Strengthening social security to unlock consumption potential

A family may be able to afford a new refrigerator, a weekend trip or a meal out, yet hesitate to spend. The prospect of an aging parent needing care, a serious illness bringing hefty medical bills or rising childcare costs can make even routine purchases feel risky.

Social security can help ease that uncertainty by strengthening low-income households' purchasing power and protecting families against major life risks, boosting consumer confidence and economic growth.

China has made remarkable progress in building its social security system since reform and opening-up, extending coverage, introducing new programs and enhancing benefits. By the end of September 2026, 1.079 billion people were enrolled in basic pension insurance, 251 million in unemployment insurance and 327 million in work injury insurance. But gaps remain, leaving some groups more vulnerable to life's major risks than others. Closing these gaps would not only strengthen public welfare but could also unlock consumption that households are holding back out of caution.

Consider retirement, for instance. For people approaching old age, the question is not simply how much they can spend now but also how they will pay for daily necessities after they stop working.

China's basic pension system offers different arrangements for employees and other residents. While employee pensions generally provide more substantial support, many older residents, particularly older rural residents, receive meager benefits.

For many older people covered by the urban and rural residents' pension scheme, pension benefits are insufficient even to meet basic living needs, limiting both their purchasing power and their confidence to spend. Raising that floor is also among the most efficient ways to generate demand. Older rural residents with limited incomes are likely to spend a substantial share of any additional pension income on everyday needs, including food, medicine and household goods.

Economist Liu Shijin has estimated that an extra 1 trillion yuan ($150 billion) of rural pension spending could raise GDP by about 1.2 trillion yuan. Pension spending deserves greater attention alongside industrial policies as a means of supporting domestic demand.

Similarly, the fear of medical bills constrains spending, affecting households at any stage of life. China has achieved broad basic medical insurance coverage. Enrollment holds at around 95 percent of the population, and the government subsidy for the scheme covering rural and non-working urban residents rises by 24 yuan to at least 724 yuan per person in 2026. Even so, families still face substantial out-of-pocket expenses when serious illness strikes.

For lower-income households, the financial strain may extend far beyond the immediate medical emergency.

To address this concern, China should consider capping out-of-pocket payments for essential medical services, with clear definitions and safeguards for the sustainability of the system. The 15th Five-Year Plan for Universal Medical Security, issued in August, keeps fund payments at about 80 percent of in-scope inpatient costs for employees and 70 percent for residents. Higher reimbursement rates may still leave families with hefty medical bills. An annual cap on out-of-pocket costs for essential care would offer greater financial certainty.

China should also steadily integrate the basic medical insurance schemes for employees and for urban and rural residents, gradually establishing a unified basic medical insurance system covering the entire population.

For younger families, financial calculations often begin before a child is even born. The costs of childbirth, childcare and education can shape household budgets for years, leaving little room for other spending. While financial support alone won't reverse declining fertility rates, families should not have to bear these costs without adequate social support.

China has already taken a practical step in improving access to maternity benefits. In early 2026, the country completed the nationwide rollout of direct maternity allowance payments to eligible individuals, rather than routing the funds through employers. In the first seven months of 2026, maternity allowance spending reached 60.78 billion yuan, according to the National Healthcare Security Administration.

Further reform should ensure equal benefits for maternity-related medical expenses under the employee and resident insurance schemes, establishing a maternity allowance scheme covering all women who give birth, and expanding affordable childcare options. The National Healthcare Security Administration has said that efforts are under way to expand maternity insurance participation among eligible flexible workers, migrant workers and workers in new forms of employment.

Extending access to these groups would help make family support more consistent as employment patterns change. A more balanced distribution of public education resources and improved teaching arrangements during compulsory education would reduce the long-term pressures on young and middle-aged families. In addition, parents should receive support that gives them more time to care for their children and helps them balance work and family responsibilities.

The same principle applies to the evolving labor market. As technology and the organization of production have changed, the number of workers in informal employment and their share of the workforce have grown. Employee social insurance schemes are still largely designed for workers in formal employment with clearly defined employment relationships. As a result, many workers in informal employment, including those in newer forms of work, face barriers to joining these schemes.

For someone whose income fluctuates from month to month, uncertainty about future benefits can make saving seem more urgent than spending. Making employee social insurance more inclusive, so that protection extends to workers across different forms of employment, would help give all workers greater certainty about their future protection and strengthen their confidence to spend.

As China ages and households shrink, caring for older relatives who can no longer live independently forces many families to juggle paid work and demanding caregiving responsibilities. The financial and emotional strain affects not only the older person's quality of life, but also the working-age family's ability to earn and spend.

Long-term care insurance can help distribute this burden more broadly. In March 2026, China issued national guidelines to accelerate the establishment of long-term care insurance, with the goal of achieving basic nationwide coverage by the end of 2028.

By September, 121 pooling areas had established the system, and 22 provinces had issued implementation plans.

These measures alone cannot guarantee stronger consumption. Household income, job prospects and the availability of goods and services also matter, while expanding social security requires sustainable funding. Reform must balance adequate protection with sound funding and long-term sustainability.

The purpose of social security is not to persuade people to spend money they cannot afford to lose. It is to help ensure that they do not feel compelled to save every available yuan against the next illness, the next stage of family life or the next unexpected bill. When people have greater confidence in their future, they can spend with greater peace of mind — and economic growth can rest on a firmer foundation of household well-being.

The author is the vice-president of the China Association of Social Security and a professor of the School of Public Affairs at Zhejiang University.

The views don't necessarily reflect those of China Daily.

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