Summary of Key Points
In the first half of 2026, China's GDP grew by 4.7%, but consumer spending was weak (with the total retail sales of consumer goods increasing by only 1.3%) and per capita consumption growth rate of 3.7% falling short of the income growth rate of 5.2%. The main reasons consumers are hesitant to spend include: widening income disparities, declining property values, and a strong tendency for precautionary savings. The central government has released the "15th Five-Year Plan for Expanding Consumption," which outlines systematic measures in areas such as income distribution, housing, and social security. It emphasizes that short-term stimulus measures cannot solve the fundamental issues; instead, structural reforms are needed to unleash the potential of domestic demand and make consumption the main driver of economic growth.
Weak Consumer Spending: Income Has Increased, but People Are Afraid to Spend Due to Large Disparities
The economic data for the first half of the year reveal a contradiction: although people's disposable income has increased by 5.2%, their spending has not kept pace (only a 3.7% increase in consumption). The total retail sales amounted to 24.9 trillion yuan, with a year-on-year growth of just 1.3%, indicating insufficient consumer demand. More importantly, the proportion of China's GDP spent on consumption is only 40%, far lower than the global average of 57% and that of middle-income countries at 53%. This means that a larger portion of our income is not being used for consumption, and economic growth has not fully translated into purchasing power for the general public.
Three Main Reasons for Hesitancy to Spend: Low Income, Declining Property Values, and Fear of the Future
There are three main reasons why people are reluctant to spend:
1. Large income disparities, leaving ordinary people with little money to spend: Two indicators illustrate this point: the ratio of the median income (the income of the middle-income group) to the average income has dropped from 85.6% to 82.8%, indicating that more wealth is flowing into the hands of higher-income groups; the Gini coefficient (a measure of income inequality) was 0.465 in 2024, exceeding the critical threshold of 0.4. With ordinary people earning less, they naturally have less to spend (for example, if you earn 100 yuan, you might only spend 80, while the wealthy might spend only 20, concentrating wealth and preventing overall consumption from increasing).
2. Declining property values, making people feel poorer: Housing is a major source of wealth for most people, but in many cities, housing prices have fallen—new homes in 70 large and medium-sized cities decreased by 3.5% year-on-year, and second-hand homes by 5.6%. If your house was originally worth 1 million yuan and now worth 800,000 yuan, you would be cautious about spending on other things and need to save to make up for the loss.
3. Fear of aging and illness, leading to increased savings for security: The aging population is a growing concern (15.9% of the population is over 65 years old), and there is significant pressure on social security systems. More than 200 million people in flexible employment have unstable insurance coverage, and the out-of-pocket cost for medical expenses can be substantial (a serious illness could deplete a family's savings). The gap in pension benefits between urban and rural areas is also large. People save not because they are frugal but because they fear a lack of security in the future. As evidence, household deposits increased by 9.7% to 167 trillion yuan by the end of 2025.
The New Plan Addresses These Issues: A Comprehensive Approach to Income, Housing, and Social Security
The "15th Five-Year Plan for Expanding Consumption" proposes specific solutions:
- Income: Increase workers' wages to ensure that income growth keeps pace with economic growth.
- Housing: Stabilize housing prices by building more affordable homes and implementing city-specific policies (for example, relaxing purchase restrictions in some cities or providing more support for home improvements) to prevent further declines in property values and boost consumer confidence.
- Social Security: Raise basic pension levels and increase medical insurance subsidies to ensure that people in flexible employment and migrant workers also have stable access to benefits. In other words, the plan aims to provide coverage for healthcare and pensions, reducing concerns about the future.
Short-Term Stimulus Measures Are Not Enough; Reforms Are Needed to Unlock Potential
Short-term measures such as distributing consumption vouchers or offering trade-in subsidies may encourage temporary spending, but they do not address the root problems: income disparities remain, housing prices continue to fall, and social security is still inadequate. The real solution lies in deepening reforms—adjusting income distribution to benefit ordinary people, stabilizing property values, and improving social security systems. Only by addressing these structural issues can the 167 trillion yuan in household deposits be transformed into actual consumer spending and the potential of China's large market be fully realized.
In summary, boosting consumption is not as simple as turning on a switch; it requires addressing the underlying reasons why people are hesitant to spend. The significance of the new plan lies in its long-term approach to creating an environment where people have the money and confidence to spend, ultimately making consumption the driving force behind economic growth.