According to data from the World Bank, the Chinese Communist Party (CCP) only allocates 6% of its GDP to welfare benefiting the people, which is lower than most countries globally. Economists generally believe that the current dilemma of the Chinese economy lies in insufficient domestic demand and low consumption. However, some also argue that the fundamental issue of the Chinese economy lies in its political system.
An article in the British media outlet Financial Times on the 22nd stated that the CCP’s expenditure on healthcare and social security for the general public is lower than most countries with similar income levels, accounting for only 6% of the Gross Domestic Product (GDP).
World Bank data shows that the Chinese government (CCP) allocates only around 6% of the GDP to services directly benefiting residents, such as healthcare and social security, while household consumption expenditure accounts for only 38% of the GDP.
The welfare expenditure of the CCP lags behind most members of the BRICS countries, including Brazil and Russia, and is also lower than many other emerging and developed economies.
Although the data used is from 2021, it is the latest comparable data available.
Economists widely believe that the current economic issues in China, such as insufficient domestic demand and low consumption, are long-standing structural problems. Income distribution among residents is too low, with a large amount of funds being channeled into infrastructure and high-tech sectors.
At the same time, the social welfare provided by the country in terms of healthcare, pension, and education is inadequate, far below that of developed countries.
Xing Ziqiang, Chief China Economist at Morgan Stanley, emphasized that Beijing needs to increase government expenditures on social welfare to unleash consumption potential.
He told the Financial Times, “Without deeper social welfare reforms, people will hold onto these precautionary savings instead of spending them.”
Song Lin, Chief Economist of the Greater China Region at ING, stated, “American households are generally more satisfied with their social security. The pension levels in China are often lower.”
In China, most retirees “ultimately need to use their savings in addition to their pensions, leading Chinese families to believe that they need to rely on themselves for retirement.”
Zhuang Juzhong, Senior Economist at the Asian Development Bank, found that compared to high-income countries and economies, the low proportion of household consumption expenditure in China’s GDP seems to mainly reflect insufficient service consumption.
In an article in June 2024, he mentioned that in the years 2018-2019, service consumption in China accounted for 67% of total household final consumption expenditure, equivalent to 26.1% of GDP.
In contrast, the United States’ proportion exceeds 80%, equivalent to 55% of GDP; the average for the 27 European Union countries and three high-income economies in East Asia is 72% and 75%, equivalent to 38% and 39% of their respective GDPs; the average for five major developing countries in Asia (India, Indonesia, Malaysia, Thailand, and the Philippines) is 54.3%, equivalent to 33% of GDP.
However, some also believe that even if the CCP initiates structural economic reforms, it may not resolve the long-term issue of weak consumption because the fundamental problem of the Chinese economy is a political one.
Xu Chenggang, Senior Researcher at the Stanford University Center on China’s Economy and Institutions, previously stated that the development of the Chinese economy faces fundamental (political) systemic issues, with insufficient domestic demand being a common feature of authoritarian regimes. The CCP has essentially taken away the lion’s share of what the economy has earned through land and banking.
Regardless of where you are in the world, to solve the problem of weak domestic demand and ensure that household income does not remain as low a proportion of GDP as in China, privatization is essential.