How Chinese shoppers downgraded their ambition
“Even those born poor fear the heat.” This slogan, printed on a lemonade from Mixue, a drinks-and-ice-cream chain, says a lot about Chinese consumption. The beverage has been a wild success during a heatwave sweeping the country, less for its tart, refreshing properties than for its price. A cup sells for as little as 3.6 yuan ($0.50), compared with 15 yuan for milk tea. Its popularity, bloggers speculate, reflects darkening consumer sentiment and growing stinginess. Consumers are rapidly trading down, from higher-cost goods to cheap substitutes, and many want to squeeze out every last drop of their spending power.
The bitter truth is that consumer confidence has continued to weaken this year, instead of recovering from the covid-19 pandemic. Even Shanghai, China’s consumption capital, witnessed retail spending fall by 2.3% year on year in the first half of 2024. Much of this is linked to the moribund housing market, by far the biggest destination for household investment. Youth unemployment is high, too. And economy-watchers were let down in July, when a grand political meeting failed to produce a proper rescue plan. Although household consumption makes up just 39% of GDP, compared with 54% across the OECD, a club of mostly rich countries, that share is continuing to slide.
Hence why downgrading is becoming a fact of life, as documented by writers across China. One food-industry author has tracked high-end eateries going out of business in Beijing. These include a Michelin-starred restaurant from Umberto Bombana, an Italian chef. Others have noted the rise of bargains. A blogger counted over 5,000 new restaurants that offer buffet-style deals. Such restaurants, writes another blogger, show “involution”—intense, self-harming competition—taking hold.
Many youngsters are happy to flaunt their tightfistedness. Some have started carrying the plastic bags in which milk tea is delivered in place of designer holdalls. Far fewer genuine luxury bags are being bought. S&P Global, a rating agency, reports that, although there was a modest appetite for luxury spending in 2023, “we don’t see any areas of strength this year.”
Near-expiry-date make-up shops have grabbed attention on social media. Many clearance stores now sell snacks and lipstick at less than half price. Cosmetics have led the decline in spending in Hainan province, which has one of the world’s largest duty-free zones. Between January and June this year, shoppers spent 4bn yuan less on eyeliner and lotion than they did during the same period in 2023.
The government appears flummoxed. On August 3rd the State Council released a 20-point plan to support consumption in areas such as child and elderly care, education, sports and tourism. But the guidelines focus on the long-term cultivation of markets, not “one-off helicopter money to households”, as analysts at HSBC, a bank, noted. Indeed, Mr Xi has been resistant to handouts. He has instead told China’s youth to persevere through the tough times—or “eat bitterness” as the Chinese saying goes. Many will suck it down with a straw this summer. ■
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