(Yicai) May 18 -- China's consumption is placed in a historical context characterized by multiple overlapping features. From a global perspective, China is no longer in the low-income catch-up phase. It has potential for consumption, but the pathways to unleash it will unfold across multiple dimensions.

This conclusion is based on data provided by World Bank, the Bank for International Settlements, and the United Nations covering 159 countries and including 4,026 country years from 1990 to 2024. It measures the distance to 2024 China across six dimensions: income, growth, industrial openness, population, consumption savings, and household balance sheets.

The historical samples that are closest to 2024 China are Finland around the year 2000, several years in South Korea, and 2018 Thailand. This suggests that China's consumption and macroeconomic structure do have some historical references.

The case of Finland around the year 2000 indicates that after reaching a middle-to-high income stage, consumption growth increasingly relies on the deepening of the service sector, the improvement of social security, and the stabilization of residents' expectations.

The insights from South Korea suggest that industrial upgrading is often accompanied by a re-layering of consumption structures, with an increased importance of quality and service consumption.

2018 Thailand, on the other hand, highlights that the restoration of consumption rates during the income transition phase does not happen automatically but is influenced by growth momentum, household balance sheets, and the transformation of the industrial structure.

These three samples are not uniformly close to China across all dimensions but demonstrate explanatory value in different dimensions, highlighting the core advantage of multi-dimensional coordinate analysis over traditional empirical analogies. Finland is more comparable in terms of income, industrial openness, and balance sheet, South Korea in terms of industrial openness and balance sheet, and Thailand in terms of growth and balance sheet.

The study of China's consumption cannot be encapsulated in a single narrative. On the one hand, China still faces challenges, such as a low share of household consumption, high savings rates, and balance sheet constraints. On the other hand, service consumption, digital consumption, and consumption upgrading are evolving.

To address China's consumption issues, it is not enough to focus solely on demand-side confidence, as it is equally important to understand the industrial structure, income stage, and the financial position of households.

From a global perspective, China is no longer in the low-income catch-up stage. It is closer to the stage of re-layering the consumption structure after industrial upgrading. Household debt and savings preferences continue to impose constraints on the release of consumption. While there is indeed consumption potential, the path to unleashing it will not unfold linearly but in a layered manner across different structural dimensions.

The authors of this article are Cheng Shi, chief economist at Industrial and Commercial Bank of China International Holdings, and Xu Jie, senior economist at ICBC International.

Editor: Futura Costaglione