As China doubles down on expanding domestic demand, the next wave of consumption growth is being driven by artificial intelligence-powered retail and a rapid diversification of service sectors, analysts and executives said.

Final consumption expenditure contributed 52 percent to China's economic growth in 2025, cementing its role as the primary engine of the world's second-largest economy, said Alfred Yin, consumer sector leader at EY Greater China.

"But the question for 2026 and beyond is not just how much people spend, but where and how they spend," Yin told China Daily.

For the retail sector, Yin noted that AI is shifting from an efficiency tool to foundational infrastructure, rewriting the basic logic of how consumers discover products and how brands compete for their attention.

According to a report on changing consumer behavior released in October by US-based media service company Omnicom Media Group, 65 percent of consumers now expect to find the answers they are looking for in AI overviews.

"AI agents are increasingly taking over consumer decision-making processes, from discovery to comparison to purchase," Yin said, adding that early adopters of AI-driven interaction channels are reporting conversion rates that significantly outperform traditional pathways.

Earlier this month, China unveiled a set of guidelines designed to foster a more thriving e-commerce ecosystem, with a strong emphasis on integrating AI into online retail platforms to optimize consumer experiences and reduce operating costs.

According to e-commerce platform Taobao, AI tools helped merchants reduce workloads by an average of 30 percent during its last "Double 11" shopping spree, which lasts around a month each year until mid-November. AI-generated product images boosted click-through rates by 10 percent, and AI-powered coupon distribution improved conversion rates by 81 percent.

"As AI has become an important part of the consumer shopping journey, businesses need to deploy AI agent-driven marketing strategies promptly to capitalize on this critical growth opportunity," said Diarmuid Gill, chief technology officer of global commerce media company Criteo.

Consulting firm PwC estimates that China's AI-driven e-commerce market will exceed 800 billion yuan ($117 billion) in 2026, with segments such as smart customer service and personalized recommendations growing at over 30 percent annually.

The explosion of services consumption is also emerging as a key force driving consumption from sheer scale expansion toward structural optimization, Yin said.

"The era of simply filling shopping carts with mass-produced goods is giving way to an era of personalized experiences, emotional resonance and services-driven satisfaction," Yin added.

In early April, China rolled out guidelines to boost services consumption in both established sectors such as eldercare and child care, as well as emerging growth areas including inbound consumption and live performances.