QNB said China's shift towards a consumption-led economic model is still slower than targeted in the 15th Five-Year Plan, weighed down by weak demand for goods, slowing growth in the services sector, eroding property wealth and limited government support for household spending.

In its weekly report, the bank explained that for more than two decades China's growth model has relied on investment and exports, prioritising industrial policy over household consumer demand.

It noted that the results on the supply side have been striking: China currently produces more than 70% of the world's electric vehicles, accounts for more than 80% of global solar-panel manufacturing capacity, and installs more than half of the world's industrial robots.

By contrast, the report pointed out that progress on domestic demand has been more limited. Household consumption accounts for only about 40% of GDP, far below the levels recorded in advanced economies and major emerging economies.

The report showed that this share fell from 47% of GDP in the early 2000s to around 35% in 2010, and has recovered only gradually since then.

The bank explained that the 15th Five-Year Plan (2026-2030), approved in March, aims to correct this imbalance by calling for a notable increase in household consumption's share of GDP.

It added that in July the State Council approved China's first five-year plan dedicated to consumption, which targets retail sales of 60 trillion yuan by 2030, implying growth of about 3.7% a year, with top priority given to services.

The report noted that the latest data still point to major challenges in achieving the desired shift towards a more consumption-driven growth model: final consumption's contribution to GDP growth fell from 52% in 2025 to 46.7% in the first quarter of 2026.

The report expects the shift towards consumption to remain slower than planned, because the constraints on household spending are structural rather than cyclical.

Against this backdrop, QNB set out four main factors behind weak consumption in China: weak demand for goods coinciding with slowing growth in services; eroding property wealth and weak confidence; job insecurity and precautionary saving; and limited government support to stimulate consumption.

On the first factor, the report noted that Chinese households receive a relatively small share of national income. Household disposable income is no more than about 60% of GDP, far below the 70% to 80% typically seen in major advanced economies.

It attributed this to China's investment-led growth model, under which a relatively large share of income goes to the corporate and government sectors rather than to households.

The report pointed out that aggregate income figures mask wide disparities: income inequality remains high, and disposable income for rural households is less than half that of urban households.

It said higher-income households save a larger proportion of their income, so the unequal distribution of income further reduces the purchasing power available to the households most inclined to spend any extra income.

The report argued that weak consumer demand in China does not simply reflect a reluctance to spend; it is also linked to households' low share of income and its relatively unequal distribution.

On the second factor, QNB said the prolonged property slump has eroded household wealth and weakened confidence.

It explained that housing is the main store of Chinese household wealth, while property values are still falling: new home prices have declined year on year for 38 consecutive months, and property's share of household assets has dropped from 67% in mid-2021 to 52% in early 2026.

The report showed that falling wealth is putting pressure on spending at the same time as income from assets is slowing: net property income rose by only 1.6% in the first quarter, compared with wage growth of 4.9%.

It added that consumer confidence has not recovered. The index fell from 127 points in early 2021 to a record low of 85.5 points in late 2022, before reaching 89.5 points last August, a level well below the 100-point threshold that separates optimism from pessimism.

On the third factor, the report noted that job insecurity and limited social protection are reinforcing households' tendency towards precautionary saving, pointing out that youth unemployment rose to 18.9% in August, its highest level in a year.

It explained that Chinese households typically save about a third of their income, and gaps in the social safety net have reinforced this tendency. Rather than borrowing to finance spending, households are paying down debt: growth in household credit slowed to a record low of 1.1% in late 2025, as families made early repayments on their mortgages.

Meanwhile, households held deposits of nearly 167 trillion yuan at the end of 2025, twice their loans of 83 trillion yuan, indicating that households have the capacity to spend but lack the willingness to do so.

On the fourth factor, the report considered that support for consumers remains limited and largely temporary. It noted that the government cut funding for the trade-in programme, which replaces old goods with new ones, to 250 billion yuan in 2026 from 300 billion yuan in 2025, even though at its peak the programme added only 0.6 percentage points to retail sales growth.

On the other hand, the bank noted that investment in infrastructure, public services and other key areas is expected to exceed 7 trillion yuan in 2026, after the authorities chose in July to accelerate already-approved infrastructure spending rather than launch a major new stimulus package.

It pointed out that reforms aimed at curbing the motives for precautionary saving, including pension and healthcare reforms, have so far not received comparable funding.

The report concluded that achieving the goals of the 15th Five-Year Plan requires structural reforms to income and social protection, rather than relying on temporary subsidies alone.