Growing up in the Chinese countryside in the 1990s, Cathy Guo couldn’t afford to buy anything American, until she got to college. It was a Kentucky Fried Chicken meal.

“I had a part-time job then. I remember how good the KFC sundae tasted, but then immediately regretted it because I worked hours just to afford that meal,” Guo said.

She upgraded her consumption habits to iPhones after entering the workforce in 2010, when trade between the U.S. and China was booming.

“I used to buy iPhones. I’ve had the iPhone 4, 5, 6 and 7.”

However, the U.S. buys far more from China than the other way around. That trade deficit was $295 billion last year. President Donald Trump has called the trade relationship unfair and said he wants Chinese consumers to buy more. That would increase American exports to China and perhaps mean that more goods produced in China would be purchased there, rather than exported to the U.S. But getting Chinese consumers to spend more is no easy task.

When Guo became a mom, she pivoted her spending, focusing on her child. She bought Dutch milk powder, higher-quality meat at Sam’s Club and even a trip to Shanghai Disneyland, where ticket prices alone for a family of three would run about $250.

Then, Guo lost her office job in Shanghai.

“I said to my daughter, ‘Mommy doesn’t have a job now. Can we spend less? If we go to the movie theater, how about we don’t have a big meal afterwards and just eat noodles?’” she said.

High unemployment, trade tensions and the property crisis have made people spend more cautiously.

Consumption contributed 45% to China’s economic growth last year, down from 58% just before the pandemic. Domestic demand continues to be weak. In the first two months of this year, China’s imports took an unexpected 8.4% tumble. In February, the consumer price index decreased 0.7% from a year earlier, signaling deflation.

Officials have subsidized so-called cash-for-clunker programs for people to trade in and upgrade anything from cars and fridges to cellphones. 

“What they’ve done so far in terms of boosting domestic demand is always seen as underwhelming by market participants,” said Kelvin Lam, senior China economist at Pantheon Macroeconomics in London.

However, he said investors shouldn’t be surprised by that if they pay attention to statements from China’s leader, Xi Jinping.

“He prioritizes China development by putting all the resources in narrowing the technology gap between China and the U.S.,” Lam said.

So far, Chinese officials have resisted providing cash handouts to consumers. Even during the COVID pandemic restrictions, the government gave tax breaks to companies, allowed employers to defer social security payments and encouraged government firms to cut rents for individual business tenants.

Chinese officials have long preferred to help companies instead of consumers, according to the China director for the Eurasia Group, Wang Dan.

“They believe that companies can provide [a] long-term, steady stream of income, and if you subsidize consumers, they tend to become lazy. [Officials] enjoy using this phrase: ‘We’re not going to raise lazy Chinese,’” Wang said.

However, some economists say Chinese leaders need to take a comprehensive approach to boosting consumption, such as stabilizing the housing market, increasing incomes and strengthening the social safety net.

Consumption is seen as key to China’s economic success because traditional economic drivers, such as infrastructure investment, is near saturation. Most Chinese cities have enough roads and high-speed rail lines.

Another pillar of the Chinese economy, exports, is under increasing pressure. The U.S. imposed new tariffs on all Chinese exports this month, bringing the punitive tariffs to 20% so far this year. The European Union has also imposed tariffs, albeit lower than the U.S. and Canada’s, on Chinese electric vehicles. Chinese manufacturers have been accused of overproducing and getting rid of excess inventory on global markets at low prices and wiping out local competition.

“The Chinese are saying that’s not true, but from the data, it is true,” Lam said. “So they have been exporting deflation to the rest of the world in the last year or so.”

Despite the challenges, China set its economic growth target for 2025 at “around 5%.”

Premier Li Qiang said in a government report this month that domestic demand should be a key driver of growth. “We will vigorously boost consumption and investment returns and stimulate domestic demand across the board,” Li said in Beijing.

However, there were no details other than doubling subsidies for the existing cash-for-clunkers program to $41 billion.

Boosting consumption is all the more difficult because Chinese consumers tend to save a lot for education, housing, retirement and health care. By some estimates China’s citizens save over 30% of disposable income.

“Basically, China has got very limited social safety net,” Lam said.

As for newly out of work Guo, she and her family now rely solely on her husband’s salary. “My husband used to save about 70% of his salary, but now that I don’t have a job, we spend almost all of it,” she said.

The money goes mainly to things like their mortgage, car loan and children’s education, and less to buying products, whether Chinese or American. 

Additional research by Charles Zhang.