Identifying the Crucial Bottlenecks of China's Growth Slowdown and Weak Consumption——Evidence from Cross-Country and Provincial Data

Under the new “dual circulation” development paradigm and geopolitical turmoil,expanding domestic demand is vital for China to restore demand-supply balance and to sustain economic growth.Based on cross-country and cross-provincial comparisons,this study concludes that the low share of household income in GDP is the key constraint.China's share has declined to less than 50％,more than 20 percentage points below the OECD average,driven by decreasing marginal propensity to consume,worsening income distribution (Gini coefficient persistently above 0.46),and insufficient social protection (medical reimbursement rates and pension coverage both below those of Japan and South Korea).Within China,poor provinces such as Yunnan and Gansu have higher consumption-to-GDP ratios because they have higher income shares than rich provinces such as Beijing and Tianjin.Policy simulations reveal that raising the income share is far more effective than lifting household consumption rate:aligning China's income share with the OECD could increase the consumption-to-GDP ratio by 23.38％,which is 11.7 times the effect of aligning the consumption rate.It is clear that the government policy to “maintaining household income growth in line with GDP growth” is insufficient;consumption growth must outpace household income growth which in turn must outpace GDP growth.Policy recommendations include abolishing the household registration system,raising the labor income share through tax reforms,and integrating the urban and rural social security systems,and providing extra support to low-income households in rural and inland regions.