Where to start
The suggestion is to promptly draft and execute a clearly defined, practical plan for increasing urban and rural residents' incomes. A recent Politburo meeting analyzing the current economic situation emphasized fully leveraging the effectiveness of existing policies, swiftly devising targeted incremental measures, intensifying counter-cyclical adjustments, and amplifying efforts to expand domestic demand while optimizing supply. Formulating and implementing an income growth plan for urban and rural residents is a key work arrangement for building a strong domestic market this year.
To date, various initiatives mentioned at last year's Central Economic Work Conference and this year's government work report—such as the consumption-boosting special action, the "AI+" action, and the service industry expansion and quality improvement action plan—have been supported by specific documents and supporting policies like the "15th Five-Year Plan for Expanding Consumption," the "State Council Opinions on Deeply Implementing the 'AI+' Action," and the "State Council Opinions on Promoting Service Industry Expansion and Quality Improvement." Given the ongoing structural divergence in China's economy, characterized by strong supply and weak demand, it is recommended to urgently develop and implement a goal-oriented, pragmatic income growth plan for urban and rural residents. This should be built on promoting high-quality and full employment, aiming to ensure that resident income growth does not fall below economic growth rates, thereby helping to clear bottlenecks in the domestic economic cycle and foster sustained, innovative, and high-quality economic development, striving for a good start in the "15th Five-Year Plan" period.
More proactive income growth targets
In the first half of this year, China effectively responded to various external shocks and internal difficulties, with the economy showing a trend of momentum shifting towards innovation and structure towards optimization. However, external uncertainties remain high, the domestic contradiction between strong supply and weak demand is prominent, and the foundation for economic improvement needs consolidation. From an expenditure perspective, real GDP growth slowed from 5% in the first quarter to 4.3% in the second quarter. The contribution of consumption and investment to growth decreased by 0.40 and 0.44 percentage points quarter-on-quarter, respectively, while external demand's contribution increased by 0.12 percentage points. In the first half of the year, cumulative real GDP growth fell to 4.7% from 5.3% in the same period last year. The driving force of consumption and external demand decreased by 0.52 and 1.01 percentage points year-on-year, while investment's contribution increased by 0.93 percentage points. Clearly, whether viewed quarter-on-quarter or half-year year-on-year, the stimulating effect of consumption has been disappointing.
China's insufficient consumer demand is largely an income distribution issue, mainly manifested in the low share of labor compensation in national income and the low proportion of residents' primary distribution income in GDP. The situation this year is also not optimistic. In the first half of the year, per capita disposable income of residents grew by an actual 4.2% year-on-year, 1.2 percentage points lower than the same period last year, and 0.5 percentage points below the real GDP growth rate. Per capita consumption expenditure grew by an actual 2.7%, down 2.6 percentage points. Meanwhile, the average propensity to consume fell to 64.6%, down 1.0 percentage point year-on-year, the lowest for the same period since 2023.
Japan's National Income Doubling Plan was a crucial step in its post-war economic takeoff. In the late 1950s, despite rapid economic growth in Japan, the populace lacked spending power, leading to structural imbalances. Consequently, in 1960, the Japanese government proposed a plan to double the national economy and per capita income within ten years. This included improving the social security system, introducing a minimum wage system, expanding pension insurance, and narrowing the urban-rural income gap. The plan began implementation in 1961, achieved the economic doubling target by its seventh year, and by 1968 Japan had become the world's second-largest economy. Concurrently, Japan's per capita national income rose from $395 in 1960 to $1,592 in 1970, real wages grew by 83%, creating a middle class of nearly 100 million people and significantly boosting consumer capacity. However, Japan's plan targeted "per capita national income" rather than "per capita disposable income" and was criticized for aiming at maximizing monopoly capital profits rather than genuinely increasing labor income.
China's urban and rural income growth plan targets "per capita disposable income." The goals of "synchronizing the growth of per capita disposable income with economic growth" and "aligning the increase in labor remuneration with labor productivity growth" are expected targets for the "15th Five-Year Plan" period. Accelerating the construction of a new development pattern is a crucial strategy for China to cope with external uncertainties. The "15th Five-Year Plan," when deploying work on improving the income distribution system, explicitly proposes increasing the share of resident income in national income distribution and raising the share of labor remuneration in primary distribution. To reflect a greater tilt of income distribution towards residents, the formulation and implementation of the urban-rural income growth plan should temporarily grasp the "synchronization" principle as "not falling below." In fact, from 2020 to 2025, China's nominal GDP grew at a six-year compound average of 5.69%, while per capita disposable income grew at an average of 5.89%, with wage income growing by 6.15%. Resident income, especially labor remuneration, grew slightly faster than nominal GDP. In contrast, from 2015 to 2019, the five-year compound average growth rate for nominal GDP was 8.93%, with per capita disposable income and wage income growing at 8.78% and 8.54%, respectively.
Focusing on wage and transfer net income
Per capita disposable income comprises four main categories: wage income, net operating income, net transfer income, and net property income. Given that wage and net transfer income together account for about three-quarters of China's per capita disposable income, increasing these two components can yield significant multiplier effects for boosting urban and rural incomes. From 2020 to 2025, the average annual growth rate of per capita disposable income exceeded nominal GDP growth by 0.20 percentage points. Within this, the growth rates of wage and net transfer income outpaced per capita disposable income growth by 0.26 and 0.17 percentage points, respectively, while the growth rates of net operating and net property income lagged by 0.35 and 0.98 percentage points. In 2025, wage income and net transfer income ranked first and second among per capita disposable income components, accounting for 56.6% and 18.6%, respectively, up 0.7 and 0.1 percentage points from 2019. Net operating income and net property income accounted for 16.7% and 8.0%, down 0.4 and 0.5 percentage points.
Increasing wage income must be predicated on promoting high-quality and full employment. Employment is the greatest livelihood; having a job generates income, which then fuels consumption. To this end, the employment-first strategy must be deeply implemented in the "15th Five-Year Plan" period, and employment promotion mechanisms should be improved. A strict "employment impact assessment" threshold for macroeconomic policies should be established to ensure that fiscal, monetary, and industrial policies align with employment goals. The continuity and stability of policies for stabilizing and expanding jobs should be maintained, stabilizing the employment scale in labor-intensive industries, expanding the employment capacity of the service sector, and increasing support for key groups. Against the backdrop of a K-shaped economic divergence, the contraction of real estate and traditional manufacturing has led to the loss of low-skilled jobs, while high-tech manufacturing and the digital economy face labor shortages. The coexistence of "people with no jobs and jobs with no people" is prevalent, and the rise in youth unemployment is primarily due to skill and expectation mismatches. Flexible employment, such as food delivery and ride-hailing, has become a buffer, but an oversupply of workers has led to declining per-order income. Therefore, large-scale lifelong vocational skills training should be carried out to promote "person-job matching" and resolve structural contradictions. Reforms in the higher education system should be strengthened to align talent cultivation with economic and social development needs. The rights and interests protection system for platform economy workers should be improved, safeguarding the rights of flexible and new-form employment personnel. The employment support and public service system should be enhanced. Increasing wage income should be market-led, with the state primarily compensating for market failures. To this end, mechanisms for wage determination, reasonable growth, and payment guarantees should be improved, the minimum wage adjustment mechanism should be refined, minimum wage standards should be steadily raised, and macro-guidance for enterprise wage distribution should be strengthened. Efforts to implement work-relief programs should be intensified to expand the scale of labor remuneration distribution.
Increasing net transfer income is of great significance. Implementing consumption subsidies falls under the category of government transfer payments. However, consumption is a decentralized decision-making process, and the effectiveness of subsidy policies inevitably diminishes during implementation. Moreover, consumption subsidies are one-off transfers, while consumption is influenced by permanent income expectations. If earlier consumption subsidies failed to achieve an economic restart, they would merely be borrowing from future consumption. For instance, Hong Kong SAR issued consumption vouchers continuously from 2021 to 2023, but real GDP only exceeded 2019 levels in 2024. A high propensity for precautionary saving is a key factor constraining household consumption in China. Improving the social security system helps enhance the permanent income expectations of residents, especially low- and middle-income groups. Therefore, efforts to accelerate the construction of inclusive, basic, and bottom-line livelihood projects should be intensified, combining investment in physical assets with investment in people. Taking the deep implementation of a people-centered new urbanization strategy as an opportunity, universal basic public health services should be implemented. Regarding the work deployments proposed in the "15th Five-Year Plan," such as extending the years of compulsory education, raising basic pensions for urban and rural residents, optimizing the supply of affordable housing, and improving birth support policies and incentive measures, progress should be made based on the principle of solving the people's most urgent problems, following the guideline of "better early than late, better fast than slow." Increasing public service expenditure requires a coordinated approach: enhancing the supply capacity and quality of public services through government consumption, and alleviating residents' concerns about consumption through transfer payments. Concurrently, fiscal and tax system reforms should be deepened, tax collection and management strengthened, local fiscal and tax systems improved, local governments' financial autonomy and coordination capacity enhanced, central-local fiscal powers and responsibilities rebalanced, and government debt management mechanisms perfected. Additionally, the proportion of state-owned capital operating profits turned over to the state should be increased to enrich national finances.
Steadily increasing net property income
Compared to mature markets like the United States, the share of net property income in Chinese residents' income is low, representing both a gap and a direction for effort. In 2025, the share of wage income in US resident income is 60.3%, property income is 20.4%, net transfer income is 11.2%, and net operating income is 8.1%. Comparing this to China's per capita disposable income structure, China's net property income share is 12.4 percentage points lower, the wage income share is 3.7 percentage points lower, while the net transfer and net operating income shares are 7.4 and 8.6 percentage points higher, respectively. The "15th Five-Year Plan for Expanding Consumption" includes multi-channel promotion of resident income growth as a key measure to enhance consumption capacity, with increasing property income through multiple channels being an important initiative for boosting urban and rural incomes. The 2024 "New National Nine-Point Guidelines" proposed for the first time a "focus on investors." The "15th Five-Year Plan" further proposes enhancing the inclusiveness and adaptability of the capital market system, improving the coordinating function of investment and financing in the capital market, and actively developing direct financing such as equity and bonds. This is a necessary step to ensure the benefits of development reach the broad masses. However, as mentioned, net property income accounts for less than one-tenth of China's per capita disposable income. Moreover, residents' wealth consists more of real estate than liquid assets, and within liquid assets, more is in deposits than in stocks and funds. Against the backdrop of real estate market adjustments and declining interest rates, it is unrealistic to expect significant short-term gains from this income source or to rush the process. Furthermore, net property income refers to factor income like interest, rent, dividends, and bonuses, not capital gains from buying low and selling high. Therefore, the comprehensive reform of capital market investment and financing directly related to net property income is aimed at improving the quality of listed companies and encouraging them to pay dividends, which helps enhance market resilience and confidence. Of course, stabilizing the financial market, especially the real estate market, helps stabilize residents' wealth stock, which is also crucial for residents' consumption capacity and willingness.
Continuing to narrow the urban-rural income gap
The average propensity to consume among rural residents in China is significantly higher than that of urban residents. From 2020 to 2025, the average propensity to consume for Chinese residents averaged 67.6%, 3.3 percentage points lower than the 2015-2019 average. The average propensity to consume for urban residents was 63.0%, down 4.4 percentage points, making it the main drag. In contrast, the average propensity to consume for rural residents was 82.8%, actually increasing by 0.7 percentage points. Currently, the share of rural residents' consumption expenditure in total consumption has dropped from over 30% at the beginning of this century to around 20%, primarily due to the large urban-rural income gap. In 2025, the urban-rural income ratio in China narrowed from 2.86 times in 2013 to 2.31 times. Among the four income components, the largest gap is in net property income at 8.87 times, followed by wage income at 3.30 times, net transfer income at 1.92 times, and net operating income showing a reverse gap at 0.80 times. During the same period, net property and net operating income combined accounted for 36.1% of rural per capita disposable income. It is recommended that, without breaching the bottom lines of "one household, one plot" and "collective ownership," idle homesteads and rural houses be revitalized through leasing, equity participation, or cooperation to develop rural industries, broadening channels for farmers to obtain property and operating income. Additionally, given the historical underinvestment in rural areas during China's industrialization process, the next step in accelerating the reform to build a comprehensive, universal, coordinated, fair, and sustainable multi-level social security system could appropriately tilt towards rural areas. This would better promote urban-rural integrated development and further narrow the income gap between urban and rural residents.
In summary, through the aforementioned income distribution system reforms, the ultimate goal is to foster an olive-shaped distribution pattern. Formulating and implementing a clearly defined, pragmatic, and feasible urban-rural income growth plan could play a positive role in improving market expectations and boosting consumer confidence. Of course, the suggestions and opinions presented in this article may not be entirely professional and may even contain errors, but they are offered to spark further discussion.
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