In 2014, at the first plenary meeting of China’s Central National Security Commission, President Xi first proposed the “holistic national security concept”, which an article in the official newspaper of the Chinese People’s Liberation Army (PLA), the PLA Daily, also republished by China’s Ministry of Defense (MoD) describes as “a systemic, comprehensive, and integrated security comprised of security in multiple fields, with political security being fundamental and core.”
Now, the core of ‘political security’ according to this article is “the security of the regime” wherein the regime “refers to the political organization that holds national sovereignty and the political power it wields to maintain its rule and management over society,” which in contemporary China “is manifested in the organizational leadership and ruling position of the Communist Party of China in national political life.”
Thereafter, the article emphasizes the need to “continuously enhance the awareness of potential dangers, remain highly vigilant against the political risks that may arise from the intensification of ‘social contradictions’, and take promoting social fairness and justice and improving people’s well-being as the starting point and end goal of comprehensively deepening reforms and resolving social contradictions, resolutely safeguarding the bottom line of maintaining the stability of the state power, political system, and social and political order.”
It also warns that “if these contradictions are not resolved promptly and effectively, they will evolve towards expansion and pervasiveness, jeopardizing the stability of the state power and political system.”
Notably, the article also talks about the loss of public support as a threat to the national political security by stating that “maintaining national political order should be based on the support and endorsement of the people. If this mass base is lost, the stability of national political order will be seriously jeopardized, thereby affecting national political security.”
Latest instance of such implicit acknowledgement of risks emanating from rising socio-economic problems to the CCP’s continued rule has come from the Chinese Premier Li Qiang’s 2025 Government Work Report, which said:
“Domestically, the foundation for economic recovery is not yet solid, with insufficient effective demand, particularly weak consumption. Some enterprises are experiencing difficulties in production and operation, and the problem of overdue payments remains prominent. The public faces pressure to increase employment and income. There are shortcomings in the area of people’s livelihood. Some local governments are facing financial difficulties. Efforts to resolve social conflicts and prevent risks need to be strengthened.”
Outside of the official literature disseminated by the CCP or any department of the Chinese government, there are experts within China who have been discussing the risks of rising socio-economic problems to the CCP’s continued rule without using lexicons like ‘social contradictions’.
For instance, Yang Zhicheng, Vice President and Researcher of Capital Normal University, and Special Researcher of the Beijing Research Center for Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era, said in an article in June 2022.
“We must safeguard the fundamental bottom line of political and social security and stability. In terms of social development, the risks of large-scale unemployment, public health security, and various mass incidents could all jeopardize political security and undermine the state power system and the security of governance.”
Interestingly, the Author has also come across an article published in a CCP journal in 2021, which offers a very frank admission of the problem facing “the Party’s ruling position and governance capacity” due to widening rich-poor divide and the urgency needed to address this problem.
This article was published in December 2021, under the byline, ‘Ren Zhongping’ (or 任仲平), which expert China watchers have identified as a homophone for “important commentary from People’s Daily”. Opinion articles bylined under this homophone are reportedly used to set the official tone on policies and current issues of significant importance to the CCP, and present the current consensus to CCP cadres.4 Therefore, high-level officials in China are said to pay close attention to articles appearing under this name.5
So, the article says that there has been “a significant polarization of interests and a widening gap between the rich and the poor” due to “the long-standing unfair distribution and excessive income disparity” which “may trigger doubts among the people about the superiority of the socialist system, thereby undermining or even shaking the foundation of the ruling party’s legitimacy.”
It also points out the “serious imbalance in economic and social development” due to “some Party leaders having unilaterally pursued economic growth while neglecting social development and the livelihood issues of the general public, which has also affected the public’s recognition of the Party’s performance and trust in its legitimacy.”
The article then goes on to warn that because of “the gradual emergence of various social contradictions accumulated over a long period of time, the requirement to strengthen the Party’s ruling position and governance capacity is more urgent and pressing than ever before.”
The Challenge Of Structural Reforms
The annual Central Economic Work Conference (CEWC) that is convened by the CCP to set the agenda for the economic work in the next year, was held on December 10–11, 2025, wherein the top leaders of the Party mandated that increasing domestic demand within China should be a priority for the economic work in 2026.
“In terms of tasks of next year’s economic work, the meeting said domestic demand will remain as a focus in building a robust domestic market,” said the State Council’s press release following the conference which was attended by President Xi Jinping and other members of the Standing Committee of the CCP Central Committee’s Politburo which included Li Qiang, Zhao Leji, Wang Huning, Cai Qi, Ding Xuexiang and Li Xi.
The key focus areas highlighted in the conference included the need to increase urban and rural resident income, removing “Unreasonable restrictions” in the consumption sector, implementing “more proactive” fiscal policy and a “moderately expansive” monetary policy, and defusing local government debt risks in an orderly manner.
Overall, these constitute the most substantial commitments to resolve the demand problem in China’s consumer economy, however, similar commitments have been made over the last ten years without subsequent measures to translate such commitments into actional outcomes entailing lasting structural changes.
This is because transitioning to a consumption-driven growth will require redistributing national income toward households through wage increases, broadening the social welfare system, and reduction of inequality between urban and rural populations, all of which is easier said than done because of the political and fiscal challenges associated with such structural reforms for the CCP.
The financial burden of these reforms will be bore disproportionately by China’s urban middle class, which is already grappling with financial challenges that is causing rising discontent within this demographic, and by virtue of being the most articulate and politically well-connected section of the Chinese society, forms a pillar of political legitimacy for the CCP.
For instance, one of the areas highlighted in the conference was the need to “deepen the reform of medical insurance payment methods, and strengthen care and assistance for people in difficulty”
So, per a report by Caixin Global on December 3rd, 2025, 10 Chinese provinces and major cities have eliminated household registration restrictions that prevented migrant workers and flexible employees from accessing medical insurance benefits outside their hometowns. However, local governments in rich urban centers are being reluctant to shoulder the burden of subsidizing medical coverage for newcomers with some of them even discouraging migrant enrolment by not publicizing insurance schemes or implementing complex payment systems.
Now, this is to be expected as the CCP, with its 1994 fiscal reform, increased the central government’s share of total national revenue without recentralizing expenditure responsibilities, thereby leaving the local governments responsible for the vast majority of public spending on social services like health, education, and local infrastructure while retaining a much smaller proportion of the tax revenue.
As of present, the local governments in China are said to be responsible for more than 90% of country’s social services expenditure but only receive around 50% of tax revenues, and this imbalance between revenue and expenditure has driven them into enormous levels of debt.
According to the International Monetary Fund’s (IMF’s) ‘Augmented’ Debt-to-GDP ratio for China, which includes not just the country’s central and local government debt but also the off-balance-sheet liabilities incurred by Local Government Financing Vehicles (LGFVs) that are used to fund local infrastructure and public projects, the country’s total government debt at the end of 2023 was around 117%. Now, if we add the official local debt (~32% of GDP) to the IMF’s implicit LGFV debt estimate (~48% of GDP), then the local governments’ liability amounts to around 80%, or two-thirds of this figure.
According to Rhodium Group, over fifty percent of Chinese cities experience challenges in servicing their debt, or even fulfilling interest payments, which severely restricts their ability to allocate resources for social services. Hence, the reluctance of these cities to accept new migrant enrolment for medical insurance benefits which would only increase their subsidy obligations even more.
And, this is just the case with health insurance schemes and that too for just 10 provinces and major cities which will obviously not incorporate all of China’s migrant workers, so we have not yet considered the costs of granting all the migrant workers full access to basic urban services.
China’s migrant population was believed to have reached around 300 million by 2024 with nearly half of these people residing in the economically developed eastern provinces. As stated earlier, migrant population does not enjoy access to basic urban services like healthcare and mandatory education for their children, as a result of which, they save around 70% of their income, that is twice as much as urban residents’ saving rate.
So, based on the Chinese government’s data related to migrant workers’ wages, and the funding needed to grant them full access to basic urban services according to the studies by some Chinese economists cited by the experts at Rhodium Group, it could take between RMB 15 and 46 trillion (US $2-6 trillion) to grant around 300 million rural migrant workers the complete access to urban welfare schemes. This would quate to around 11-34 % of China’s GDP and around 38-120% of its total current fiscal expenditure at the end of 2024.
Now, the question is, where will all of this money come from, because all of it cannot be raised by increasing taxes or mandatory premium payments, which as discussed earlier will put the burden on the urban middle class.
Another way to raise money is through central government borrowing whose share of China’s total government debt is only around 20%, meaning it still has some room to increase its borrowing, however, that is only because the CCP deliberately retained a larger share of tax revenue and low borrowing to maintain international credit ratings and the perception of central fiscal stability, while forcing the local governments to borrow heavily through LGFVs, which made any potential debt defaults the liability of a local state-owned corporation, not the central government’s budget.
So, it remains to be seen, whether the CCP will decide to depart from this years-long practice. The latest CEWC meeting has pledged to “implement a more proactive fiscal policy and maintain necessary fiscal deficits, overall debt levels and expenditure scale, while standardizing tax incentives and fiscal subsidy policies.”
Other than that, the CCP also has the option of selling some of the assets controlled by state-owned enterprises, which as of 2023 had reportedly reached 131 trillion RMB in value, or around 101% of GDP, however, even this is difficult as it would mean giving up a share of government control over China’s economy.
Powerful vested interest groups – composed of bureaucrats in the central and local government departments, business elites, and politicians across different factions within the CCP – maintain a monopolistic control over certain industries that can differ from time to time, which allows them to acquire special benefits.
Some examples of special benefits can be surplus profits in certain industries operating in administratively monopolized sectors, and their executives receiving salaries exceeding market standards.
An old article by columnist on Zhihu – the Chinese equivalent of Quora – cites the data from an unspecified source for the year 2005, according to which, employees in industries like electricity, telecommunications, petroleum, finance, insurance, water, gas supply and tobacco, made up under 8% of the total employee count across the country but their aggregate wages and non-wage income accounted for 55% of the total wages of all employees nationwide in that year.
Now, the preferential policies that that facilitate such special advantages for certain business elites are obviously approved by bureaucrats within the government and politicians inside CCP who engage in rent-seeking through project approvals, permit issuance, and allocation of financial subsidies.
This means that any kind of proposed reform in the SOE sector, including the sale of even a fraction of SOE-controlled assets, is likely to be met with a significant resistance from such vested groups, in particular, the ones who represent their interests in the CCP.
That said, the State Council’s press release about the latest CEWC meeting has provided positive signals in this regard by stating that “China will intensify efforts to…., formulate and implement a reform plan involving state-owned assets and state-owned enterprises, and improve supporting regulations and policies for the law on promoting the private sector.”
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