(Yicai) April 1 -- China will further strengthen the role of domestic consumption in driving economic growth this year to offset the impact of weaker external demand caused by higher tariffs imposed by the Trump administration, according to Chinese think tank experts.

One key policy initiative for the year is allowing local governments to collect a portion of the consumption tax to ease their financial difficulties and incentivize them to promote spending, Shen Kaiyan, director of the economics institute at the Shanghai Academy of Social Sciences, said at a recent media exchange meeting.

US President Donald Trump is set to announce new import tariff hikes tomorrow, threatening to impose "reciprocal" duties to match the levies other nations place on US goods.

Shen noted that Trump’s tariff increases on global trade partners will significantly affect China, an export-driven economy. However, China has been prioritizing the expansion of domestic demand in recent years, particularly in response to Trump’s first term in office.

Domestic Demand Drivers

According to China’s 2025 government work report, the world’s second-largest economy will focus on unlocking new consumption potential this year, including developing the "silver economy" (catering to an aging population) and the "ice and snow economy" (boosting winter tourism and sports). Shen emphasized that China will address demographic shifts by improving pension systems and introducing childcare subsidies.

"At the same time, we must recognize that consumption stems from effective demand that is backed by purchasing power," Shen said, adding that in the long run, increasing household income is essential. "Ultimately, we need to drive economic growth and promote employment through policies focused on production and investment."

The latest government work report highlights China’s commitment to technological innovation, aiming to empower various industries and drive upgrades through advancements in artificial intelligence.

Shen also discussed China’s first law specifically designed to support the development of the private economy, emphasizing the importance of entrepreneurship.

The private sector accounts for roughly four-fifths of China’s employment, making its stability and growth crucial for sustaining household incomes and boosting long-term consumption, Liu Liang, deputy director of the Institute of Applied Economics at the SASS, said during the same meeting.

Since last year, China has introduced several policies to support private sector development, Liu noted. These measures have led to improvements, including a rebound in private fixed-asset investment, he added.

After relying on consumption vouchers for short-term stimulus in past years, China has now shifted its pro-consumption policies toward a more sustainable approach. By adjusting the tax structure and increasing household incomes, the country aims to create lasting conditions for consumption growth, Liu concluded.

Editors: Dou Shicong, Emmi Laine