Beyond short-term stimulus

New plan for consumption-led growth strategy, with explicit targets and concrete institutional reforms, can help unlock China’s consumer potential

Economic data for the first half of 2026, released by China’s National Bureau of Statistics on July 15, show that GDP grew by a hard-won 4.7 percent — a remarkable achievement against a challenging global and domestic backdrop — yet retail sales rose only 1.3 percent to 24.9 trillion yuan ($3.6 trillion), pointing to still weak consumption spending. The per‑capita picture is even more telling: Disposable income rose 5.2 percent year-on-year, while consumption spending edged up just 3.7 percent over the same period — a gap that underscored persistent consumer caution. This caution tempers an otherwise impressive consumption story. In 2025, retail sales topped 50.1 trillion yuan, cementing China as the world’s second‑largest goods market and the top online retail market. Household consumption as a share of GDP rose from 38 percent to 40 percent, though still below the global average of 57 percent and the 53 percent average for middle-income economies, according to the World Development Indicators. Narrowing that gap is a key policy goal, yet the first-half-year figures show income gains are not being fully converted into spending, raising the question of how to build durable consumption momentum.

Against this long-running backdrop, the authorities have placed household consumption at the top of the economic policy agenda, and recently unveiled the first national plan devoted exclusively to consumption — the Expanding Consumption Plan for the 15th Five-Year Plan (2026-30) Period. Its targets include substantially increasing household consumption’s share of GDP and raising total retail sales to around 60 trillion yuan by 2030. The initiative underscores a clear commitment to harnessing China’s “super-sized” consumption market, a strategic pivot to domestic demand that has become increasingly urgent amid the persistent deglobalization headwinds. Yet translating these ambitions into sustained gains in household spending will be difficult, given the formidable structural obstacles ahead.

What, then, explains the hesitancy of Chinese consumers? Three intertwined factors merit examining. The first is income distribution, which has grown more skewed even as overall incomes have risen. Consider, for instance, the gap between the median and the mean, a standard gauge of inequality, which has widened steadily: Between 2020 and the first half of 2026, the median-to-mean ratio of disposable income fell from 85.6 percent to 82.8 percent, implying that a disproportionate share of income gains has gone to higher earners while the typical households have fallen further behind. The Gini coefficient tells a similar story. Although it has edged down modestly in recent years, it still stood at 0.465 in 2024, well above the widely accepted warning threshold of 0.4. That matters for consumption, because lower- and middle-income households tend to have a higher marginal propensity to spend. Put simply, when income gains flow disproportionately to the top, most households lack the means to turn broader economic growth into strong consumer demand.

A second factor lies on the asset side: the housing market, once a source of perceived wealth, has now turned into a net drag on household balance sheets. For millions of Chinese households, property is not just shelter but the single largest component of household wealth. Despite recent local measures to stabilize the market, the broader adjustment is far from over. As of June 2026, new home prices in 70 representative cities fell by an average of 3.5 percent from a year earlier, while resale prices dropped 5.6 percent.

This prolonged downturn has weakened household balance sheets and dampened consumer sentiment, creating a drag on consumption that short-term policy support can only partly offset. When families watch the value of their primary asset shrink, the natural response is to save more and spend less. And while policy measures — from easing purchase restrictions and raising mortgage loan ceilings to expanding affordable housing supply — have been rolled out across cities, household expectations of asset depreciation persist in the short run.

Precautionary saving adds another layer of complexity. China’s population is aging rapidly: As of 2025, those aged 65 and above reached 224 million, or 15.9 percent of the population — up from 13.5 percent in 2020. With more retirees drawing pensions and fewer workers contributing, pressure on public finances is mounting, raising doubts about the adequacy of future benefits. The social safety net, while broad, remains thin — a gap especially acute for the over 200 million workers in flexible or gig employment, whose access to formal social security is often patchy. The basic pension and medical insurance systems cover the vast majority of residents, while out-of-pocket health spending still represents a notable share — meaning a serious illness can still impose a considerable financial burden on a typical household. Added to this are regional and urban-rural disparities in pension provision, which further strengthen the rationale for households to hold precautionary savings. By the end of 2025, household deposits had reached 167 trillion yuan, up 9.7 percent year-on-year — a clear sign that households prefer to park their money in bank deposits, safe and liquid and ready for unexpected needs. This is not a preference for thrift; it is a rational response to genuine uncertainty. This massive pool of household savings holds substantial latent consumption potential to unlock. But until the social safety net offers not just coverage but credible protection, the precautionary motive will continue to weigh on consumption.

Addressing these concerns is precisely what the Expanding Consumption Plan aims to do for the next five-year period. Its emphasis on “enhancing consumption capacity” — covering income growth and distribution, real estate market development and social security — signals that consumption is not a tap that can simply be turned on. For the income dimension, this means improving primary distribution mechanisms, ensuring that workers’ earnings are better protected and that household income rises in tandem with economic growth. For the housing drag, it emphasizes meeting housing demand by increasing the supply of affordable and improved housing, while promoting a stable and healthy property market. And for the precautionary motive, the plan’s focus on progressively raising basic pensions and health insurance subsidies, expanding coverage for flexible workers, and strengthening the social safety net goes to the heart of the problem: giving households confidence that financial shocks from illness, old age or job loss will not wipe them out.

To summarize, short-term stimulus measures, including shopping vouchers, may provide temporary support, but they cannot overcome these constraints by themselves. The structural obstacles identified above — income disparities, housing-induced balance sheet strains and deep-seated precautionary motives — have been long in the making and will not be undone by a single policy document. Yet the very act of setting out a consumption-led growth strategy, with explicit targets and concrete institutional reforms, marks a meaningful shift. If that course is sustained — rebalancing income distribution, stabilizing the property market, and deepening the social safety net — the gains could be substantial. Household spending would become a more reliable engine of economic growth, making growth more sustainable and better balanced. The policy direction is set, but unlocking China’s vast domestic market potential will depend on consistent implementation, adequate fiscal capacity and restored household confidence.

The author is a researcher at the Institute of Economics at the Chinese Academy of Social Sciences.

The author contributed this article to China Watch, a think tank powered by China Daily. The views do not necessarily reflect those of China Daily.

Contact the editor at editor@chinawatch.cn.