E2026003                                                                2026-01-29  

Lu Feng

Abstract

In recent years, China’s insufficient consumption and the pattern of strong supply vs. weak demand have had multiple underlying causes. At a deeper level, these outcomes are closely related to a catch-up–oriented allocation of public sector resources that has long been concentrated on the supply side. To examine both the long-term positive effects and the current constraints of this allocation pattern, this paper provides a quantitative estimation of the overall scale and structural allocation of China’s public resources. Preliminary results show that in 2023, the total scale of public sector resources was roughly equivalent to 48.01% of China’s GDP same year. Of the total, larger part of about 25.5% of GDP was allocated through various forms of investment and production support schemes to promote technological upgrading, industrial development, and the expansion of supply side capacity. While about 22.5% of GDP was channeled through different mechanisms to support government and household consumption. Empirical evidence indicates that although China’s fiscal spending in recent years has increasingly tilted toward people’s livelihood, overall public resource allocation remains heavily focused on supply-side investment.

Against the background of a well-established market mechanism and a strong supply responsiveness of the private sector to market demand, the above catch-up–oriented public resource allocation, while actively advancing supply-side productivity catch-up, has also tended to reinforce structural imbalances associated with weak consumption and insufficient domestic demand. This has contributed to the continued intensification of the strong supply and weak demand pattern in recent years. Under current conditions, a propriate rebalancing consideration through divert part of the public resources originally used in supply side towards supporting social security and household consumption would allow economic growth to benefit on both the supply and demand sides, and could provide a new transition opportunity for China to move from the strong supply vs. weak demand pattern towards a new one with supply and demand both strong.