As China’s leaders hold their annual retreat at the seaside resort of Beidaihe early this month, investors hope one of the country’s most vexing economic problems — how to get households to spend more — will be high on their agenda.

Beijing has announced a swath of incremental measures this year to awaken the country’s reluctant consumers. The latest came on the weekend, when the State Council, or cabinet, issued a 20-step formula of support, covering electronic sports and nursing care to financing for small service businesses and the development of cruise ships.

Experts’ calls are mounting for China to stimulate consumption, especially after economic growth abruptly slowed in the second quarter, with weak household spending weighing on otherwise strong results from the industrial sector.

China’s latest trade figures, released on Wednesday, showed export growth slowed slightly in dollar terms in July to 7 per cent year on year, while imports reversed declines to expand 7.2 per cent on industry demand for overseas machinery and technology components to support rising investment.

“Exports are doing OK, manufacturing investment is still ticking along, infrastructure spending is still slightly positive,” said Fred Neumann, chief Asia economist at HSBC. “It’s consumption that is the weak link here.”

China’s mid-year economic wobbles have raised questions about whether the soft demand is cyclical — with household balance sheets still recovering from the implosion of the property bubble and the pandemic — or whether the problems run deeper.

China is transitioning from an “easy to heat, difficult to cool” economy to an “easy to cool, difficult to heat” one, said Yiping Huang, a prominent economist and adviser to the central bank, in a widely cited speech published online last week. “Economic development has entered a new stage where total demand . . . is no longer as robust as before”.

At one of the Chinese Communist party’s most important five-year policy meetings last month, President Xi Jinping reaffirmed his priority of higher productivity, largely through investment in high-tech industry and innovation, to achieve his goal of doubling per capita income by 2035.

While few dispute the need for higher productivity, some economists worry that Xi’s emphasis on investment in manufacturing at a moment of weak household demand is creating overcapacity at factories and distorting labour markets.

Higher exports are also increasing tensions with trade partners such as the US and EU, which have slapped tariffs on Chinese electric vehicles as well as other actions against Chinese goods.

The trend has pushed China’s economy into its longest-running disinflationary cycle since the 1990s. Nominal GDP growth in the second quarter, which reflects the value of goods and services produced, fell below 4 per cent for the second time since the pandemic ended.

“For several quarters, nominal GDP growth in China has been below nominal GDP growth in the US — something which, in my 20 years of doing this, I never thought I would see,” said Andrew Batson, China research director at Gavekal at a seminar in Beijing.

In the near-term, economists said that if China implemented already announced stimulus plans, it should be able to meet its annual growth target of 5 per cent for 2024.

Local authorities consumed only about 40 per cent of this year’s Rmb3.9tn ($547bn) full-year quota of local government special-purpose bonds, which are used to supplement spending, between January and mid-July, compared with more than 60 per cent over the same period in 2023, according to Lisheng Wang, China economist at Goldman Sachs.

Investors were also watching fiscal stimulus to boost consumption, such as a programme to help households upgrade their appliances, said Si Fu, Goldman Sachs China portfolio strategist. But they were cautious about the impact of the upcoming US presidential election, which could lead to more trade protectionism if Donald Trump is re-elected, as well as signs of a softening US economy, which could eat into external demand.

“We are seeing more attention on consumption but property is still a focus,” Fu said. “Exports are a bright spot but people have begun to consider the potential risk from tariffs.”

Analysts do not expect Beijing to launch any large unanticipated stimulus, however. China’s central bank has been easing monetary policy but has been constrained by the wide interest rate spread with the US, which could lead to capital outflows. If the Federal Reserve cuts rates, that could give China room to cut further.

Academics believe that more fundamental structural changes are required if China is to unlock the true potential spending power of its households.

In his speech, PBoC adviser Huang warned that a Japan-style deflation trap was a risk for China. He advocated concentrating on achieving 2-3 per cent inflation, changing the policy of “heavy on investment, light on consumption” and “directly giving money to the people” — a radical idea when Xi has warned against European-style “welfarism”.

Michael Pettis, senior fellow at the Carnegie Endowment for International Peace, said that without policies that lifted households’ share of China’s economy, efforts aimed at subsidising leisure industries or consumer goods would not work.

“After years of supply-side ‘consumption upgrades’, consumption in China remains as weak as ever,” he wrote on social media platform X.

However, while cadres might voice such warnings at Beidaihe, few expect Xi to radically change course and divert funds away from his strategy of turning China into a self-reliant technological superpower.

“GDP growth is below what it could be but . . . GDP growth is not the be all and end all,” said Gavekal’s Batson, describing the government’s thinking.

“The parts of the economy that the government favours, in terms of this longer-term strategy, are doing pretty well,” he added. “Exports keep hitting new highs. Manufacturing investment’s expanding, the technical capabilities of Chinese firms are improving . . . So you can make a case really for what we might call ‘strategic patience’.”

The bigger question, he said, was whether the context that made this strategy possible — benign international trade that has soaked up China’s exports — could continue indefinitely. As recent market turmoil and questions over the strength of the US economy have shown, favourable conditions can quickly fade.

Additional reporting by Wenjie Ding in Beijing