Weekend Long Read: How China’s Slowing Economy Is Shaking Up Consumer Spending Habits

18 Jul 2025

Editor’s note: As China’s economy is facing headwinds including low growth, weak domestic demand and an aging population, this article will look at how consumption in the country is evolving and what opportunities are being presented for businesses.

In recent years, China’s consumer market has undergone a brutal reshuffle as a consequence of several long-term challenges such as slowing economic and income growth, insufficient social security, and an aging population. This is coupled with short-term factors, including weakening consumption expectations.

Consumption in major cities and large department stores has seen a significant decline, while the markets for real estate, automobiles, furniture and home appliances have continued to slump.

However, amid this historic macroeconomic transition and shakeup in the consumer market, new business opportunities are emerging, and some consumer sectors and companies are rising to capitalize on the changing trends.

In 2024, consumption in tourism, health and entertainment, as well as consumption in third- and fourth-tier cities near large cities, were among those trends growing more prevalent.

In an era of slowing economic growth, high-quality development, post-real estate and population aging, what trends will Chinese consumption exhibit? What new opportunities will arise?

The first trend is a shift from big-ticket, long-cycle consumption to fast, value-for-money consumption.

In the past two years, big-ticket household expenditures with long cycles have declined significantly, such as taking out car and home loans. Meanwhile, in the fallout of the pandemic, the closure of many stores has intensified the risks associated with long-cycle, high-value consumption, resulting in the collapse of the prepayment model usually adopted by establishments such as gyms and massage shops.

In the future, consumers will reduce large expenditures, shorten consumption cycles, and lower consumption risks. Instead, they will tend to pursue cost-effectiveness, increasing value-for-money consumption.

Japan’s experience reflected such a shift. After the country entered a recession, there was a consumption downgrade. Affordable consumption, represented by Muji and Uniqlo, and quick-turnaround consumption, represented by convenience stores, grew rapidly.

China’s consumer market mirrors a similar trend in recent years. Services typically consumed by China’s middle class, such as Starbucks and Nayuki, have experienced slowed growth. More affordable alternatives like Luckin Coffee and Mixue Bingcheng, as well as other cheaper options such as online food delivery and livestream sales, have grown rapidly. Among them, Miniso, similar to Muji, is a model of value-for-money consumption in China.

However, preferring goods or services that are good for value does not mean cheap consumption. Its essence lies in cost-effectiveness — that is, consumers pursuing the most basic and fundamental value, and forgoing other things that aren’t important to them.

To seize the opportunities in this transition, one must aim for ultimate cost-effectiveness with three points being the key: efficient global supply chains, minimalist design with high-efficiency service, and rapid product updates.

As consumers emphasize good value for money, consumers may start forgoing international brands and substituting them with domestic brands.

In the past three years, domestic cosmetics brands rose to replace global labels at a faster pace. Sales of international brands have declined, while leading domestic brands have grown rapidly.

In fact, over the past decade, many other industries have experienced a wave of these kinds of substitutions, ranging from televisions and washing machines to computers and mobile phones — and now to cars and cosmetics.

These substitutions have recently been fueled by two forces: stronger nationalism and national confidence among the generation that grew up during the period of continuous high economic growth. They show less admiration for international brands and stronger recognition of high-quality domestic products.

When economic growth slows, consumption returns to rationality, moving away from big brands and luxury goods.

In the second trend, consumption shifts from high-tier cities to surrounding lower-tier cities, with the tourism and service industries within one hour of megacities such as Beijing, Shanghai, Guangzhou and Shenzhen experiencing growth.

In 2024, rural consumption grew faster than urban consumption. Retail sales in rural areas grew 4.3% that year, higher than the 3.4% growth in urban areas.

A further breakdown showed that the growth in higher-tier cities was significantly slower than in their lower-tier counterparts, with consumption in first-tier cities even experiencing a decline. Total retail sales of consumer goods in Shanghai and Beijing fell by 3.1% and 2.7% in 2024, respectively.

Consumption in lower-tier cities around major cities was impressive. The reason for regional consumption divergence may be partly that residents of first-tier cities are more sensitive to macroeconomic performance and income changes.

In recent years, higher-tier cities have been hit harder by shocks such as the real estate downturn, the slowdown in foreign investment, salary cuts among civil servants and internet giant employees, as well as increased regulatory scrutiny over the finance industry.

China’s higher-tier cities rely more on leveraged investment and consumption than their lower-tiered counterparts. When macroeconomic and income expectations decline and debt burdens grow, residents’ consumption expectations are more likely to drop in higher-tier cities.

Meanwhile, in higher-tier cities, big-ticket items such as homes, cars and home appliances account for a large proportion of residents’ spending. The significant decline of these categories has dragged down overall consumption in higher-tier cities.

That said, much of the future consumption will come from bigger cities rather than lower-tier cities or rural areas. Against the backdrop of an aging population, first-tier cities and core regional cities will see a continued influx of people. Most rural areas and small cities are already on the path to declining consumption in the long term. Only lower-tier cities near large cities look likely to beat the trend.

Because households already settled in higher-tier cities don’t have a strong need for big-ticket items such as housing and cars, they are shifting their spending toward services like dining, hotels and tourism in surrounding cities. Some nearby lower-tier cities will gain spillover benefits, especially tourist and leisure destinations within an hour’s travel of Beijing, Shanghai, Guangzhou and Shenzhen.

III

A third trend is turning from the consumption of durable goods and discretionary spending to service and essential spending.

In recent years, major spending categories such as automobiles, building materials and furniture have seen significant sales declines. This indicates that the real estate downturn and overcapacity in the auto industry have become a drag on consumer spending.

Discretionary spending, such as gold and silver jewelry and cosmetics, has also been on a downward trend, while spending on essentials, such as food and communication devices, has continued to rise.

The logic behind this is the cyclical transformation of the nation. In times of high economic growth, industrialization and urbanization, it is the golden era for durable goods and big-ticket item consumption. But now, China is entering its post-industrial, post-urbanization and post-real estate era — characterized by an aging population.

It is expected that when the real estate sector stabilizes, its drag on big-ticket item consumption will lessen. Moving forward, the durable goods market will shift from big-ticket, family-oriented items to niche, personal ones — from household appliances to personal appliances, such as smart vacuum cleaners, smart ovens, and companion robots.

Another trend is moving from department store brand consumption to what has been called “small, beautiful and specialized” consumption. This trend is expected to benefit efficient convenience stores, refined specialty stores and online shops.

As pressure on the economy grows, overall consumer prices are declining, department stores are seeing less foot traffic, and sales in department and brand stores — especially international luxury brands — have suffered notable drops.

The direction of future business models will no longer be large department stores or luxury brand stores, but shops that embody the “small, beautiful and specialized” model.

This trend is being driven by the economic slowdown, population concentration, aging, and an increase in single-person households, with consumers seeking efficiency and internal value.

Consumers will also shift from standardized material consumption to diversified, personalized consumption. If we only focus on the economic slowdown, we can only see one opportunity: the downgrading of consumption. But if we observe consumer psychology, preferences and behavior through the dual lenses of the economic slowdown and the aging population, we can discover structural opportunities in diversity.

The logic behind diversified, personalized consumption is that consumers are more focused on their inner feelings and preferences, rather than choosing based on popular standards or defined labels. They go from focusing on standardized material needs to focusing on their varied psychological needs. They pay more attention to their inner self, and pursue individuality, elegance, health, nature, fun, and a sense of joy and peace.

Health and wellness consumption is both a material and a psychological form of consumption, but it is gradually evolving into the latter. Consumption opportunities from these trends are not limited to seniors, but may come from people of all ages.

This is because, as the economy slows, consumer psychology will tend toward health and nature, pursuing a quality of life as they see it. This comes with changes in people’s lifestyles: from binge eating to healthy eating, focusing on natural foods and moderation.

In the future, China’s health and wellness consumption opportunities include services like: massage, yoga, gyms, experiential travel, sports, and fitness services. Other opportunities can be found in businesses like skin care, scalp care, nail care, and healthy drinks.

Currently, China is undergoing a structural consumption upgrade. The direction of the upgrade is from rough to refined, from complex to simple, from external to internal — pursuing psychological, technological and quality upgrades along the path of cost-effectiveness.

The upgrade in psychological needs means consumption is returning to people, to their inner world and spirit. It includes entertainment, health, leisure, healing, gaming, and learning. Meanwhile, technological advancement lowers product prices and increases cost-effectiveness. New supply creates new demand, meaning tech consumption remains a solid trend for the future. In addition, consumption is shifting from bigger and more to higher-quality products.

To sum up, the transformation of China’s economy has caused a major shift in the consumer market, as seen by profound changes in consumer psychology, behavior, and preferences.

Xue Qinghe is an economic columnist who leads the popular blog Zhibenshe.

This article has been edited for length and clarity.

Contact translator Qing Na (qingna@caixin.com) and editor Michael Bellart (michaelbellart@caixin.com)

caixinglobal.com is the English-language online news portal of Chinese financial and business news media group Caixin. Global Neighbours is authorized to reprint this article.

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