Regional AI Development and Household consumption in China: Confidence-Conditioned, Category-Level, and Heterogeneous Effects

Abstract

China`s consumer market is enormous and evolving fast: in 2024, retail sales of consumer goods totaled ¥48.79 trillion, with online physical goods making up 26.8% of all retail purchases. At the same time, AI capacity has scaled rapidly—China accounted for about 61% of the world`s granted AI patents over 2010–2022, installed 276,288 industrial robots in 2023 alone, and drew roughly $9.3 billion in private AI investment in 2024. Yet the micro-behavioral channel from regional AI development to household spending remains under-examined, particularly across provinces with differing urbanization and fiscal capacity. Against this backdrop, this study uses data of 31 provinces of China over the period 2001-2022 and examines the impact of regional AI development on consumer spending behavior. Employing a two-way fixed effects regression method, the findings reveal that regional AI development positively influences consumer spending. A series of robustness tests also verifies these findings. The study also confirms the moderating effect of consumer confidence on this relationship. AI development significantly impacts consumption categories such as clothing, education, culture and entertainment, residence, healthcare, and household goods and services. The research highlights heterogeneous effects, showing that provinces with higher urbanization, industrialization, fiscal expenditures, and regional development benefit more from AI-driven consumer spending growth. These findings present numerous implications for consumers, policymakers and regional governments to adopt AI technologies, frame processes and policies to expand regional AI development across all areas, including less developed regions, to enhance consumer expenditure.