1. For the first time, China has included a comprehensive plan to strengthen household income in its top-level policy framework, which marks a major change as policymakers deal with low consumer spending despite GDP per capita holding above $13,000 for two years. The Urban and Rural Income Development Plan, proposed by the Communist Party in October 2025 and included in the 15th Five-Year Plan in March 2026, has been promoted by Premier Li Qiang as a key component for revitalizing domestic demand. [para. 1][para. 2]
2. Rather than relying on short-term stimulus measures, the plan focuses on structural reforms to correct what policymakers see as a skewed distribution of income. The goal is to reduce the number of low-income people, expand the middle class, and create a balanced, “olive shape” that can support sustainable, consumption-driven growth. Economists emphasize that the long-term growth of consumption can only be achieved with a stable growth of income, since short-term stimulus will not pay for weak income. [para. 3][para. 4]
3. Experts widely agree that the main obstacle to increasing spending is the equitable distribution of the economic pie. Although China has made great progress in technological innovation and industrialization, these gains have not translated into high consumption because the economic benefits have not been widely shared among households. A strategic plan is being developed with pillars such as improved wage growth, better worker protection, expansion of the social safety net, and stronger revenue streams. [para. 5][para. 6]
4. Economic inequality is caused by families receiving a very small share of the national income. In the distribution of primary income, households take only 60.6% – below the world average – while the share of the corporate sector is 24.7%, higher than most countries. As a result, China’s household spending as a share of GDP—38.8% in 2020—is much lower than the US (68%), Britain (64%) and Argentina (63%). Data from various sources show that from 2008 to 2020, Chinese households earned a lower share of income than their counterparts in the US, Japan, or Germany, while Chinese companies saved more for reinvestment and R&D. [para. 7][para. 8][para. 9][para. 10]
5. Despite decades of reforms, the family’s share of national income remains low compared to the rise in total income. This imbalance hinders the potential for growth, as low household income directly leads to less consumption. Other confounding factors include the stubborn share of income in urban and suburban areas (2.34 in 2024; the equivalent level is considered below 2) and continuing inequality: China’s Gini coefficient has fallen slightly from 0.491 in 2008 to 0.465 in 2024, still above the “warning of 0.4”. From 2018 to 2023, real income growth for low-income households has slowed to just 1.4% per year. [para. 11][para. 12][para. 13][para. 14][para. 15]
6. Addressing underutilization requires not only growth but also balanced redistribution. Economists advocate for job creation and wage systems related to productivity gains, as well as rebalancing the distribution of national income among governments, businesses and households. Proposals include diverting more profits from state-owned enterprises to public spending, as well as shifting public spending to education and health care, which would ease the financial burden on households and stimulate spending. [para. 16][para. 17][para. 18][para. 19]
7. The plan emphasizes the importance of raising wages for the lower classes, especially by increasing the minimum wage (which, from March 2026, will go from a high of 1,700 to more than 2,000 yuan/month), although this must be carefully tested to avoid damaging employment or competition. There is also an incentive to increase spending on goods and investments, which are a much smaller share of household incomes (8% of disposable income in 2025, up from 8.8% in 2021). By 2024, record dividend payouts have reached 2.4 billion yuan, as regulators ramp up reforms, although earnings testing is still an issue. [para. 20][para. 21][para. 22][para. 23][para. 24][para. 25]
8. The country’s social security, especially the pension system, is a very weak area: in 2023, the average monthly pension went from 6,243 yuan for retired civil servants to only 222 yuan for rural residents. The difference not only reduces rural consumption, but also puts financial pressure on households. Experts emphasize that raising the basic pension, perhaps by increasing the funds and injecting the country’s money into social security, is important for unlocking spending power, especially for the oldest rural population. [para. 26][para. 27][para. 28][para. 29]
9. Low pension costs undermine the expectations of about 370 million contributors, encouraging conservatism and suppressing broad spending. Experts warn that unless pensions and social security systems are improved, efforts to increase household income and spending will face persistent challenges. [para. 30][para. 31]
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