Disposable income key to unlock consumption

Editor's note: The promotion of domestic consumption is a pressing priority for China. Beijing Business Today spoke to Yang Tao, deputy director of the National Institution for Finance and Development, on how to release sustained household consumption. Below are excerpts of the interview. The views don't necessarily represent those of China Daily.

Particular attention should be paid to increasing net property income and net business income. Boosting household property income is a key channel through which the financial sector can support stronger consumption capacity.

Meanwhile, net business income, generated by self-employed individuals, rural household businesses and small and micro enterprises through the production and sale of goods or services, remains another important source of consumption growth. In this context, the street stall economy deserves attention as a flexible and inclusive approach to easing employment pressure and raising business income.

Research has shown that compared with international markets, the share of goods consumption in GDP broadly aligns with China's stage of economic development. However, the share of services consumption in GDP deviates more significantly from its economic growth.

Services consumption can generally be divided into several categories: basic services such as catering, transport and communications, housing-related services, domestic help, and elderly and childcare services; development-oriented services such as education and healthcare; enjoyment-oriented services including culture, entertainment, tourism and accommodation; and financial and insurance services, which have distinct characteristics.

Compared with advanced economies, spending on housing and education is relatively high in China, and that on cultural and entertainment services and financial and insurance services relatively low.

In 2026, services consumption should become a major driver of overall consumption growth, given it has greater room for expansion compared with goods consumption. In particular, development-oriented, enjoyment-oriented, and financial and insurance services are expected to play a crucial role in broadening the consumption base.

Policy efforts should therefore focus on addressing the bottlenecks in services consumption. First, raising household disposable income is essential. For development — and enjoyment-oriented consumption especially, income remains the primary external constraint.

Second, enhancing consumption capacity is critical, both in terms of objective conditions and subjective factors, which directly affect demand in areas such as cultural and entertainment services.

Third, improving consumption propensity is important. Cultural background, consumer psychology, policy orientation and future expectations all shape spending decisions. In an environment where precautionary saving remains prevalent, cautious sentiment continues to weigh on services consumption.

Fourth, improving the quality and pricing transparency of services is necessary. Compared with goods, services often face skepticism regarding standards and value for money.

Fifth, strengthening social safeguards matters not only for the current consumption environment but also for future expectations. A more reliable social safety net can give households the confidence to spend rather than save excessively.

Finally, although an increasing number of supportive policies have been introduced to bolster the consumption of services, there are still some policy constraints in certain sectors. It is necessary to systematically analyze and unlock the potential growth of the services consumption market.