For more than two decades, China’s growth model has relied on investment and exports, with industrial policy prioritised over household demand. On the supply side, the results have been remarkable. China now produces over 70% of the world’s electric vehicles, holds more than 80% of global solar manufacturing capacity, and installs over half of the world’s industrial robots. On the domestic demand side, progress has been far more limited: household consumption accounts for only around 40% of GDP, well below levels in advanced and large emerging economies. This share fell from 47% of GDP in the early 2000s to about 35% in 2010, and has recovered only gradually since. The 15th Five-Year Plan (2026–2030), approved in March, aims to correct this imbalance, calling for a notable increase in household consumption as a share of GDP. In July, the State Council approved China’s first five-year plan dedicated to consumption, targeting 60 trillion yuan in retail sales by 2030, around 3.7% growth per year, with services as the top priority.
However, latest figures suggest the shift towards consumption is proving difficult to deliver. Instead of strengthening, consumption’s role in driving growth has weakened: final consumption accounted for 52% of GDP growth in 2025, but this share fell to 46.7% in the first quarter of 2026. Retail sales of consumer goods, the plan’s headline target, grew only 1.1% year-on-year in January-August, well short of the required pace. Moreover, households are spending a shrinking share of their income gains: per capita disposable income rose 5.2% in the first half of the year, while consumption expenditure increased only 3.7%.
In our view, the consumption pivot will remain slower than planned, as the constraints on household spending are structural rather than cyclical. In this article, we discuss four key factors behind China’s subdued consumption performance: weak goods demand alongside slowing services, eroding property wealth and weak confidence, job insecurity and precautionary saving, as well as limited policy support.
China retail sales growth: goods vs services
(% y/y, 2025 vs Jan-Aug 2026)
Sources: National Bureau of Statistics, QNB analysis
First, Chinese households receive a comparatively small share of national income. Household disposable income amounts to only around 60% of GDP, materially below the 70–80% typically recorded in major advanced economies. This reflects China’s investment-led growth model, under which a relatively large share of income accrues to the corporate and government sectors rather than households. Moreover, aggregate income figures conceal wide disparities: income inequality remains high, while rural disposable income is less than half the urban level. As higher-income households save a larger proportion of their earnings, this unequal distribution further reduces the purchasing power available to the households most likely to spend additional income. China’s weak consumer demand therefore reflects not only a reluctance to spend, but also a comparatively low and uneven distribution of household income
Second, the prolonged property downturn has eroded household wealth and confidence. Housing is the main store of wealth for Chinese households, and its value continues to decline: new home prices have fallen year-on-year for 38 consecutive months, and property’s share of household assets dropped from 67% in mid-2021 to 52% in early 2026. This negative wealth effect weighs on spending, while income from assets has stalled, with net property income rising only 1.6% in Q1, compared with 4.9% for wages. Confidence has not recovered either: the consumer confidence index fell from 127 in early 2021 to a record low of 85.5 in late 2022, and stood at only 89.5 last August, well below the 100 threshold that separates optimism from pessimism.
Chinese household asset composition
(% of total household assets, mid-2021 vs Q1 2026)
Sources: Goldman Sachs, QNB analysis
Third, job insecurity and limited social protection are reinforcing precautionary saving. Youth unemployment rose to 18.9% in August, the highest in a year. Households traditionally save around a third of their income, and gaps in the social safety net have reinforced this tendency. Rather than borrowing to spend, households are paying down debt: household credit growth fell to a record low of 1.1% in late 2025, as families prepaid mortgages. On the other hand, households held around 167 trillion yuan in deposits at the end of 2025, double their 83 trillion yuan in loans. This suggests that households have the capacity to spend, but lack the willingness.
Fourth, policy support for consumers remains limited and largely temporary. The government reduced funding for the trade-in scheme to 250 billion yuan this year, from 300 billion in 2025, even though the programme added only 0.6 p.p. to retail sales growth at its peak. By contrast, investment in infrastructure, public services and other key areas is expected to exceed 7 trillion yuan in 2026. In July, the public authorities opted to accelerate already-approved infrastructure spending rather than introduce major new stimulus. Meanwhile, reforms that address precautionary saving, such as pensions and healthcare, have yet to receive comparable funding.
All in all, China’s consumption pivot is falling behind the ambitions of the 15th Five-Year Plan, as weak goods demand, slowing services, eroded property wealth, job insecurity and limited policy support weigh on household spending. In our view, meeting the plan’s targets will require structural reforms to income and social protection, rather than temporary subsidies.
