Bernstein believes subsidies alone are unlikely to repair Chinese consumption, while shorter working hours and higher incomes may offer a new policy approach.

Overview

This is a macro commentary on weak domestic demand in China and approaches to stimulating consumption. Bernstein argues that traditional subsidies and trade-in programs cannot address the root causes of weak consumer confidence and insufficient demand, and uses Henry Ford's historical experience of raising wages and shortening working hours to discuss the potential of supporting consumption through income and leisure time.

Core views

The report first notes that China's economy remains under pressure: exports are relatively resilient, but domestic demand continues to weigh on growth. Retail sales year-on-year growth has broadly stalled at 0% to 1%, while new vehicle sales have declined by roughly 20% year-to-date in 2026. Policymakers have adopted monetary easing, consumption subsidies, and trade-in programs covering home appliances, electronics, and automobiles, but the overall impact has been limited; a weak property market, soft consumer confidence, and deflationary pressure persist. The report argues that such stimulus and price cuts often only bring demand forward, with effects weakening over time; if consumers expect lower prices or additional subsidies in the future, they may instead postpone purchases. In seeking alternative approaches, the report cites Henry Ford's practices. In 1914, Ford raised daily wages to $5 and cut daily working hours from nine to eight; by 1926, he had adopted a five-day, 40-hour workweek. The report stresses that this was not simply a welfare arrangement: Ford believed that higher incomes and more leisure would increase spending on clothing, food, transportation, and services, while also enhancing the value of automobiles as tools for leisure travel. The report states that Ford's sales growth reaccelerated after 1914; although it slowed amid wartime disruptions in 1917-1918, it rebounded strongly in 1919, providing historical support for his business logic. The report maps this logic onto China's consumption structure. Household consumption in China accounts for about 40% of GDP, substantially below most developed economies, particularly G7 countries at roughly 53% to 68%; meanwhile, China's annual working hours per capita are about 45% above the G7 average, with the “996” work arrangement especially common in the technology and startup sectors. It therefore suggests that China's issue may not only be that households spend too little, but also that working hours are too long and leisure available for consumption is insufficient; rather than continuing to expand production capacity, there is a greater need to cultivate consumers. Long-term data comparisons provide another basis for the report. Since 1970, annual working hours have been negatively correlated with household consumption as a share of GDP, with R² of 0.45 for the U.S. sample and 0.63 for the China sample. Compared with the 1990s, China's annual working hours are currently about 4% higher, while household consumption as a share of GDP is about 8 percentage points lower. The report does not equate correlation with causation, but uses this evidence and the Ford case to argue that, after years of traditional stimulus have failed to materially restore confidence, raising wages, shortening working hours, and increasing leisure time could be another policy approach to supporting consumption.

Analysis framework

The report first diagnoses domestic-demand problems using indicators such as retail sales, auto sales, real estate, confidence, and deflation, then analyzes the mechanism by which subsidies and promotions pull demand forward. It subsequently uses Ford's wage and working-hour reforms as a historical case and conducts cross-sectional and long-term comparisons of working hours and consumption as a share of GDP across China, the United States, and the G7, forming a discussion of structural constraints on consumption.

Methodology notes

• (Method outside the taxonomy)

  Long-term correlation comparison between working hours and consumption as a share of GDP

  The report compares annual working hours and consumption as a share of GDP in China and the United States since 1970, using R² to measure the fit of their relationship and support discussion that fewer working hours may be associated with a higher consumption share.

Key data

• Retail sales year-on-year growthApproximately 0% to 1%The report states that growth has broadly stalled.
• China new vehicle salesApproximately 20% year-on-year decline year-to-date in 2026Reflects a marked weakening in auto demand.
• China household consumption as a share of GDPApproximately 40%Below the roughly 53% to 68% for G7 countries cited in the report.
• China annual working hours per capitaApproximately 45% above the G7 averageThe report views longer working hours as an important backdrop to its discussion of consumption structure.
• R² for working hours and consumption as a share of GDPUnited States 0.45; China 0.63Based on long-term comparisons since 1970, indicating a negative correlation between the two.
• China's changes since the 1990sAnnual working hours increased by approximately 4%; household consumption as a share of GDP declined by approximately 8 percentage pointsUsed by the report to illustrate long-term changes in working hours and consumption structure.
• Ford's 1914 labor arrangementsDaily wages raised to $5; daily working hours reduced from nine to eightFord further adopted a five-day, 40-hour workweek by 1926.

Impact & implications

The report believes that if policy continues to rely mainly on subsidies, trade-in programs, and promotions, the boost to consumption may be only temporary. Its alternative approach is to focus on household income and discretionary leisure time to support more sustained consumer demand, though it does not provide specific policy proposals or quantitative forecasts.