On January 19, the State Council Information Office held a press conference to introduce the performance of the national economy in 2025. Recently, multiple data points related to prices have shown positive signals. For instance, in December 2025, the year-on-year decline in the Producer Price Index (PPI) narrowed to 1.9%, while it increased month-on-month for the third consecutive month; the Consumer Price Index (CPI) for that month rose year-on-year to 0.8%, hitting a new high in nearly three years. What are the underlying drivers behind these positive signals? What favorable conditions still need to be accumulated to maintain the PPI's recovery trend and ultimately push it into positive territory?
From the demand-side perspective affecting prices, on one hand, final consumption expenditure contributed to over half of economic growth in 2025, the rise of "self-indulgence consumption" was notable, retail sales of services grew by 5.5% compared to the previous year, outpacing the growth of retail sales of goods by 1.7 percentage points, and the growth rate has accelerated month by month in recent months. On the other hand, however, the growth rate of per capita consumption expenditure last year still lagged behind the growth rate of per capita disposable income. Is the rising share of service retail sales in total retail sales a short-term phenomenon, or will it persist in the long run? What needs to be done to convert income into consumption?
On the supply side, in 2025, high-tech manufacturing played a leading role in industrial development. In the process of strengthening the foundation of the manufacturing sector, which areas require reinforcement? At the policy level, the trade-in policy will continue to be implemented in 2026. How can the trade-in policy be optimized? Regarding the topics above, a reporter from National Business Daily (hereinafter referred to as NBD) conducted an in-depth interview with Xu Hongcai, Chairman of Honglue Global Think Tank and Vice Chairman of the Economic Policy Committee of the China Society of Policy Science.
NBD: The year-on-year decline in PPI narrowed to 1.9%, and it has increased month-on-month for three consecutive months. What do you think are the reasons behind this? Xu Hongcai: The month-on-month rebound in PPI is a positive signal. Although the PPI for the full year still decreased by 0.6% year-on-year, the three consecutive months of month-on-month growth indicate that the previously implemented more proactive fiscal policy and appropriately accommodative monetary policy have begun to show initial results. The PPI has achieved month-on-month increases for three consecutive months. PPI is an indicator reflecting industrial production conditions, and observing industrial production requires a comprehensive judgment combining the Purchasing Managers' Index (PMI), the value-added of industrial enterprises above designated size, and production and sales situations. The recent trend of month-on-month PPI recovery suggests that the previous "involution-style" competition has eased to some extent. Persistent low prices often indicate insufficient effective demand. The consecutive month-on-month turn to positive indicates a short-term recovery momentum in industrial production demand. However, a three-month recovery cycle is still relatively short, and whether the trend can be established requires further observation. If the PPI continues to show month-on-month growth in the first quarter of 2026, the recovery span will extend to six months, at which point we can preliminarily confirm that industrial demand has entered a steady upward trajectory.
NBD: What favorable conditions still need to be accumulated to maintain the PPI's recovery trend and ultimately push it into positive territory? Xu Hongcai: Expanding consumer demand and increasing household income are key. As the Spring Festival approaches, bringing the traditional peak sales season, it is essential to ensure that urban and rural residents, especially returning migrant workers, low-income families, and families in difficulty, have fuller "wallets" and money to spend. Only when end-consumer demand genuinely warms up, and residents feel confident to spend freely, can the consumer goods market become active. This activity will then transmit upstream along the industrial chain, driving up the prices of industrial goods, and subsequently promoting a stable and rising overall price level. In industrial operations, the industrial goods produced from investment in building factories ultimately transmit to downstream consumer goods for residents, which归根结底 depends on final consumption. Only when residents' willingness to consume strengthens and they are willing to spend, can inventory be gradually digested, leading to improved business expectations, which in turn triggers inventory replenishment, capacity expansion, and reinvestment. Only then can the PPI be expected to sustain its recovery. Currently, with the Spring Festival nearing, factories generally reduce production and workers return home. Whether they can resume work quickly after the holiday depends on the sufficiency of orders. If concentrated recruitment and return-to-work waves occur in manufacturing bases like Dongguan, Shenzhen, and Hangzhou after the holiday, it would indicate a genuine recovery on the demand side. Therefore, maintaining the PPI's recovery trend and ultimately turning it positive is not an easy task.
NBD: If we hope for a positive post-holiday work resumption state, what can we do in the month before the Spring Festival to boost expectations? Xu Hongcai: The core of improving expectations lies in stimulating consumption and creating a lively atmosphere. We can coordinate and organize large-scale cultural and entertainment activities to gather crowds and drive consumption.
NBD: In 2025, the value-added of high-tech manufacturing industries above designated size accounted for 17.1% of the total value-added of industrial enterprises above designated size. Do you think China will enter a long-term stage where high-tech manufacturing leads industrial development? In the process of strengthening the manufacturing foundation, which areas need to be strengthened? Xu Hongcai: I believe that high-tech manufacturing leading industrial development will be a long-term trend. Simultaneously, high-tech methods should accelerate their penetration into traditional industries, promoting their transformation and upgrading, thereby extending the pulling effect to a wider field. Taking agriculture as an example, we can centrally promote the use of robots, drones, and large intelligent agricultural machinery in plain areas; drones can play a role in hilly terrain with undulating landscapes. The core of strengthening the manufacturing base is to break away from "involution-style" competition, and the root of "involution" lies in technology not being robust enough. When the technological threshold of a product or service is low, making it easy to imitate and replicate, it inevitably falls into the quagmire of low-price competition and homogeneous rivalry. Only by making the technology "hard to imitate," creating a solid barrier that is difficult to quickly replicate, can we escape "involution-style" competition.
NBD: How do you evaluate last year's CPI trend? At the current stage of economic operation, what range is more appropriate for the CPI to remain within? Xu Hongcai: The current CPI is flat year-on-year, maintaining an overall mild level, which is already an achievement. Expecting it to rebound to the annual target of 2% is extremely difficult. The reasons are as follows: First, the supply of basic consumer goods is abundant, with strong guarantees for the "vegetable basket" and "rice bag" programs, and some varieties are even oversupplied, leaving little room for price increases. Second, high-end consumer goods like electronics and communications are in a period of technological iteration. I have expressed a view that technological progress itself has an inflation-suppressing and deflation-reinforcing tendency; technological advancement inevitably leads to price declines. However, such price decreases are beneficial for consumers. Third, there is still some "involution-style" competition in basic industrial goods, leading companies to continuously lower prices for promotions. Therefore, we need to find new breakthroughs. I believe cultural and entertainment consumption is an important direction. By enriching experiential consumption scenarios, we can boost public sentiment and release spending willingness. However, this space is also limited – the main group that previously dared to spend was young people, but now they tend towards low desires: declining willingness to date, lower marriage and birth rates. Population growth is the fundamental driver of the economy. If policies can effectively incentivize childbirth, it could form a huge new source of expenditure and potentially leverage a larger total demand. But to boost the birth rate, the burden of childbirth needs to be significantly reduced. At the end of December 2025, the broad money supply (M2) balance grew 8.5% year-on-year, but the real GDP growth was 5%, and nominal GDP was about 3.7%. A large amount of money has not been effectively transmitted to prices nor formed actual demand. This indicates that the phenomenon of funds being idled is still quite significant. Whether through RRR cuts or interest rate cuts, most of the released liquidity flows back into the banking system in the form of time deposits by residents and enterprises. This also shows that one of the important cores of current economic work remains stabilizing expectations.
NBD: Recently, "self-indulgence consumption" has quietly emerged. In 2025, retail sales of services increased by 5.5% compared to the previous year, 1.7 percentage points faster than the growth of retail sales of goods, and the growth rate has accelerated month by month in recent months. How do you view the rise of service consumption? Will the share of service retail sales in total retail sales continue to rise? Xu Hongcai: "Self-indulgence consumption" is a potential economic growth point worth exploring deeply. For example, young people drive a significant part of the pet economy; another example is the "health and beauty" field, which also has huge consumption potential, involving services and upgraded consumer products like fitness, sports, general wellness, beauty treatments, home oxygen chambers, and immune stem cell injections. Fully unleashing the demand for "health and beauty" will give rise to numerous consumption themes. On the demand side, the public's need for emotional value is long-term. On the supply side, it is necessary to regulate service industry platforms and improve the treatment of service personnel, thereby enhancing service quality.
NBD: In 2025, the national per capita disposable income of residents increased by 5.0% nominally compared to the previous year, and after deducting price factors, the real growth was 5.0%. The national per capita consumption expenditure of residents increased by 4.4% nominally compared to the previous year, and after deducting price factors, the real growth was 4.4%. What do you think needs to be done to convert income into consumption? Xu Hongcai: First, optimize the consumption environment, strengthen consumer rights protection, and severely crack down on counterfeit and shoddy products, passing off inferior goods as high-quality ones, and other such behaviors. Second, continuously create consumption hotspots, leveraging important nodes like the Spring Festival to centrally launch high-quality films, cultural performances, folk activities, and other cultural entertainment projects, using hotspots to gather crowds and drive spending. Third, increase the income of low-income groups through multiple channels. For special hardship groups like the disabled elderly, large consumption subsidies can be directly distributed to form immediate purchasing power, enabling groups that "want to consume but have no money" to truly have money to spend, dare to spend, and be willing to spend.
NBD: The trade-in policy for consumer goods will continue to be implemented in 2026, and the first batch of 62.5 billion yuan in ultra-long-term special government bond funds has been allocated in advance. How do you think the trade-in policy can be optimized? Should the trade-in funds be targeted precisely, or should they focus more on universal benefits? Xu Hongcai: To ensure low-income groups benefit simultaneously, consumption subsidy policies must accelerate innovation: first, expand the policy coverage to include the consumption needs of low-income groups; second, provide direct cash subsidies to disadvantaged groups without usage restrictions, allowing them to allocate the funds autonomously. As a short-term measure, the trade-in policy has undoubtedly boosted sales of technology-upgrade products and stimulated related investment, but its overall impact on consumption still has certain limitations. I believe the next step for consumption promotion policies should shift towards "income supplementation," increasing the disposable income of low-income groups to release a universal benefit effect. Regardless of whether subsidy funds flow to catering, tourism, or other daily service industries, they can create jobs, activate prosperity, and form a virtuous cycle of "spending-income-re-spending," setting the economic machine back into high-speed operation.
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