China's social reforms to improve safety net and promote inclusive growth

Despite steady improvements during the 12FYP, China's social spending as a percentage of GDP is still relatively low compared with OECD members and even with other BRICs. The high saving rates in China have been driven in part by the segmentation of the social welfare system between urban and rural residents, which has hampered consumption. The key objective in this area would be to engineer a more inclusive growth path with a fairer distribution of income.

"During the 13FYP, the government is expected to continue to improve the social welfare system and further liberalise the labour market to rebalance the economy and enhance the growth potential. It may also extend social security coverage to more migrant workers and make social security benefits portable across the country. We also expect increased public spending on education, including vocational training", says Barclays.

In addition, reforms in other social areas, such as family planning and migration, could go ahead. The government may allow couples to have two children, a change likely to be approved in March 2016 given the increasing concerns about a demographic crisis. We see room for further liberalisation in migration-related policies in major cities. 

In Shenzhen, for example, migrant workers' children can enjoy mandatory education with proof of only one year of residence required since 2015. The likely effects of these reforms, including further relaxing the 'Hukou' system to allow people to relocate permanently from rural to urban areas, would help to boost productivity growth and promote urbanisation, which is still low compared with other EMs.