China’s consumption drive: Targets outpace momentum

Doha, Qatar has observed that China's growth strategy has traditionally emphasized investment and exports, while placing less emphasis on domestic demand. Despite China's production of over 70% of the world's electric vehicles and holding more than 80% of global solar manufacturing capacity, household consumption remains limited at around 40% of GDP, significantly lower than that of advanced and large emerging economies.

This trend has not significantly improved, with only 3.7% growth per year in retail sales by 2030, with services as the top priority, despite earlier plans.

The share of consumption in GDP growth has weakened, dropping from 52% in 2025 to 46.7% in the first quarter of 2026, and retail sales of consumer goods only grew by 1.1% year-on-year. Households are also spending a smaller portion of their income gains, with per capita disposable income rising 5.2% but consumption expenditure increasing only 3.7%. This is attributed to several factors, including weak goods demand, slowing services, eroding property wealth, job insecurity, and limited policy support.

Chinese households earn a comparatively small share of national income, with household disposable income accounting for only around 60% of GDP, below the 70-80% typically seen in advanced economies. This is due to China's investment-led growth model, where a large share of income goes to the corporate and government sectors. Income inequality and rural-urban income disparities further exacerbate the situation.

The decline in property wealth and confidence also plays a significant role. Housing is the primary wealth store for Chinese households, but its value has been declining for 38 consecutive months. Property's share of household assets has dropped from 67% in mid-2021 to 52% in early 2026. This wealth effect dampens spending, with net property income rising only 1.6% compared to 4.9% for wages. Consumer confidence has also hit a record low of 89.5, well below the 100 threshold for optimism.

Job insecurity and limited social protection contribute to precautionary saving. Youth unemployment is at 18.9%, the highest in a year. Households traditionally save a third of their income, and with gaps in the social safety net, households are paying down debt instead of borrowing to spend. Household credit growth has reached a record low of 1.1%, as families prepay mortgages. Despite holding around 167 trillion yuan in deposits, households have been hesitant to spend.