Ensuring Smooth Economic Flows to Boost Household Consumption

Consumption is a cornerstone of the national economy. At its fourth plenary session held in October 2025, the 20th CPC Central Committee made delivering a notable increase in household consumption as a share of GDP one of the objectives for the 15th Five-Year Plan period (2026-2030). This reflects both profound strategic considerations and a keen responsiveness to realities. China’s household consumption rate in 2025 was 40%, notably lower than that in many other countries. How should we view the issue of household consumption rate? This has sparked widespread debate in China and abroad, not without some misunderstandings. To properly assess the issue, we cannot simply compare headline figures or discuss consumption in isolation. Instead, we must assess it in the broader context of the evolving stages of development and the overall operation of the national economy. Therefore, by fully understanding and implementing the decisions and plans of the CPC Central Committee, we need to take concrete steps to boost people’s purchasing power and tap into consumption potential. In doing so, consumption can play a greater role in expanding domestic demand, upgrading supply, and improving people’s wellbeing.

One view holds that China’s relatively low household consumption rate points to a low standard of living. Reasonable as it may sound, it misses the mark; the consumption rate does not directly equate to living standards. Rather, it is a structural indicator, measuring household consumption as a share of GDP. Household consumption expenditure—particularly per-capita consumption expenditure—is instead the economic indicator that reflects the actual value of goods and services purchased by households. These two concepts should not be conflated. According to World Bank data, while China’s household consumption rate ranked outside the top 100 globally in 2024, its per capita consumption expenditure was substantially higher than that in many middle-income economies. Such a striking gap shows why the consumption rate is not a reliable measure of living standards. A better yardstick is the Human Development Index (HDI), which captures development outcomes more comprehensively. Since the HDI was compiled and put to use in 1990, China stands out as the only country to have climbed from the low to the high human development category. It is a particularly telling measure of the dramatic progress in the living standards of the Chinese people.

Looking globally, one direct reason behind China’s low household consumption rate is price differences. According to statistics, prices for essential public services in China are far lower than those in the United States and other developed countries. In 2021, prices for education, healthcare, and housing services in China stood at only 54.2%, 30.7%, and 32.2% of those in the United States, respectively. As a result, household consumption expenditure is significantly underestimated in the statistics. Such a gap is related not only to the stage of development, but also to the model of public service provision and pricing mechanisms. In the United States and other developed countries, healthcare, higher education, and housing are more heavily market-oriented. High costs for labor, insurance, and land also tend to drive up market prices. In China, by contrast, compulsory education, basic medical care, affordable housing, and utilities are largely treated as public goods. Thanks to fiscal investment, regulated pricing and broadly accessible provision, the monetary costs of essential public services remain low and affordable for ordinary people. Besides, a host of positive outcomes from public services and social governance, ranging from the high-speed rail network to the wide use of mobile payments and steady improvement in public safety, have vastly improved people’s quality of life. Yet their contributions are not fully reflected in household expenditure data. In essence, China has used systematic policy arrangements to ensure that the benefits of development are shared more widely and evenly among its people. This is a concrete expression of the people-centered philosophy of development, yet this reality is not fully captured by statistics. As counterevidence, many low-income countries have high consumption rates but evidently low living standards. Accordingly, to understand the household consumption rate, we must first move beyond simplistic comparisons with other countries, and let go of “number anxiety” and “indicator obsession” that ignore the conditions on the ground.

If the household consumption rate does not directly reflect living standards, then what does it actually reveal? In national accounts, the consumption rate reveals the structural relationship between consumption, investment, and net exports. It is a useful indicator for assessing a country’s development stage, demand composition, and economic dynamics, and, to a certain extent, reflects characteristics of its economic development model. In the high-growth period after reform and opening up that began in 1978, China relied on high savings and high investment, and used its accession to the WTO in 2001 as an opportunity to advance its industrialization and urbanization in a remarkably short time. During this period, investment and exports continued to grow rapidly. Even though both per capita and aggregate household consumption kept rising, the consumption rate remained inevitably low. From 1978 to 2025, household consumption expenditure rose by a factor of 319, while gross capital formation surged by a factor of 395. Because investment expanded faster than consumption, the household consumption rate at one point fell from its 1981 peak of 53.3% to a trough of 34.9% by 2010. Seen in this light, a relatively low household consumption rate was a profound reflection of the inherent features of the catch-up growth model. Under these specific conditions, it was an inevitable outcome of resource allocation and has a historical rationale. Further, from a developmental perspective, the rapid accumulation of physical capital, the maturing industrial base, and the increasingly well-developed infrastructure network may not have been directly translated into immediate spending. In practice, however, they have laid a solid foundation for improving people’s wellbeing and upgrading consumption, both at present and in the future. World Bank data for 2024 put the household consumption rate at 82% for low-income economies, 73.4% for lower-middle-income ones, 48.8% for upper-middle-income ones, and 58.6% for high-income ones. The fact is that many countries and regions with high consumption rates actually suffer the practical problems of low savings and limited investment capacity rather than enjoying superior welfare or a healthier economic structure.

However, what was once reasonable may not be so in the long run. As China’s economy shifts to a stage of high-quality development, the internal and external conditions that previously supported large-scale investment and substantial exports are undergoing profound changes. The marginal returns on investment in traditional infrastructure and industrial sectors are declining, and the scope for sustaining growth through a high investment rate has narrowed considerably. Slower global economic growth, rising trade protectionism, and heightened geopolitical risks have introduced greater uncertainty into export growth. More fundamentally, the sustained expansion of the economy inevitably brings about structural transformation, necessitating a shift from a growth model driven primarily by investment and exports to one led by domestic demand and driven by consumption. The current relatively low household consumption rate is no longer an expected or reasonable outcome of a particular stage, but rather a signal of a mismatch between the development model and the development stage. With the supporting conditions for the traditional growth model weakening, it is imperative to establish a new model. Greater emphasis must therefore be placed on the foundational role of consumption so that it can provide a relatively stable and more sustainable source of demand in support of healthy economic development. Only by grasping this historical logic can we fully understand the profound implications and strategic rationale for raising the household consumption rate.

Therefore, raising the household consumption rate at the current stage hinges on optimizing the demand structure, ensuring smooth economic flows, and accelerating the shift toward a new growth model led by domestic demand, driven by consumption, and sustained by self-generating momentum. It should not be pursued through short-term stimulus policies such as “helicopter money” to inflate headline figures, and certainly not reduced to rigid performance targets. Changes in the household consumption rate are a function of household consumption growth relative to GDP growth. When investment or exports pick up quickly and push GDP to grow faster than household consumption, the rate goes down. When the reverse happens, the rate goes up. It is pointless to curb investment or foreign trade just to lift the ratio. Rather, it is essential to foster a higher-standard virtuous cycle of investment, trade, and consumption. Besides, household consumption is a slow-moving variable. Short-term subsidies may inflate figures for a while, but they tend to boost current spending at the expense of later consumption. Once the supporting policy is rolled back, growth may slow, making it hard to initiate a fundamental change in the growth model.

Promoting a reasonable increase in the household consumption rate depends on smooth and efficient flows in the national economy. Investment generates employment, employment generates income, income translates into consumption, and consumption, in turn, enables investment to generate returns. Each link in such a cycle is interconnected and indispensable. In practice, however, this process does not happen automatically, and there are still quite a few bottlenecks and obstacles along the way. For example, investment does not always translate effectively into employment and household income. Some regions engage in undifferentiated competition in similar industries and projects, while some companies maintain competitiveness mainly by cutting costs and lowering prices, which constrains growth in both wage income and business income. Another example lies in the distribution mechanism. At the stage of primary distribution, the mechanisms for wage determination, reasonable wage growth, and wage payment remain imperfect, and the share of wages in primary distribution has yet to increase. At the redistribution stage, there is still considerable room to improve tax, social security, and transfer payment policies. At the same time, essential spending on high-quality education, healthcare, and eldercare remains high, which leads to a strong preference for precautionary savings and dampens the willingness to consume. A further example concerns the supply-demand mismatch in translating household income to consumption. On the one hand, consumer demand is shifting rapidly toward development-oriented and quality-oriented consumption, and the consumption structure is moving toward a better balance between goods and services. On the other hand, the supply of high-quality, personalized consumer goods and services remains insufficient. In other words, people are willing to spend but cannot find what they want. Taken together, the failure of any link in this chain will hinder efforts to raise the household consumption rate.

In summary, raising the household consumption rate represents a profound transformation in economic governance. It is a systematic endeavor that has a bearing on the economic structure, distribution patterns, and market mechanisms. In recent years, the CPC Central Committee has made systematic arrangements to stimulate household consumption as part of its focus on expanding domestic demand. These include trade-in programs for consumer goods, targeted initiatives to boost spending, and a range of coordinated measures to increase employment, raise incomes, and stabilize expectations. Efforts have also been made to strengthen the interplay between consumption and investment, and to better align investment in physical assets with investment in human capital. These efforts have gradually produced tangible results. In 2025, the household consumption rate reached 40%, up by 5.1 percentage points from 2010, sustaining an overall upward trajectory. It should be noted, however, that changing the economic development model is a long-term process. It is essential to remain patient and determined, keep in mind the overall picture of the national economy, smooth flows in the economy through reform, expand scope through structural adjustment, and stabilize expectations through institutional improvements. By removing bottlenecks and obstacles along the entire consumption chain, we can give full play to the fundamental role of consumption and inject sustained and robust self-generating momentum into high-quality development.

We should give higher priority to boosting household consumption and systematically address the multiple constraints that hold some residents back, such as insufficient disposable income, weak financial security, and a lack of appealing spending options. To this end, we should make efforts to increase the share of household income in the national income distribution and raise the share of wages in primary distribution. We also need to improve mechanisms for distributing income according to the contributions of production factors, such as labor, capital, technology, and data. At the same time, we should reinforce the regulatory function of redistribution through taxation and transfer payments and expand the middle-income group. We will extend the coverage of social insurance to bring more people in new forms of employment and flexible employment into the social security system. We will make steady progress in ensuring equal access to basic public services, with efforts focused on alleviating the burden of essential spending in areas such as education, healthcare, and eldercare. This will continue to allay the concerns that discourage household consumption. Aligning with the trend of upgrading household consumption, we will make systematic efforts to remove access barriers and implicit restrictions in eldercare, child care, and health, encourage the participation of social forces, and expand the supply of high-quality services.

We should commit to unblocking the transmission channels of flows in the economy. By expanding effective investment and promoting high-level opening up, we will drive growth, create jobs, stabilize income expectations, and boost public confidence, thereby facilitating the upgrading and expansion of consumption. Increasing investment, in the short term, may reduce the household consumption rate. However, when investment is aligned with the requirements of high-quality development, and focuses on driving employment and improving people’s wellbeing, it will eventually strengthen households’ capacity and willingness to consume. We should invest both in physical assets and people, and stabilize investment in traditional areas, while expanding investment in key areas, such as upgrading traditional industries, fostering emerging and future industries, and expanding and improving the service sector. Meanwhile, we should increase the supply of public services that are inclusive, meet essential needs, and provide a cushion for people most in need. We should further develop a unified national market, resolutely eliminate local protectionism and market segmentation, and abolish various regulations and practices that impede a unified market and fair competition. We should thoroughly address rat race competition and encourage enterprises to focus on quality improvement, technological innovation, and brand building, so that they can forge new competitive edges through fair competition. We should also coordinate development and security, while preventing and mitigating risks in key areas in a prudent and systematic way. These efforts will help households to develop more stable expectations, boost market confidence, and translate a continuously improving institutional environment into a solid foundation for unleashing consumption potential.

This article was written by Xu Qiyuan.

(Originally appeared in Qiushi Journal, Chinese edition, No. 14, 2026)