Does a weak social safety net hold back private consumption in China?

Many experts see China’s economy as constrained because of a weak social safety net, especially the retirement system, resulting in anemic domestic consumption spending. This view is out of date. Recent data indicate that China has expanded many parts of its social safety net and that consumption spending has accelerated. Social expenditures in China have more than doubled as a share of GDP since 2010 and are on par with Mexico and Turkey. But given China’s aging population, safety net spending and domestic consumption spending will need to expand further to put China’s economy on a more sustainable path. The latest data should clear the cobwebs of misunderstanding that have led to both complacency and unnecessary alarm about China’s economic prospects among observers in the United States and other countries. China’s government is hardly unaware of the importance of stronger household consumption and has announced policies to increase consumer spending, including more generous pension benefits for farmers and rural migrant workers. If these initiatives are implemented, the growth of household consumption is likely to accelerate.