Household consumption in China is not as low as many think


Some analysts argue that China must raise the share of consumption in GDP, while reducing the share of investment, to sustain its economic growth. One recent paper argues that to achieve this goal, China needs to reverse the pattern in which consumption growth lags GDP growth—and that doing so will be possible only if Beijing shifts 1 to 2 percent of GDP annually to households. Failing that, according to this argument, China’s GDP growth will likely fall to the low single digits.

But this analysis is flawed. It overlooks data on household consumption that includes social transfers in kind, which have amounted to about 6 percent of GDP in recent years. Including transfers in kind makes Chinese consumption data comparable with that of countries in the Organization for Economic Cooperation and Development (OECD). As shown in this PIIE chart, consumption has been growing faster since 2010, accounting for nearly 46 percent of GDP by 2019 before the COVID-19 pandemic struck. Over the same period, the investment share of GDP shrank by several percentage points. These data suggest China has made some progress in transitioning to more consumption-driven growth.

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