July 1st news (reporter Shi Rui) currently, policies to promote consumption such as 'replacement of old for new' are rapidly spreading, and the year-on-year growth rate of social retail sales of consumer goods has increased from 4% in January-February to 6.4% in May. It is expected that the support of consumption for economic growth in the second quarter will be further enhanced. However, short-term stimulus policies for consumption are difficult to truly expand the total volume of consumption, and some deep-seated problems urgently need higher-level overall planning and institutional breakthroughs.

Recently, the 2025 second quarter report of 'China Economic Observation Report' released by Peking University National School of Development emphasized that to achieve the transformation from consumption recovery to sustained expansion, it is necessary to make simultaneous efforts and promote synergy on both sides of demand and supply. Only through a two-wheel driven policy system can the foundation for high-quality development be consolidated and the potential for consumption upgrading be released.

Demand-side 'increase in income, strengthen protection, stabilize expectations'

The report shows that demand-side reform includes enhancing labor remuneration and rural property income, improving a social security system covering all people, and stabilizing market confidence with inflation targets as the anchor. From the three aspects of income sources, risk protection, and expectation management, it systematically enhances the ability and willingness of families to consume.

Regarding the 'increase in income', the report suggests that it should cover both the initial distribution and redistribution levels. In the initial distribution phase, it is necessary to continuously increase the proportion of labor remuneration, promote the growth of wages in sync with labor productivity, and ensure that workers receive a more reasonable share of national income.

In the redistribution phase, it is necessary to improve the tax regulation and transfer payment system, increase support for the middle and low-income groups, and expand the available income of the household sector. To improve the income structure of rural residents, it is possible to explore the construction of a system arrangement such as 'voluntary withdrawal of residential land plots - settle in cities - obtain property compensation', which can increase the property income and transfer payment income of rural residents.

Peking University National School of Development Economics tenured associate professor Zhao Bo analyzed that, the income of rural residents mainly comes from labor income and agricultural income, which is greatly affected by the economic cycle. The rural residents' housing is a kind of 'dormant asset'. When they enter the city, if their property income can be increased institutionally, it will help reduce the income gap between urban and rural residents.

In response to 'Enhanced Guarantee', the Report suggests achieving substantial national coordination of social security and significantly improving the treatment levels of basic old-age insurance and medical insurance for urban and rural residents, narrowing the gaps in guarantee between systems, groups, and regions.

To this end, it is recommended that the central government take the lead in issuing special national bonds, which are specifically used to supplement the pension, medical insurance, and unemployment insurance funds, and achieve a shift from 'local subsidy as a safety net' to 'centralized coordination and main responsibility'. Compared to traditional infrastructure stimulus, the injection of fiscal funds into the social security system is more helpful to enhance residents' expectations for future wealth and health expenditures, reduce precautionary savings, and stabilize long-term consumption behavior.

In response to 'Stabilize Expectations', the Report suggests constructing a policy transmission system anchored by inflation targets, and also making 'realizing and stabilizing CPI inflation at 2%–3%' a core macro-control target. Achieving a moderate inflation target requires coordinated efforts of fiscal and monetary policies to stabilize and boost domestic demand.

Supply-side 'Reduce Costs, Enhance Incentives, Expand Access, Supplement Talents'

Against the background of the marginal effect of traditional macro policies weakening and the continuous upgrading of residents' consumption structure, structural industrial policies are increasingly becoming an important lever for promoting domestic demand growth.

The Report mentions that supply-side reforms include focusing on the reduction of institutional costs and efficient allocation of factors, reconstructing local fiscal and tax incentives, breaking down entry barriers in key service areas, guiding the competition of supply among diverse entities; at the same time, improving the training and guarantee system of service industry talents, and promoting consumption from 'affordable goods' to 'affordable services'.

The Report shows that some service industry enterprises still face high operating burdens, including high land prices and difficulties in obtaining land; high electricity costs; complicated startup processes, and uncertainty in regulatory rules, etc. Therefore, it is recommended to effectively reduce the costs of service industry enterprises in key links such as land, energy, and the institutional environment, laying a solid foundation for consumption growth.

Zhao Bo believes that the service industry has become the main driving force of China's economic growth. Whether from the perspective of stimulating consumption or from the perspective of improving the unified large market of the whole country, local governments should treat various market entities equally. The key to the development of the service industry lies in creating a more convenient and low-cost market environment.

Regarding the 'Enhanced Incentives', the Report proposes to establish a dual tax incentive system of 'Value Added Tax (VAT) + Consumption Tax', forming a fiscal distribution mechanism linked to local consumption capacity, and reconstructing the local incentive mechanism in the tax system, so that local governments can obtain stronger fiscal returns in promoting consumption prosperity.

The 'Expand Access and Supplement Talents' proposal in the Report suggests accelerating the removal of institutional barriers affecting the entry of private and foreign institutions into the public service system, while at the same time, improving the service industry talent system and alleviating the structural shortage of skilled labor. The performance-oriented mechanism promotes orderly competition among diverse entities, and the innovation in human resource systems supports the stable expansion of grassroots services, which not only helps enhance the supply capacity of public services but also strengthens residents' confidence and willingness to pay.