It also calls on financial institutions to expand lending for consumption and improve the implementation of interest subsidies for personal consumption loans and loans to services-sector businesses.

On institutional reform, the plan calls for an orderly relaxation of market-access restrictions in the services sector, improvements to market entry for new business models and emerging sectors, and revisions to regulations governing paid annual leave for workers.

These measures are expected to create a more supportive environment for the development of services consumption.

Accelerating the development of services consumption will require not only stronger policy support, but also deeper reforms to remove institutional and regulatory barriers and fully unleash its growth potential.

First, China should ease market-access restrictions in the services sector.

The services sector still faces problems such as high entry barriers and cases in which businesses are formally allowed to enter a market but are unable to operate effectively.

Outdated market access restrictions should be removed, with access gradually managed through a negative-list approach.

Unreasonable qualification requirements for services-sector enterprises should also be eliminated.

More rational services pricing should be used to attract private capital, expand the supply of high-quality services across a wider range of subsectors, and meet demand from different social groups for higher-quality, diversified and differentiated services.

Second, unreasonable restrictive measures should be reviewed and streamlined.

The development of services consumption is still constrained by various restrictions.

Vehicle modification and yacht use, for example, remain subject to restrictions, while the live-performance market is also constrained by safety-capacity rules and lengthy approval procedures.

China should accelerate the removal or optimization of unreasonable restrictions, encourage the development of the automotive aftermarket and improve the supply of yacht-related consumption services.

It should also promote one-stop, cross-departmental approval and fully online processing for large-scale public events to help services consumption become more accessible to the broader mass market.

Third, China should support the development of new forms of services consumption.

The penetration of AI into services consumption is enriching consumption scenarios and increasing the share of fragmented and niche demand.

More room for emerging forms of services consumption is opening up, including smart education, intelligent eldercare, smart tourism and AI-assisted healthcare.

China should support innovation in services-consumption business formats, models and scenarios.

Pilot programs should be used to explore business-model incubation, demonstration projects and institutional innovation, helping cultivate new growth drivers for services consumption.

Regulators should also take a more accommodating approach toward new business formats, models and scenarios, while gradually improving oversight as these sectors develop.

Fourth, China should increase the share of public-service spending in total fiscal expenditure.

A significant portion of services consumption is development-oriented consumption, which has characteristics associated with collective consumption and public services, requiring the government to play a guiding role.

Increasing the share of public services in fiscal spending will require redirecting some funds that were traditionally used for investment toward public services expenditure.

China should increase spending on public services such as education, healthcare and eldercare, improve the childcare subsidy system, launch pilot programs for childcare service subsidies, implement inclusive basic public-health service initiatives and carry out programs to improve basic medical services.

These steps would help create a mutually reinforcing relationship between government-provided public services and household spending on services.

Fifth, China should advance institutional opening-up with a focus on the services sector.

China's manufacturing sector has been fully opened, but there remains considerable room to expand opening-up in services.

China should further broaden pilot opening-up programs in telecommunications, the internet, education, culture and healthcare, while increasing the supply of high-quality services.

It should facilitate efficient, convenient and secure cross-border data flows and shorten the negative list for cross-border trade in services.

By expanding opening-up, China can promote deeper domestic reforms in the services sector and strengthen the international competitiveness of its services industries.

In summary, China is in a period of transition from goods-led consumption toward services-led consumption, with services already becoming an important source of incremental household spending.

By deepening reforms, removing institutional and regulatory barriers to services consumption, and unlocking its substantial growth potential, China can not only boost economic growth, promote structural upgrading, improve living standards and expand employment opportunities, but also accelerate the shift toward a development model driven by domestic demand, consumption and endogenous growth.

That, in turn, could open up broader prospects for high-quality economic growth and development.

The writer is vice-chairman of the China Center for International Economic Exchanges.

The views do not necessarily reflect those of China Daily.