China Has Chosen to Disappoint Its Consumers

China’s New Politburo Strategy Is Forgoing Household Consumption

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Analysis:

China Has Chosen to Disappoint Its Consumers

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Analysis

China Has Chosen to Disappoint Its Consumers

Beijing’s choice moves Washington’s leverage from tariffs to currency.

By **Charles Sun**, a Sinovation fellow at Yale School of Management, and **Christopher Nye**, a nonresident fellow at the Jamestown Foundation.

!A person is standing a supermarket while holding a bag of chips and pushing a cart.

*A person is standing a supermarket while holding a bag of chips and pushing a cart.*

A consumer selects a product at a supermarket in Zaozhuang, China, on August 9. CN-STR/AFP via Getty Images

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August 11, 2026, 9:47 AM

When China’s Politburo met on July 30 to set economic policy for the second half of 2026, the numbers in front of it were not good. In the first half of the year, retail sales grew just 1.3 percent from a year earlier, while the economy grew 4.7 percent. Consumer prices were up just 1 percent, about where they have been since February. A technology rally carried the stock market through the spring, but it broke in mid-July and was falling again as the Politburo convened.

The solution that the Politburo settled on is to double down on the strategy that Chinese President Xi Jinping had already set: deepening the “AI plus” initiative, developing new forms of the intelligent economy, pushing for breakthroughs in frontier technology, building new pillar industries, and pressing ahead with six national networks—from computing power to logistics—which the National Development and Reform Commission estimated in May would take more than 7 trillion yuan of investment this year alone.

When China’s Politburo met on July 30 to set economic policy for the second half of 2026, the numbers in front of it were not good. In the first half of the year, retail sales grew just 1.3 percent from a year earlier, while the economy grew 4.7 percent. Consumer prices were up just 1 percent, about where they have been since February. A technology rally carried the stock market through the spring, but it broke in mid-July and was falling again as the Politburo convened.

The solution that the Politburo settled on is to double down on the strategy that Chinese President Xi Jinping had already set: deepening the “AI plus” initiative, developing new forms of the intelligent economy, pushing for breakthroughs in frontier technology, building new pillar industries, and pressing ahead with six national networks—from computing power to logistics—which the National Development and Reform Commission estimated in May would take more than 7 trillion yuan of investment this year alone.

Missing from the Politburo’s strategy this year, however, are the “special initiatives to boost consumption” that anchored the July 2025 statement. The 2026 report instead tells officials to expand domestic demand by providing better supply tailored to different consumer groups and by boosting service consumption—echoing the prescriptions of the Politburo’s April statement. The original 2025 program instead survives one level down: The State Council’s five-year consumption plan, approved on July 13, tells officials to press ahead with it.

The usual description of the Chinese economy as K-shaped—tech and exports sail upward while consumption stalls—suggests an imbalance to be managed. Some analysts push the diagnosis further, describing China as a “slow tech dragon,” whose misallocation of resources produces both real breakthroughs and enough waste to slow the whole economy. In effect, both descriptions treat the household side as a casualty of error. The July statement points to another possibility. The neglect of the household is a top-down decision, a cost that the Chinese leadership has determined is worth paying for the sectors it counts on for national power.

The choice was made against a good deal of advice. In its 2024 review of China’s economy, the International Monetary Fund (IMF) proposed that Beijing spend roughly a trillion dollars finishing the country’s unfinished presold apartments or compensating the buyers; it repeated the advice in February. In China, most new homes are sold before they are built. Buyers pay upfront, often with a mortgage, while the developer puts the cash into its next project. When the bubble burst in 2021, millions of paid apartments were left unfinished, and their owners are still repaying loans on homes that may never arrive. Beijing said that it planned no additional spending to complete presold housing and that social spending would have to wait on fiscal sustainability.

Some Chinese economists have argued for years for direct transfers, cash, or vouchers put into consumers’ hands. Xi’s 2021 essay on common prosperity, which still governs policy, warned that the state must never fall into the trap of a welfarism that raises lazy people. Existing subsidies follow that dictum. The 250 billion yuan of special treasury bonds behind this year’s consumer program goes through a trade-in scheme for cars and appliances, released in planned batches, and paid only when a household buys an approved product, which is almost always Chinese-made. This year’s five-year plan sees the scheme carried forward. In effect, the state has cast the household as the channel through which the money passes on its way to the manufacturer, not as an end of its own.

There is