China announces plan to boost domestic consumption

China announced a “Special Action Plan to Boost Consumption” on Sunday in a bid to prop up domestic consumption in the world’s second largest economy.

The General Office of the Central Committee, an office directly under China’s ruling party, said the plan was to vigorously boost consumption, expand domestic demand, and “enhance consumption capacity by increasing income and reducing burdens,” according to a Google translation of the report.

The wide-ranging release also outlined other steps, such as taking “multiple measures” to stabilize the stock market and developing more bond products suitable for individual investors.

China’s CSI 300 index and Hong Kong’s Hang Seng index were slightly up on Monday, registering gains of about 0.1%.

This comes a week after China’s Premier Li Qiang delivered an annual report on government work that named boosting consumption as the top task for the year ahead.

Back then, Chinese policymakers had increasingly acknowledged the need to counter deflationary pressure at home.

China is currently facing a sluggish consumer landscape, with the most recent consumer price index in February registering its steepest fall in over a year and producer price index in contractionary territory since October 2022.

The plan announced on Sunday also called for support to promote inbound and domestic tourism, with support planned to be given to ice and snow regions to help them develop into globally recognized winter tourism destinations. Unilateral visa-free arrangements will be expanded and regional entry policies will be optimized.

While the plan does not seem to contain “anything too new, setting this out as an action plan signals that concrete steps at local levels will follow.” said Lynn Song, ING’s chief economist for Greater China told CNBC.

More importantly, she said the plan shows China’s commitment towards addressing long-term structural issues such as the the slowdown of wages, the negative wealth effect from the property and stock markets, and the insufficient social safety net.

The plan calls for actions to increase incomes of both urban and rural residents, as well as farmers, such as employment support plans and continuing to implement the unemployment insurance policy.

Song pointed out, “these are likely multi-year directions rather than something that can be fixed in a few months. Directionally, it is quite encouraging that policymakers are taking a sober look at these themes, and it should help the longer term transition to a consumption driven economy.”

“As they say, Rome wasn’t built in a day – neither was BYD and China’s EV dominance – many of China’s major policy directives take time to bear fruit, and this document plants the seeds for the long-term development of the consumer industry,” Song said.

Back in March, Chinese policymakers said China must focus more on domestic demand given the possibility of “new shocks” to overseas demand, according to Shen Danyang, head of the drafting group of the Government Work Report and director of the State Council Research Office.

Chinese leaders also pledged at an annual parliamentary meeting in January an additional 300 billion yuan (41.45 billion) of ultra-long special treasury bonds for consumers’ subsidy support.

Richard Harris, chief executive at investment management firm Port Shelter Investment Management, told CNBC’s “Squawk Box Asia” that Chinese authorities really have to focus on fixing the domestic economy.

“The authorities are determined to stimulate the economy, determined to keep it going, and even if we see some issues with the export side of the economy, they are determined to get the domestic economy going. Because they have to,” Harris added.

— CNBC’s Anniek Bao contributed to this report.