Understanding China's Consumer Spending Slump
Consumer spending in China shows little sign of a meaningful rebound, despite some economic recovery efforts. Several factors contribute to this cautious behavior, including stagnant income growth, shifts in consumer preferences, and a fragile social safety net.
Income Growth Remains Tepid
Since 2020, disposable income growth in China has slowed significantly, expanding by just around 5% annually. This slowdown has eroded consumer confidence, keeping spending levels subdued. Out of 16 major industries, wage growth has outpaced overall economic growth in only three sectors: mining, utilities, and information technology.
Rising Unemployment and Job Market Concerns
The job market paints a challenging picture. Youth unemployment among those aged 16 to 24 stood at a concerning 15.8% in April. Meanwhile, the official urban unemployment rate remains near 5%. These figures contribute to a general cautiousness among consumers.
A Growing Preference for Saving Over Spending
A recent survey revealed that a record 64% of Chinese households in late 2024 preferred saving over spending or investing. Although this percentage slightly declined to 61.4% by early 2025, it highlights a persistent trend of frugality. Among those willing to spend, priorities leaned towards essentials like food, healthcare, and tourism.
Underlying Cultural and Economic Factors
Saving has long been ingrained in Chinese culture, partly due to limited social insurance coverage, which forces individuals to fund high costs for healthcare, education, and retirement. Additionally, a property market slump has diminished household wealth, further discouraging expenditure.
Potential Solutions to Boost Consumer Confidence
Economists suggest several strategies to encourage spending:
- Higher pension payouts by increasing state asset contributions
- More public holidays to stimulate leisure spending
- Issuing targeted consumption vouchers for the services sector
While authorities have recently increased efforts to stimulate demand, major cash handouts—like those used in other economies following the pandemic—have not been implemented.
Shift Away from Big Cities Influencing Spending Patterns
demographic shifts are reshaping consumer behavior. Cities like Shanghai and Beijing lost 72,000 and 26,000 residents respectively last year, reflecting a move towards smaller, lower-cost cities.
Impact on Market Dynamics
Smaller tier 3 and tier 4 cities experienced stronger growth in daily necessity sales, offsetting declines in larger metropolitan areas. Overall sales volume of packaged foods, beverages, and personal care products rose 4.4% last year, but average prices dropped by 3.4% as consumers favored more affordable options and businesses ramped up promotions.
Example: The Flower Market
The largest flower market in Asia observed increased demand coming from lower-tier cities, translating into higher sales volumes but lower prices. Sellers anticipate demand will rise again around major holiday periods.
Income Disparities and Consumption Limits
Urban residents enjoy average disposable incomes significantly higher than their rural counterparts—urban per capita income was approximately 54,188 yuan ($7,553) in 2024. Yet, consumption growth has slowed among urban households, while rural consumption has increased and even surpassed pre-pandemic levels. Despite this, lower-income groups lack the wealth scale to dramatically increase overall consumption.
Wealth Concentration Worsens Spending Gaps
The top 20% of earners in China command half of the total income and consumption, holding around 60% of savings. Without structural wage reforms, targeted policies for low-income groups may fail to substantially boost spending.
Uncertainty Amid Policy Shifts
China's push towards “common prosperity” has introduced institutional and regulatory adjustments aimed at reducing inequality. However, these changes have added to market and consumer uncertainty, complicating a return to stable spending patterns.
