In reality, however, China isn\u2019t rebalancing its economy toward consumption. That\u2019s not to say it doesn\u2019t want more consumption. It does. Leaders in Beijing have publicly endorsed the need to raise consumption: in February 2025, for instance, Chinese premier Li Qiang called for \u201cboosting consumption to expand domestic demand, smooth the economic cycle, and drive economic growth.\u201d But China\u2019s leaders envision higher consumption coming at the end of China\u2019s economic transition, not the beginning. Rather than redistributing wealth so people can spend more now, Beijing wants to focus on creating new wealth in the hope that it spurs greater consumption in the future.<\/p>\n
In the long term, this approach may lead to a more balanced growth model. But in the face of weak domestic demand from the aftermath of the deflated property bubble, China is ramping up its exports even more in the short term. This not only delays China\u2019s own pivot toward consumption; it also promises wealth destruction for other countries trying to compete with China or find their place in the global economy.<\/p>\n
FAREWELL, WELFARE<\/p>\n
For consumption to lead China\u2019s economy, the country\u2019s famously frugal savers must set aside less of their income, or incomes must increase faster than the economy as a whole. Engineering that kind of transformation requires wealth redistribution.<\/p>\n
When advanced industrial economies redistribute wealth, they typically do it by raising the minimum wage, cutting personal income tax rates, handing out stimulus checks, increasing welfare payments, or cutting mortgage rates. China has taken some of these steps. In 2023 and again in 2024, for instance, the People\u2019s Bank of China forced banks to dramatically cut the interest rate on existing mortgages, reducing households\u2019 annual interest payments by about $43 billion. Provincial governments raise the minimum wage every year. And, starting in 2023, regulators have pushed listed companies to pay dividends to shareholders, something they\u2019ve traditionally been reluctant to do.<\/p>\n
But Beijing has steadfastly refused to do the one thing that might make the biggest difference: significantly expand the social safety net. China\u2019s system of social supports is chronically underfunded. The national social security fund, which backstops the country\u2019s pensions, is likely to be depleted by 2035, throwing into doubt the retirement of tens of millions of people. Although nearly all of China\u2019s citizens have some basic health insurance, low reimbursement rates mean that out-of-pocket health-care costs can be debilitating, particularly for families supporting elderly parents. And many of the 300 million people who have migrated from the countryside to the cities to work cannot access subsidized public services because they\u2019re only registered to access services in their hometowns, where quality is often much lower. The government says that it supports granting internal migrants the residency status they need to allow them the same access to affordable housing, public schooling, health care, and pensions as their urban neighbors, but it has been unwilling to fund it.<\/p>\n
Observers often point to Chinese leader Xi Jinping\u2019s stated aversion to \u201cwelfarism\u201d\u2014his reluctance to seeing \u201c\u2018lazy people\u2019 get something for nothing,\u201d as he wrote in 2021\u2014as the reason for this lack of spending. But the bigger sticking point is party leaders\u2019 insistence that social programs be \u201cwithin the means\u201d of the state to fund them.<\/p>\n
Beijing has refused to significantly expand the social safety net.<\/p>\n
As most countries do, China runs a budget deficit. In 2025 the government set the deficit target at four percent, the highest level in three decades. Any expansion of social supports, therefore, would have to be funded with debt. Chinese officials and academics, however, have long worried that debt-funded social programs could lead to what they call \u201cLatin Americanization\u201d\u2014how the growth of vibrant Latin American economies such as Argentina and Brazil stalled in the 1970s and 1980s after populist governments in these countries tried to build Western-style welfare systems on the back of developing economies. In a 2021 essay in the party\u2019s main theory journal, Xi explained that when \u201csome Latin American countries engaged in populism,\u201d the resulting lack of fiscal discipline condemned them to the middle-income trap and prevented them from catching up to advanced economies such as the United States and the European Union.<\/p>\n
China\u2019s rapidly aging population makes this fear even greater. China\u2019s old-age dependency ratio\u2014the number of retirees as a share of the working-age population\u2014will match that of the United States<\/a> in 2035, and the EU in 2046. By 2080, China will have more retirees than workers. This has major consequences for the economy: as a population ages, the burden on the state increases as pensions, health-care spending, and other costs rise. Meanwhile, as the size of the workforce shrinks, so does the pool of taxpayers, making it harder for the state to cover its rising expenses.<\/p>\n Beijing is not afraid to borrow; after all, it allowed local government to rack up huge debts to fund infrastructure. The difference is that it sees infrastructure as an investment. Even if infrastructure doesn\u2019t pay for itself, it can nonetheless create new wealth and value. By contrast, Beijing sees social spending as a recurring expense and an endless burden. In the words of Xi, \u201cWelfare benefits cannot be reduced once they have gone up.\u201d If China is going to boost social welfare, it will do it incrementally\u2014not at the level that would meaningfully rebalance the economy toward consumption. Instead, if China\u2019s leaders are going to borrow and spend, they want that money to address the most important challenge they are facing: moving up the economic value chain.<\/p>\n QUALITY OVER QUANTITY<\/p>\n