Balancing China's Demand and Supply for Sustainable Growth: The Roles of Household Consumption

Abstract

De-globalization and geopolitical turmoil are presenting significant challenges to China's export-driven growth model, highlighting the urgent need to boost domestic consumption to maintain the supply–demand balance. This paper begins by identifying several stylized facts from multiple datasets: a persistently low final consumption share of GDP (falling to 48.91 percent in 2010), a declining household share of final consumption (offset by a high and stable government share), and widening consumption disparities across urban–rural, generational, and regional dimensions. It then reviews literature on key determinants of the household consumption rate: constrained household income (due to a low labor share, high inequality, and limited access to credit), weak consumption (driven by inadequate social security, limited public services, and cultural factors such as Confucian frugality and intergenerational obligations), and barriers to market accessibility (stemming from infrastructure gaps and uneven development of the digital economy). Finally, the paper makes targeted policy recommendations to address these constraints and unlock China's domestic consumption potential for sustainable growth.