China experienced a 0.6% year-on-year drop in retail sales in May 2026 following a weak April, marking its first monthly decline in over three years. Stephen Roach, former Chief Economist and Asia Chair at Morgan Stanley, highlighted that China’s attempt to shift towards consumer-led growth has not been successful. This failure has resulted in state entities, state-owned enterprises, and private firms gaining a disproportionate share of national income, leaving ordinary households struggling.
Weak consumption patterns are expected to push China towards relying more on exports and investments to meet growth targets. This shift could potentially increase China’s global manufacturing share to 45% by 2030. Roach suggested that such a scenario might prompt other regions, particularly Europe, to adopt anti-China protectionist measures.
The share of household consumption in China’s nominal GDP stood at around 39.9% in 2024, a figure almost identical to the 39.8% recorded in 2005. This stagnation was previously highlighted as a significant issue in the Chinese economic model by former Premier Wen Jiabao. The prolonged weakness in Chinese consumption during 2025 and early 2026 suggests that the current household consumption to GDP ratio may have fallen below the benchmark set in 2005.
Roach emphasized the necessity of transitioning from export-driven growth to a consumer-driven approach, along with policy adjustments to redirect excess savings towards consumption. Failure to achieve this shift could lead to various economic challenges for China, including a prolonged property crisis, low household income share of GDP, post-Covid economic impacts, demographic changes, and high youth unemployment rates.
Critics have dismissed China’s unsuccessful efforts to rebalance towards consumer-led growth as a statistical illusion, arguing that it overlooks government support for education, healthcare, cultural services, and subsidized food.
