By Kevin Yao
BEIJING, Jan 21 (Reuters) – China is planning to introduce new measures to promote consumption of services, betting that elderly care, healthcare and leisure can offset tepid demand for goods, although analysts say the plan’s success depends on raising household incomes and social well-being.
Beijing sees labor-intensive services as key to reorienting its economy toward consumption as it tries to free itself from a traditional reliance on heavy investment and exports.
Authorities are likely to unveil incentives, ease market barriers and invest in high-growth sectors to address supply gaps, but deeper reforms are essential to raise incomes and strengthen the safety net, political advisers and analysts say.
Unlike China’s manufacturing sector – where supply often exceeds demand – the service sector faces chronic shortages due to underdevelopment and years of policy biased toward factories.
“Policymakers are putting more emphasis on consumption of services given its great potential,” said a political adviser who requested anonymity because he was not “authorized to speak publicly.” “But the expansion of the sector will be a gradual process, aligned with the pace of economic transformation.”
Chinese leaders have promised to “significantly” increase the share of household consumption in the economy over the next five years. Most political advisers believe China should increase its share to 45% by 2030, up from about 40% today.
Leaders have promised to “invest in people” by increasing spending on education, health care and social security, a sign of greater support for families and a drive to raise household purchasing power.
Chinese households are channeling more spending into services – from elder care to travel and entertainment – as demand for big-ticket goods stagnates. Most families appear to have sufficient supplies of goods and GDP per capita is close to $14,000. The shift underscores China’s trend toward a service-based consumption model.
“The rebalancing itself is more a question of the relative importance of consumption and investment in the economy, rather than whether consumption takes the form of goods or services,” said Fred Neumann, chief Asia economist at HSBC.
“That said, as household incomes rise with economic development and households age, demand for services should grow faster than demand for goods.”
China’s economy grew 5% last year, matching the government’s target, as it tapped a record share of global demand for goods to offset weak domestic consumption, a strategy that mitigated the impact of U.S. tariffs.
Retail sales of goods grew just 0.9% in December from a year earlier, the slowest level since December 2022. Factory production rose 5.2% from a year earlier.
Sales of services increased 5.5% in 2025, higher than the 3.7% growth of goods.
Per capita consumption of services reached 46.1% of total spending in 2025, up from 40.3% in 2014, when official data first became available.
China’s household consumption is about 20 percentage points of GDP below the world average, while its share of investment is about 20 points higher. China accounts for about 30% of global manufacturing output, the largest share of any country.
“It is completely realistic to increase the household consumption rate, but it depends on the level of political commitment,” said Lynn Song, ING’s chief Greater China economist.
Zhuo Guowen, president of privately held Renren Health Group in eastern China’s Shandong province, said his company is tapping into growing demand for elderly care, youth sports training and mental health services.
“The government is supporting the service sector,” Zhuo said in an interview. “This is true and, as businessmen, we must follow the national strategy.”
A GRADUAL REBALANCING
The Chinese government is reviewing plans to expand consumption subsidies beyond goods to cover services such as elder care, meals, entertainment and travel, advisers and policy analysts said.
The fiscal support would cover subsidies for older people, interest relief for service providers such as nursing homes and vouchers for home aged care.
Officials are also considering longer paid vacations to increase spending and ease restrictions on high-end leisure activities, such as cruises and yachts, while building related facilities.
Investors are watching how much fiscal muscle Beijing will put behind public services this year – and whether income and welfare reforms will follow – but any change will be slow as officials continue to prioritize manufacturing.
“In my opinion, many authorities, including local governments, still have a bias towards manufacturing,” said Louis Kuijs, chief Asia economist at S&P Global Ratings. “That’s partly because they find it easier to collect tax revenue from manufacturing activity.”
China can only gradually ease goods-focused stimulus to avoid a sharp decline in sales.
In December, China deployed 62.5 billion yuan ($8.96 billion) in special Treasury bond funds to support its 2026 home appliance and new energy vehicle sharing plan, while Goldman Sachs expects total 2026 sharing subsidies to fall to around 250 billion yuan from 300 billion yuan in 2025.
A GREAT RECOVERY FOR THE FUTURE
China’s central bank, which last year launched a 500 billion yuan loan facility to support consumption of elderly care and services, has warned that inadequate supply remains the sector’s biggest problem.
Shenwan Hongyuan Securities estimates a shortfall of 3.3 trillion yuan in China’s investment in services, putting it behind economies with similar income levels.
With only 30 aged care beds per 1,000 elderly people – far below levels in many advanced economies – the shortage in China is so stark that people like Lily Yang have invested 2 million yuan in insurance-linked plans to secure a place at Dajia, a high-end 500-bed facility in Beijing that is close to capacity.
“I feel calm now. I don’t want to be a burden on my only son when he’s old,” said Yang, 56, a former bank manager who retired last year, part of a generation shaped by smaller families and weakened filial norms that is increasingly open to institutional care.
Aging at home remains the only option for most retirees with small pensions. Feng, a 68-year-old Beijing resident who gave only her last name, said she and her husband receive 10,000 yuan a month and hope the government can add more affordable nursing homes.
“We can’t afford to move into a nursing home, it’s just not realistic,” he said.
(1 dollar = 6.9776 Chinese yuan renminbi)
(Reporting by Kevin Yao; Editing by Thomas Derpinghaus)
