Pension increases seen boosting consumption

China will raise basic old-age benefits for hundreds of millions of rural and nonworking urban residents next year, marking the eighth such increase since the system's establishment, as part of broader efforts to bolster social security and domestic consumption, experts said.

"We will continue to raise basic pensions for rural and nonworking urban residents, so as to further boost household consumption capacity," said an official at the Office of the Central Commission for Financial and Economic Affairs when interpreting the outcomes of the Central Economic Work Conference earlier this month.

The announcement came after China in March raised the minimum national standard for the basic pension for rural and nonworking urban residents by 20 yuan ($2.85) per month.

"In recent years, pension benefits for China's rural and nonworking urban residents have seen consistent improvement," said Zheng Bingwen, director of the Center for International Social Security Studies at the Chinese Academy of Social Sciences.

The minimum basic pension standard for them has risen from 55 yuan per person per month at the launch of the program to 143 yuan in 2025, following seven upward adjustments, Zheng said.

Zheng said that 143 yuan represents the national minimum standard for basic pensions, to which local governments may add further on top of the central baseline.

The Ministry of Human Resources and Social Security said that with a pension fund expenditure of 532.2 billion yuan for rural and nonworking urban residents and about 180.39 million beneficiaries in 2024, the average monthly pension averages 246 yuan per person.

The relatively low level of pension benefits for China's vast rural and nonworking urban population is recognized by analysts as a weak spot in the nation's social safety net.

"This could be further increased to match the level of subsistence allowances — about 600 yuan in rural areas and 800 yuan in urban areas," said Luo Zhiheng, chief economist and head of the research institute at Yuekai Securities.

Luo said coverage, adequacy and fairness of the pension system directly affect both households' ability and their willingness to spend.

According to Morgan Stanley, if social security investments continue to increase over the next five years, the household savings rate could drop by 0.6 percentage point by 2030, thereby effectively addressing the potential shortfall in demand during the transition period.

Currently, precautionary savings remain high, while consumption accounts for less than 40 percent of GDP, said Robin Xing, chief China economist at Morgan Stanley.

Strengthening the social security system can directly alleviate public concerns about future uncertainties, thereby unleashing consumption potential. This is not only a matter of people's livelihoods, but also a key measure to address current macroeconomic challenges such as modest price levels and pressure on corporate profits, Xing said.