Are Chinese consumers heading into a "Lost Decade" similar to Japan's?

Why are Chinese consumers spending less?

Last week, I chatted with a family friend who distributes imported goods to marketplaces and major retail chains in Jiangsu, one of China's richest provinces. She was pretty straightforward when I asked about the consumer outlook for 2024 in China. "We're already in a deflation, barely making a profit, and we have to deal with middlemen taking their cuts, and there's hardly any profit for them either," she said. She also mentioned that "This year's March 8 sales were even worse than last year. Consumers are mainly stocking up on cheap necessities like tampons and detergents, and you see a significant drop in sales as soon as the promotional period ends." (Note: March 8, International Women's Day, is typically a key date for commerce promotions in China.)

Last year, a wave of layoffs and salary cuts swept through the finance and real estate industries, forcing many young white-collar professionals, including myself, to confront probably the toughest economic conditions they have ever faced since they were born. As fears of "near deflation" loom and hopes for a salary increase appear dim, it's no surprise that consumers in China are increasingly discussing ways to save rather than spend.

The "post-Covid revenge shopping" didn't materialize in 2023, and by 2024, consumers seemed to have adopted an even more rational approach, moving away from the exuberance of 2021. This shift is leaving a lasting impact on consumer mindsets, with "shopping rationally" emerging as a new value proposition.

Engagement with the topic of "consumption downgrade" has surged on Chinese social media platforms like Douyin and Xiaohongshu in 2024. On Xiaohongshu, China's Pinterest-like lifestyle social media platform, many netizens are not exactly discussing how to find the cheapest options but are sharing insights about "demystifying" luxury products and high-end appearances. Some are saying, "It's not about being rich or poor. I have actually become happier by not being captured by consumerism and living a simpler life."

One cannot help but be reminded of Japan's "lost decade," with so many elements like the real estate bubble burst, a deflationary period, and a noticeable decline in consumer enthusiasm, a declining birth rate, all screaming similarity. Among my generation of young Chinese born in the '80s and '90s, the term "平成废柴" or "Heisei Wastrels" is gaining traction. This label, borrowed from Japanese netizens, was used to describe Japan's Heisei era generation, marked by their perceived lack of ambition and enthusiasm during economic stagnation from 1989 to 2019.

Similarly, many among us are drawing parallels to the "佛系" or "Buddhist-style" mindset, a trend of disengagement from societal expectations, minimalism, and a focus on personal interests at one's own pace. (Interestingly, the concept of "Buddhist style" also originated in Japan and was later adopted in China, becoming widely popular since 2018. )

So, why are Chinese consumers spending less? And does that indicate that Chinese consumers are heading into a "Lost Decade" similar to Japan's? The quick answer is that I personally don't think so, but let me go through a couple of observations on this topic with you in today's newsletter.

Towards value-oriented spending

On an aggregated level, Chinese consumers technically did not spend less. Overall retail sales grew by 7.2% year-on-year in 2023. However, price-for-value is increasingly becoming an important factor in any purchase decision. Across the major online e-commerce platforms we track, most categories witnessed a decline in the average selling price, with digital electronics as the rare outlier.

But the "value" could mean different things for different people