Many experts see China’s economy as constrained because of a weak social safety net, especially the retirement system, resulting in anemic domestic consumption spending. This view is out of date. Recent data indicate that China has expanded many parts of its social safety net and that consumption spending has accelerated. Social expenditures in China have more than doubled as a share of GDP since 2010 and are on par with Mexico and Turkey. But given China’s aging population, safety net spending and domestic consumption spending will need to expand further to put China’s economy on a more sustainable path. The latest data should clear the cobwebs of misunderstanding that have led to both complacency and unnecessary alarm about China’s economic prospects among observers in the United States and other countries. China’s government is hardly unaware of the importance of stronger household consumption and has announced policies to increase consumer spending, including more generous pension benefits for farmers and rural migrant workers. If these initiatives are implemented, the growth of household consumption is likely to accelerate.
Introduction
A widespread view of the impediments to economic growth in China, an assessment embraced by many economists, holds that China’s social safety net, especially its retirement system, is chronically weak, resulting in stagnating domestic spending on consumption.1 This consensus is out of date. Recent data indicate that China has greatly expanded many parts of its social safety net. As a consequence, consumption spending has accelerated. However, safety net spending and domestic consumption spending should expand further to put China’s economy on a more sustainable path. This Policy Brief examines and analyzes the data to clear the cobwebs of misunderstanding that have led to both complacency and unnecessary alarm about China’s economic prospects among observers in the United States and other countries.
Many of the indices coming out of China are impressive. Social expenditures have more than doubled as a share of GDP since 2010 and are now roughly on par with other large upper-middle-income countries such as Mexico and Turkey. This increase has contributed to a decline in the household saving rate that in turn has fueled a gradual but significant increase in household consumption as a share of GDP since its nadir in 2010. By 2024 this share rose 5 percentage points, reaching 40 percent of GDP. But that level still lagged behind the 48 percent average share of other upper-middle-income countries. The increase in the household consumption share of GDP since 2010 is remarkable given the housing bust starting in 2021, which reduced household wealth, as well as Chinese government surveys that have indicated weak consumer confidence since the COVID-19 pandemic of 2020–21.
China’s government is hardly unaware of the importance of stronger household consumption. Most recently, in October the Central Committee of the Chinese Communist Party called for a “notable increase in consumer spending as a share of GDP” during the 15th Five-Year Plan (2026–30). It called for increased pension benefits for farmers and rural migrant workers and expanded coverage of unemployment and workers’ compensation insurance, among other measures (Central Committee of the Communist Party of China 2025). If implemented these measures would improve upon recent proconsumption measures, including rebates on the purchase of electric vehicles and financial incentives to replace and upgrade consumer electronics and appliances. These measures may increase consumption expenditure but only on a transitory basis.
China, however, faces challenges in sustaining the trends of increasing social expenditure and rising household consumption. Financing existing pension benefits is already precarious. Given its aging population, that problem will only become more challenging. It will also be costly to expand coverage of the unemployment and workers’ compensation components of the social insurance system beyond their current very narrow scope. Moreover, while China has successfully scaled up its medical insurance programs to include farmers and workers in a large informal urban labor market, the benefits for this group remain modest.
Critics of China’s social safety net are legion but offer different perspectives. For years some have argued that a weak social safety net contributes to high household savings and low household consumption. These studies recommend that the Chinese government increase outlays for pensions, health care, and unemployment benefits, expecting that this increase will reduce household precautionary saving and thus lead to a rebalancing of the sources of economic growth away from investment and exports toward private consumption expenditures (Lardy 2006; IMF 2022, 17). A second, more recent critical perspective focuses on equity, arguing that the highly unequal distribution of social insurance benefits undermines President Xi Jinping’s goal of achieving “common prosperity” (Guo 2025; Li 2025). The goal of this paper is to analyze the strength and distributive consequences of China’s social safety net and to update the analysis of its influence on private consumption.
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