Commentary: How China Can Engineer a Consumption Leap for Its 15th Five-Year Plan

During China’s 15th Five-Year Plan (2026-2030), accelerating consumption growth is considered crucial, reflecting lessons learned from the previous plan period. The pandemic in 2020 revealed an initial underestimation by policymakers of the importance of stimulating consumption, with real policy emphasis only beginning at the Central Economic Work Conference in late 2022. By 2024, China introduced a 150 billion yuan ($21 billion) subsidy for trade-ins, which was expanded to 300 billion yuan this year, making stimulating consumption the country’s top economic task. This step-change marks a shift from past, less comprehensive efforts to boost consumer demand[para. 1].

Looking forward over the next five to ten years, the prospects for strong economic growth are hindered by slowing real estate and private investment, and overcapacity in infrastructure. If consumption growth lags at 4%—less than GDP growth—China will face persistent aggregate demand shortfalls. To counter this, the 15th Five-Year Plan targets yearly consumption growth above 5%—ideally exceeding 6%[para. 2].

Achieving these goals means increasing consumption’s share of GDP from 54% to over 60% by 2030. More specifically, household consumption should rise from about 40% to as much as 50%. This “step-up” is necessary for healthy, balanced growth and to reduce the legacy dependence on exports and investment[para. 3].

Despite a host of supportive policies since late 2022, China’s move towards consumption-led growth has thus far only resulted in gradual, linear, and relatively minor gains. Consumption’s growth rate and share of GDP haven’t shown fundamental improvement, exposing the need for more significant change in policy approach[para. 4][para. 5].

Five key policy areas are highlighted for achieving this transformation. The first is leveraging China’s vast state-owned assets, now valued at over 100 trillion yuan. These could be used, as in Singapore’s model, to boost fiscal revenues and social security—improving public welfare via dividends from state-owned firms[para. 6][para. 7][para. 8].

The second area is capital market reform. Previous reforms (split-share structure, transfer of state equity to social security) laid the groundwork, transferring over 1.68 trillion yuan to social security by 2020. Expanding such transfers could raise rural pensions significantly, using the projected growth of market capitalization (from 100 trillion yuan now to at least 200 trillion yuan by 2030) to support social security and spur property-derived wealth effects—thus boosting consumption across China’s 1.4 billion population[para. 9][para. 10][para. 11].

Third is upgrading consumption subsidies. Past subsidies (150-300 billion yuan) are minimal relative to the scale of retail sales (50 trillion yuan) and GDP (140 trillion yuan). Truly effective impact requires surpassing 1 trillion yuan in subsidies, reallocated from less productive investments and export supports. Moreover, such subsidies should target people directly (via cash or vouchers, particularly for the low- and middle-income 600 million) instead of product-specific trade-in programs, ensuring higher marginal propensity to consume and broader benefit[para. 12][para. 13][para. 14].

Fourth, monetary policy must become more expansionary. Since last year, only a modest 0.1 percentage point cut in policy rates has occurred, despite ongoing deflation risks and weak job and profit growth. A more aggressive approach—M1 growth over 10% and larger rate cuts—would reduce household, corporate, and government financing costs (potentially saving up to 3.4 trillion yuan in annual interest), stimulating both consumption and private investment[para. 15][para. 16][para. 17].

Finally, “new supply” is vital. Unlike traditional supply-side economics, new productive sectors and goods create fresh demand, rather than just absorbing existing demand. Long-term policy must focus on real household incomes, interest rates, taxes, and innovative supply. Efforts not addressing these variables may only redistribute, not expand, overall consumption[para. 18][para. 19][para. 20].

The argument champions structural reforms, targeted subsidies, active monetary policy, and a creative supply-side for sustainable consumption-driven growth during the next plan period[para. 21].