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How to Significantly Increase the Household Consumption Rate

Mar 30-2026   



*This article is based on a keynote speech by Luo Zhiheng, Vice President and Chief Economist at Yuekai Securities.

Boosting Consumption Is of Great Significance: Promoting Domestic Economic Circulation & Improving the External Geo-economic Landscape

The Chinese economy has shifted from a phase of supply shortages to one of insufficient demand. Although China's production and supply capacities remain robust, insufficient demand has become the main constraint on economic development. From a broader strategic perspective, setting the goal of "significantly increasing the household consumption rate" has even greater significance. On the one hand, this will help to transform the current "strong supply, weak demand" pattern in China's economy, promoting a dynamic balance between supply and demand at a higher level and facilitating economic circulation. On the other hand, it will improve geopolitical and geo-economic relations, transforming China's market scale advantage into an advantage in global economic governance.

Raising the household consumption rate and expanding the domestic consumer market will reduce reliance on external demand for economic growth, enhancing the autonomy and resilience of China's development. Simultaneously, it will help to avoid the excessive accumulation of trade surpluses, thereby easing international trade and economic tensions. Furthermore, a robust and open domestic consumer market will generate new growth opportunities for global enterprises. An open development model based on expanding domestic demand will drive China's transformation from the "world's factory" to the "world's market". This will enable China to play a pivotal role in establishing more balanced international economic relations, thereby enhancing its voice and influence in global economic governance.

Basic Characteristics of China's Household Consumption & Consumption Rate

Increasing the household consumption rate is different from simply boosting consumption. The household consumption rate is defined as the ratio of final household consumption expenditure to GDP. In other words, increasing it requires not only an increase in consumption, but also ensuring that consumption growth outpaces economic growth. China's household consumption rate can be analyzed from three perspectives: a cross-country comparative perspective, a longitudinal time-series perspective, and a structural perspective.

First, a horizontal comparison: China's household consumption rate is significantly lower than that of the United States, and this gap remains substantial even after adjusting for imputed rent on owner-occupied housing and healthcare expenditure. Secondly, in a longitudinal comparison, China's household consumption rate has undergone phased changes, and there is still room for improvement. Thirdly, structural analysis: There is a shortage of services and goods to improve living standards, and regional consumption disparities exist.

Based on the above analysis, future efforts to boost the household consumption rate must focus on three key areas: Firstly, in terms of consumption targets, we must promote the expansion of service consumption and accelerate its recovery. Secondly, in terms of consumer groups, we should focus on raising the income levels and income expectations of low- and middle-income groups to encourage them to upgrade their spending from basic necessities to quality-of-life enhancements. Thirdly, in terms of consumption regions, we should focus on revitalizing consumption in first-tier cities.

Major Challenges in Boosting the Household Consumption Rate

Firstly, household consumption capacity needs to be enhanced further. Secondly, the social security system needs to be improved, as it currently discourages consumers. Thirdly, the integration of migrant workers into urban society is lagging, thereby suppressing consumption potential. Fourthly, supply capacity in certain sectors remains insufficient. Fifthly, long working hours for workers squeeze out opportunities for service consumption.

Implementation Pathways & Policy Recommendations for Significantly Increasing the Household Consumption Rate

Given the aforementioned issues and challenges, increasing the household consumption rate requires a tripartite synergy between the government, enterprises and households, rather than being merely a matter of individual consumer behaviour. Firstly, the government must establish a consumption-oriented macro-governance system, including tax system reform and fiscal policy transformation. Secondly, it must improve the income distribution system to enhance residents' consumption capacity. Thirdly, the government must strengthen the social security system to boost consumer confidence. Fourthly, the government must accelerate the reform of the household registration (hukou) system, advance the urbanization of migrant workers and increase their marginal propensity to consume. At the same time, the government must liberalize market access and improve supply quality. Finally, it must optimize the holiday system to unleash consumption potential.


How to Significantly Increase the Household Consumption Rate

Mar 30-2026   



*This article is based on a keynote speech by Luo Zhiheng, Vice President and Chief Economist at Yuekai Securities.

Boosting Consumption Is of Great Significance: Promoting Domestic Economic Circulation & Improving the External Geo-economic Landscape

The Chinese economy has shifted from a phase of supply shortages to one of insufficient demand. Although China's production and supply capacities remain robust, insufficient demand has become the main constraint on economic development. From a broader strategic perspective, setting the goal of "significantly increasing the household consumption rate" has even greater significance. On the one hand, this will help to transform the current "strong supply, weak demand" pattern in China's economy, promoting a dynamic balance between supply and demand at a higher level and facilitating economic circulation. On the other hand, it will improve geopolitical and geo-economic relations, transforming China's market scale advantage into an advantage in global economic governance.

Raising the household consumption rate and expanding the domestic consumer market will reduce reliance on external demand for economic growth, enhancing the autonomy and resilience of China's development. Simultaneously, it will help to avoid the excessive accumulation of trade surpluses, thereby easing international trade and economic tensions. Furthermore, a robust and open domestic consumer market will generate new growth opportunities for global enterprises. An open development model based on expanding domestic demand will drive China's transformation from the "world's factory" to the "world's market". This will enable China to play a pivotal role in establishing more balanced international economic relations, thereby enhancing its voice and influence in global economic governance.

Basic Characteristics of China's Household Consumption & Consumption Rate

Increasing the household consumption rate is different from simply boosting consumption. The household consumption rate is defined as the ratio of final household consumption expenditure to GDP. In other words, increasing it requires not only an increase in consumption, but also ensuring that consumption growth outpaces economic growth. China's household consumption rate can be analyzed from three perspectives: a cross-country comparative perspective, a longitudinal time-series perspective, and a structural perspective.

First, a horizontal comparison: China's household consumption rate is significantly lower than that of the United States, and this gap remains substantial even after adjusting for imputed rent on owner-occupied housing and healthcare expenditure. Secondly, in a longitudinal comparison, China's household consumption rate has undergone phased changes, and there is still room for improvement. Thirdly, structural analysis: There is a shortage of services and goods to improve living standards, and regional consumption disparities exist.

Based on the above analysis, future efforts to boost the household consumption rate must focus on three key areas: Firstly, in terms of consumption targets, we must promote the expansion of service consumption and accelerate its recovery. Secondly, in terms of consumer groups, we should focus on raising the income levels and income expectations of low- and middle-income groups to encourage them to upgrade their spending from basic necessities to quality-of-life enhancements. Thirdly, in terms of consumption regions, we should focus on revitalizing consumption in first-tier cities.

Major Challenges in Boosting the Household Consumption Rate

Firstly, household consumption capacity needs to be enhanced further. Secondly, the social security system needs to be improved, as it currently discourages consumers. Thirdly, the integration of migrant workers into urban society is lagging, thereby suppressing consumption potential. Fourthly, supply capacity in certain sectors remains insufficient. Fifthly, long working hours for workers squeeze out opportunities for service consumption.

Implementation Pathways & Policy Recommendations for Significantly Increasing the Household Consumption Rate

Given the aforementioned issues and challenges, increasing the household consumption rate requires a tripartite synergy between the government, enterprises and households, rather than being merely a matter of individual consumer behaviour. Firstly, the government must establish a consumption-oriented macro-governance system, including tax system reform and fiscal policy transformation. Secondly, it must improve the income distribution system to enhance residents' consumption capacity. Thirdly, the government must strengthen the social security system to boost consumer confidence. Fourthly, the government must accelerate the reform of the household registration (hukou) system, advance the urbanization of migrant workers and increase their marginal propensity to consume. At the same time, the government must liberalize market access and improve supply quality. Finally, it must optimize the holiday system to unleash consumption potential.