Chinese policy advisers urge raising household consumption to 50% of GDP in the upcoming five-year plan to reduce dependence on exports and investment.
Amid growing concerns over trade tensions and deflationary pressures, Chinese government advisers are calling for household consumption to become a core pillar of economic growth in the country’s upcoming five-year development plan. The goal is to raise the household share of GDP to 50%, moving China away from reliance on debt-driven investment and exports.
The Need to Reshape China’s Economic Model
For decades, China’s rapid growth has been fueled by heavy state investment and export-driven strategies. While this approach has delivered fast-paced development, it has also made the economy increasingly vulnerable to global shocks and trade disputes.
Government advisers now emphasize the urgent need to rebalance the economy by strengthening domestic consumption. At present, household consumption accounts for only around 40% of China’s GDP, significantly lower than the 54% average across OECD nations. Increasing this share is seen as a key step toward building a more resilient and balanced economic structure.
A Strategic Opportunity in the 15th Five-Year Plan
China is currently drafting its 15th Five-Year Plan, a comprehensive policy document that will shape national priorities through 2030. The upcoming plan is expected to place greater emphasis on boosting domestic consumption, though it is unlikely to set strict numerical targets.
Key policy proposals include expanding social welfare systems, reforming the hukou (household registration) system to reduce urban-rural inequality, and introducing tax reforms that shift income toward lower-income households—groups more likely to spend rather than save.
These measures are intended to improve purchasing power among the population and lay the foundation for a consumption-led growth model.
Structural and Economic Challenges
Raising the household share of GDP will not be without obstacles. One of the major challenges is the reallocation of resources from state and business sectors to households, a shift that could slow growth in the short term.
Other pressing concerns include industrial overcapacity, deflation in manufacturing, and declining income and job stability among households. Experts point to Japan’s experience, where the household share of GDP rose from 50% in 1991 to just 58% over two decades, as evidence of how difficult and gradual such transitions can be.
Potential Benefits of a Consumption-Driven Strategy
A greater focus on household consumption could reduce China’s exposure to external shocks and make the economy more self-reliant. In addition, domestic demand would likely boost the services sector, promote job creation, and raise household incomes.
By cultivating stronger internal drivers of growth, China could lay the groundwork for more sustainable and inclusive economic development.
Conclusion: Reform as a Prerequisite for Transformation
Despite the many hurdles ahead, policy experts believe that the 15th Five-Year Plan offers a pivotal opportunity to restructure China’s economy. Achieving this vision will require comprehensive reforms in welfare, taxation, and inequality reduction.
If effectively implemented, these changes could usher in a new era of consumption-led growth and reduce China’s dependency on volatile external markets. The coming years may prove decisive in determining whether China can transition to a more balanced and sustainable economic model.
