Service consumption becomes the main policy line for expanding domestic demand

Overview

This report focuses on China's consumption expansion, green transition, and macro policy direction in the second half of the year. HSBC notes that after Premier Li Qiang chaired a symposium with economists and entrepreneurs on July 13, policy priorities pointed to expanding consumption, major infrastructure and livelihood-related investment, and stabilizing employment. At the same time, the State Council released a consumption expansion-related 15th Five-Year Plan, proposing total retail sales of consumer goods of about RMB 60tn by 2030, but retail sales remain under short-term pressure, growing only 1.4% year-on-year from January to May, indicating that cyclical pressure persists.

Core views

There are three core views. First, the incremental driver of consumption expansion will come more from service consumption rather than purely goods retail, and high-quality service supply such as elderly care, childcare, culture and tourism, health, and sports may become policy priorities. Second, stabilizing real estate, employment, and income expectations is a necessary condition for consumption recovery; the property downturn suppresses household spending through industrial-chain effects and wealth effects, while new urbanization could contribute 0.8 to 1.3 percentage points of annual GDP in consumption spending by 2030. Third, the policy mix in the second half is likely to remain supportive, with fiscal policy potentially accelerating special local government bond issuance and the use of new financing tools, while monetary policy maintains liquidity and structural easing, though the probability of further policy rate cuts is low.

Analysis framework

The report combines macro policy interpretation with high-frequency economic indicator tracking, making judgments around consumption, real estate, industrial activity, transportation and logistics, inflation and prices, liquidity, and policy meeting signals. On consumption, it incorporates retail sales, the share of service consumption, income growth, and the labor market; on real estate, it observes new home and existing home sales, housing prices, and land sales; on the green transition, it tracks the share of non-fossil energy, capacity installation targets, grid absorption, and electricity policy for computing power.

Methodology notes

• Macroeconomic Policy AnalysisFive-Year Plan and Policy Meeting Signal Tracking

  Use State Council plans, premier symposiums, Politburo meetings, and PBoC Monetary Policy Committee language to judge policy priorities.

  The report uses the 15th Five-Year Plan, the consumption expansion plan, the carbon peaking action plan, and the PBoC's second-quarter Monetary Policy Committee meeting language as evidence of policy direction, and maps them to consumption, investment, energy, and liquidity.

• High-Frequency Economic MonitoringChina Macro Tracker

  Observe economic momentum through retail, travel, real estate, industry, logistics, prices, and money market indicators.

  Weekly chart tracking includes auto sales, box office, flights, metro traffic, port throughput, land sales, industrial operating rates, commodity prices, interbank rates, and open market operations.

• Structural Growth AnalysisService Consumption and Green Transition Framework

  Treat medium- to long-term consumption upgrading and energy structure optimization as policy-driven structural main themes.

  Service consumption is viewed as the main incremental direction for expanding domestic demand, while the green transition is assessed through dimensions such as the share of non-fossil energy, installed capacity, grid absorption, energy storage, and the electricity structure of computing power.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• China consumption and services

  Main policy support and medium- to long-term expansion theme

  Strengths

  There is substantial room for the share of service consumption to rise, and elderly care, childcare, culture and tourism, health, and sports are emphasized by policy.

  Weaknesses

  Slower household income growth, employment pressure, and weak consumer confidence constrain short-term recovery.

  Comparison

  Compared with goods retail, service consumption is more aligned with policy direction toward high-quality supply and household consumption upgrading.

  Risks

  If employment and income expectations do not improve, service consumption expansion may fall short of planning targets.

• China real estate and urban renewal

  An important constraint on and potential support for consumption recovery

  Strengths

  Housing prices and some sales indicators have improved in tier-one cities, and affordable housing and urban renewal policies may stabilize the sector.

  Weaknesses

  Broader real estate improvement has not yet emerged, and the wealth effect continues to drag on household spending.

  Comparison

  The drag from the property chain on consumption is more cyclical than the policy support for service consumption.

  Risks

  Renewed weakness in sales and prices would weaken household balance sheets and willingness to consume.

• Green energy, grid, and energy storage

  Beneficiary direction from the accelerated green transition

  Strengths

  Targets for the share of non-fossil energy have been raised, and policy emphasizes grid absorption, cross-regional transmission, long-duration storage, and green power supply for computing capacity.

  Weaknesses

  New wind and solar installations are shifting from earlier high growth to steadier growth, while industry competition and pressure to eliminate outdated capacity remain.

  Comparison

  Policy focus is shifting from simply expanding installed capacity toward technological breakthroughs, absorption capacity, and system efficiency.

  Risks

  If grid connection, energy storage business models, or changes in power demand fall short of expectations, the pace of transition could be affected.

• China interest rates and liquidity environment

  Monetary policy remains supportive but is more structural

  Strengths

  The PBoC continues to emphasize moderate easing, countercyclical and cross-cyclical adjustment, and support for domestic demand, technological innovation, and small and medium-sized enterprises.

  Weaknesses

  The report does not expect further policy rate cuts, so the degree of easing may be constrained.

  Comparison

  Compared with broad rate cuts, structural tools and liquidity management are more likely to become the main instruments.

  Risks

  If domestic demand continues to weaken while policy support is insufficient, the market may reprice growth and interest-rate expectations.

Key data

• 2030 target for total retail sales of consumer goodsabout RMB 60tnTarget in the consumption expansion plan released by the State Council on July 13, implying a nominal CAGR of 3.7%.
• Retail sales growth from January to May 2026up 1.4% year-on-yearShows that short-term cyclical pressure still exists.
• 2030 target for service consumption scaleRMB 100tnPreviously proposed in the guideline on advancing the service sector, implying a CAGR of 4.6%.
• Potential contribution of new urbanization to consumption spendingan annual increase of 0.8 to 1.3 percentage points of GDP share by 2030HSBC cites its China Urbanization 2.0 view.
• 2030 target share of non-fossil energy consumption25%Up from 21.7% in 2025; the original plan implied an increase of about 0.66 percentage points per year.
• 2026 to 2028 target increase in the share of non-fossil energy consumptionabout 1 percentage point per yearA more aggressive target proposed in the National Energy Administration's July 10 action plan.
• 2030 target share of non-fossil electricity50%Up from 42.3% in 2025; the report emphasizes that electricity used by new computing facilities should mainly come from non-fossil energy.
• HSBC's view on GDP growthexpected at 4.6% year-on-yearThe report believes GDP growth may moderate from the strong first-quarter performance because domestic demand remains weak.

Impact & implications

For investment and macro allocation, the report implies that policy focus is shifting from short-term goods subsidies toward service supply, income expectations, real estate stabilization, and green infrastructure. Beneficiary areas include culture and tourism, elderly care and childcare, health and sports, urban renewal, grid upgrades, energy storage, non-fossil energy, and livelihood-related infrastructure; pressured areas include the property chain, autos and other durable goods affected by the fading of trade-in support, and some industrial goods affected by insufficient demand. On macro policy, stronger fiscal support is more likely than broad-based rate cuts to become the main focus in the second half.

Risks

• The real estate market may fail to extend improvement from tier-one cities to broader regions, continuing to drag on property-chain consumption and household wealth effects.
• Labor market pressure and slower income growth may weaken consumer confidence.
• After the fading of support policies such as trade-ins, auto and durable goods consumption may remain under pressure.
• Weak domestic demand may cause economic growth to slow from the first quarter.
• Slower growth in green energy installations, insufficient grid absorption, or excessive industry competition may affect transition efficiency.
• Changes in external demand and the trade environment may weaken export support for growth.

What to watch

• How the late-July Politburo meeting frames second-half fiscal policy, special local government bonds, and new financing tools.
• Follow-up supporting policies and local implementation strength in key service consumption areas under the consumption expansion plan.
• Whether employment, wages, household income, and consumer confidence indicators improve.
• Progress in real estate sales, housing prices, land transactions, affordable housing, and urban renewal implementation.
• Subsequent PBoC liquidity injections, structural tools, and policy rate changes.
• Policies on the share of non-fossil energy, grid upgrades, cross-regional transmission, long-duration storage, and green electricity use for new computing facilities.
• High-frequency indicators such as auto sales, box office, flights, intercity travel, port throughput, and industrial operating rates.