Boosting Household Consumption by Refining the Social Security System

Social security is a fundamental institutional arrangement for ensuring and improving people’s wellbeing. As a social safety net, it frees residents from worries about the future and gives them the confidence to spend. The Plan for Expanding Consumption During the 15th Five-Year Plan Period (2026-2030) issued by the Central Government identifies “improving social security policies” as an important task for enhancing households’ capacity to consume and sets out related arrangements. We should keep up our efforts to both improve people’s wellbeing and boost consumption, continue to unlock the potential of domestic demand, and provide solid support for high-quality economic and social development.

I. Why does boosting household consumption require a stronger social security system?

Household consumption is determined by the disposable income a family has. It also results from the combined effects of intertemporal resource allocation and risk-smoothing mechanisms. It reflects the level and quality of a country’s economic growth and people’s wellbeing. As a state-led mechanism for redistribution, social security is essentially a means for transferring wealth across population groups and over time. It serves as a safety net for people’s wellbeing, a means of regulating income distribution, and a buffer for economic fluctuations. Therefore, it is an effective way to enhance households’ consumption capacity and willingness to consume.

From the perspective of the inherent logic of national income distribution, social security serves as a “stabilizer” for household income and a “pressure-relief valve” for expenditure through benefit payments and risk sharing

On one hand, social security helps fill households’ “purses” through transfer payments such as pensions, minimum subsistence allowances, and childcare subsidies. In 2025, China disbursed more than 7.7 trillion yuan in basic pensions and about 100 billion yuan in childcare subsidies. It raised the subsistence allowances for urban and rural residents to 832 yuan and 621 yuan per person per month, respectively. Together with other assistance and welfare subsidies, this brought the national per capita net transfer income to 8,080 yuan, an increase of more than 160 percent over 2013. These measures have played an important role in raising the income of urban and rural residents, especially in boosting the consumption capacity of elderly people, low-income groups, and families with children.

Top: Staff members explain policies for applying for the childcare subsidy to residents in the service hall of Luqiao Community, Rucheng Sub-district, Rugao City, Jiangsu Province, January 7, 2026. PEOPLE’S DAILY / PHOTO BY XU HUI
Bottom: Eldercare workers accompany the elderly as they take in the spring scenery at a social welfare institution in Licang District, Qingdao City, Shandong Province, April 3, 2026. PEOPLE’S DAILY / PHOTO BY ZHANG YING

On the other hand, social security substantially reduces households’ expenditure burdens in healthcare, eldercare, and other fields through institutionalized risk sharing mechanisms. At present, basic medical insurance covers more than 1.33 billion people. Within the policy scope, inpatient expense reimbursement rates under employee medical insurance and resident medical insurance stand at around 80 percent and 70 percent, respectively, while out-of-pocket health expenditure accounts for 27.5 percent of total health expenditure—greatly easing the pressure of medical spending on individual households. By the end of 2025, more than 1.07 billion people were covered by basic old-age insurance and over 340 million were receiving pension benefits, effectively alleviating the burden of intergenerational transfers within families. These institutional arrangements have relaxed household budget constraints, enabling savings originally set aside for illness and old-age needs to be converted into consumption expenditure.

Beyond current income and expenditure, concerns about uncertainty in future work and life are also a key reason why households build up precautionary savings and hold back current consumption

As of May 2026, China’s household deposits had reached 172.7 trillion yuan, an increase of over 80 percent from 93.4 trillion yuan at the end of 2020, growing by about 15 trillion yuan annually. Household deposits accounted for nearly 50 percent of total deposits, up about 6 percentage points from the end of 2020. The sustained growth of household deposits is not simply a matter of wealth management preference; it is also a precautionary strategy against risk. Faced with fluctuations in employment and income expectations, as well as uncertainty over large expenditures such as healthcare, eldercare, and children’s education, many households tend to save more and spend less, building up their own savings as a risk buffer for the family. A sound social security system can, through mutual assistance and risk pooling, harness collective strength to cushion individuals against uncertainty. This helps channel more precautionary savings into the consumer market, thereby unlocking the potential for consumption growth.

China’s economic development practice fully demonstrates that a sound social security system is an important institutional foundation for expanding domestic demand and stabilizing expectations, and an effective way to activate the momentum of consumption. By expanding domestic demand, China effectively responded to the 1998 Asian financial crisis, the 2008 international financial crisis, and the impact of the Covid-19 pandemic since 2020, accumulating successful experience in the process. In all three crisis responses, social security played a pivotal role.

The 1998 Asian financial crisis coincided with a critical phase of state-owned enterprise reform. In some regions, the number of laid-off workers increased sharply and livelihood difficulties worsened. In response, China vigorously advanced the “two ensures” and the “three guarantee lines.” The “two ensures” were: ensuring the timely and full payment of basic living allowances for laid-off workers from state-owned enterprises, and ensuring the timely and full payment of basic pensions for retirees. The “three guarantee lines” were: basic living support for laid-off workers, unemployment insurance, and the minimum subsistence allowance for urban residents. These measures promptly secured people’s basic livelihood needs and stabilized public expectations. From 1998 to 2002, the average annual growth rate of total retail sales of consumer goods remained at a relatively high level of 8.8 percent.

Hit by the international financial crisis in 2008, China suffered setbacks in foreign trade and faced mounting employment pressure. In 2009, China launched a pilot program for the new social old-age pension system for rural residents, while simultaneously advancing a new round of healthcare reform aimed at achieving universal medical insurance coverage. This effectively increased the transfer income of urban and rural residents, especially rural elderly people. From 2009 to 2011, the growth rate of total retail sales of consumer goods remained above 15 percent.

Under the impact of Covid-19 in 2020, China promptly waived medical expenses for Covid-19 patients, expanded the coverage of temporary assistance, and implemented social security contribution policies involving “reductions, exemptions, deferrals, and refunds.” These measures not only safeguarded people’s basic livelihoods, but also created favorable conditions for a rapid return of the economy to normal, with per capita consumer spending increasing by 12.6 percent in real terms in 2021.

II. What shortcomings in the current social security system are holding back consumer spending growth?

Countries differ in development levels, social conditions, and cultural characteristics, so it is only natural that social security systems are diverse. Since the 18th CPC National Congress in 2012, the Central Committee with Xi Jinping at its core has placed social security system development in a more prominent position, introduced a series of major reform measures, and successfully built the world’s largest social security system with distinctive Chinese characteristics. At the same time, it should be noted that, as population aging and declining birthrates continue to evolve, and as the new round of scientific and technological revolution and industrial transformation profoundly reshapes employment patterns, income generation, and the primary distribution landscape, China’s social security system remains incomplete and constrains the release of household consumption potential in multiple dimensions.

Only when the level of social security is aligned with the stage of economic and social development can it more effectively improve public wellbeing and boost consumption

In developing the social security system, we should neither let it lag behind and thus impair its role in ensuring and improving people’s wellbeing, nor blindly pursue excessively high standards beyond our stage of development and fall into the “welfare trap” faced by some countries. Since the new era began in 2012, China has adhered to the principles of doing everything in our power and working within our means, and has kept social security investment in line with the stage of economic and social development and with the basic national conditions. As a result, urban and rural residents have seen a growing sense of gain, happiness, and security, and their consumption and living standards have risen markedly. At the same time, it should be noted that, compared with the people’s growing needs for a better life, there is still room to increase China’s social security investment. Shaped by the institutional model and historical factors, the benefit level of basic old-age insurance for urban and rural residents is generally low. The reimbursement rate and annual ceiling for primary-level outpatient services are relatively low, drugs for rare diseases are still outside the medical insurance catalog, and actual out-of-pocket spending on major diseases remains high. It should also be noted that population aging is putting pressure on the sustainable development of social security, as the number of pension beneficiaries and per capita medical insurance spending will both increase. Social security investment must be steadily expanded on a more sustainable basis so as to provide lasting and reliable support for boosting household consumption.

Reducing the financial burden of eldercare and childcare can further unlock household spending on other goods and services, as consumption patterns are closely shaped by families’ circumstances at different stages of the life cycle

This year’s Report on the Work of the Government made arrangements for strengthening social security and services as part of efforts to proactively respond to population aging and build a childbirth-friendly society. Against the backdrop of population aging and declining birthrates, the current social security system needs to further strengthen support for both the elderly and children.

With respect to the elderly, although the pension system has achieved full institutional coverage, many older people receive low pensions, which can hardly be translated into substantive consumer demand, making it difficult to effectively unlock the consumer potential of the “silver economy.” The long-term care insurance system is still in the initial stage of development, and the care needs of many functionally impaired seniors and empty-nest older people remain urgent problems to be solved.

With respect to children, the child welfare system needs further improvement. Subsidies under inclusive child-rearing support policies are still insufficient to offset the high cost of raising children. This not only limits the current scope for upgrading consumption among young and middle-aged families, but also affects their overall consumer confidence over the long term.

Gaps in social security coverage among people in flexible and new forms of employment have dampened consumption

With the development of the digital economy, flexible and new forms of employment have continued to emerge, and the ranks of workers such as delivery riders, ride-hailing drivers, and livestreamers have grown steadily. In recent years, China has continued to reform the social security system, and various regions have actively explored effective ways for people in flexible and new forms of employment to participate in social insurance, further expanding social insurance coverage.

On the whole, however, China’s current social security system is still based on traditional standard labor relations. Many people in flexible and new forms of employment face problems such as inadequate coverage and excessive contribution burdens. Some of them either choose not to participate in social insurance or opt for low-contribution, low-benefit tiers. This not only increases the uncertainty in their lives, but also poses a significant constraint on consumption growth.

Policy fragmentation weakens efforts to boost household consumption

At present, there are notable disparities in benefit levels across social security schemes between urban and rural areas and across regions, and the transfer and continuity of social security coverage remain less than smooth. In building a multi-tiered pension system, enterprise annuities and private pensions have objectively favored higher-income groups, making it difficult for rural residents and people in flexible and new forms of employment to receive effective coverage. There is also a lack of efficient data sharing and operational coordination among various social security schemes, which makes policy implementation less efficient. Meanwhile, social security policies have yet to form an efficient synergy with demographic, employment, and fiscal policies, which constrains the overall improvement of the consumer environment for residents and the release of consumption potential.

III. What are the pathways for boosting household consumption by improving the social security system?

To boost household consumption through improving the social security system now and for some time to come, we must take promoting social fairness and justice and improving people’s wellbeing as the starting point and ultimate goal, follow the requirements of universal coverage, urban-rural integration, fairness and consistency, safety and standardization, and sustainability, and channel more public resources into people and public services. We should accelerate the development of a multi-tiered social security system and promote a coordinated rise in residents’ capacity, willingness, and confidence to consume.

Promoting high-quality coverage expansion and high-level participation to reduce workers’ worries

We will take targeted measures to expand social security coverage. For groups such as people in flexible and new forms of employment, we will develop innovative participation methods and lower the threshold for participation, bringing them under effective institutional protection and enhancing the adaptability of the social security system. We will guide and support insured residents in choosing higher contribution tiers and making sustained long-term contributions, so as to reinforce their current willingness to consume through the expectation of higher benefits.

We will extend the coverage of unemployment insurance, workers’ compensation schemes, and maternity insurance, and accelerate the expansion of trials of occupational injury insurance for people in new forms of employment. In addition, we will accelerate the establishment of a standardized and unified long-term care insurance system to address the long-term care needs brought by population aging, so that family resources can be freed from the burden of caregiving.

Appropriately raising benefit levels to strengthen households’ confidence and capacity to consume

To boost household consumption, we need to act on the principle of investing in people and enhance people’s sense of security by appropriately raising benefit levels.

First, we will improve the mechanisms for setting and adjusting basic old-age insurance benefits, gradually raise the basic old-age benefits for rural and non-working urban residents, and channel greater support toward groups with relatively low benefits. Second, we will appropriately raise basic medical insurance subsidies for rural and non-working urban residents, explore ways to provide medical insurance subsidies for infants, young children, and the elderly, and gradually reduce the share of out-of-pocket spending on inpatient expenses within the policy scope to a reasonable range. Third, we will strengthen support for key groups and adjust various allowances, subsidies, and benefit standards as needed to ensure that the real purchasing power of social security benefits rises steadily.

Enhancing integration and coordination in social security to strengthen its role in macroeconomic regulation

Social security is an interconnected institutional system, and must be planned and developed as a whole, so as to continually enhance the synergy between social security and socioeconomic development. We need to strengthen top-level design and system integration, and improve cross-departmental and cross-level coordination to ensure that all systems are mutually connected and supportive. We will move faster to shore up shortcomings in elder-care and childcare and coordinate efforts among old-age insurance, medical security, and social services to unlock the consumption potential of the elderly and children. We will coordinate the intensity and timing of policies across all areas of social security, strengthen consistency evaluation of macro policy orientation, and strive to create synergies between social security policies and policies for promoting employment, adjusting distribution, and boosting consumption.

Building a more sustainable social security system to stabilize residents’ long-term consumption expectations

Consumer confidence rests on the stability and sustainability of institutions themselves. To this end, we need to improve and implement the unified national management system for basic old-age insurance funds, make proactive yet prudent progress in the unified management of basic medical insurance funds at the provincial level, further improve the quality and efficiency of provincial-level unified management of funds for unemployment insurance and workers’ compensation insurance, and remove institutional barriers to the cross-regional flow of labor. We will refine the mechanisms for ensuring long-term, sustainable social security funding, strengthening overall management and regulation, preserving and increasing fund value, and ensuring their safety, while improving the social insurance actuarial system, so as to make policies more well-conceived and forward-looking.

These efforts will help urban and rural residents develop stable expectations for the long-term development of the social security system, giving them greater confidence to make long-range consumption plans, and unlocking their consumption potential across different periods.

Feng Zhaorui is Professor at Kunming University of Science and Technology; Zheng Gongcheng is Professor at Renmin University of China.

(Originally appeared in Qiushi Journal, Chinese edition, No. 15, 2026)