In March this year, the retail sales of consumer goods in two major Chinese cities, Beijing and Shanghai, experienced a significant decrease compared to the same period last year. Analysts and economic experts in China attribute this decline in domestic demand to factors such as the withdrawal of foreign enterprises, closure of private businesses, population decline, and the phenomenon of young people opting for a “lying flat” lifestyle.
In Beijing, the total retail sales of consumer goods in March amounted to 104.9 billion yuan, a sharp year-on-year drop of 9.9%. Throughout the first quarter, Beijing’s retail sales reached 345.9 billion yuan, down by 3.3% from the previous year. Meanwhile, in Shanghai, the retail sales in March were 128 billion yuan, marking a significant 14.1% decrease from last year. The first quarter saw a slight 1.1% decline in retail sales compared to the same period last year.
The Chinese government introduced stimulus measures in January to boost consumption, including subsidies for “Two News” (large-scale equipment upgrades and trade-ins for new consumer goods) and the release of the “Boost Consumption Special Action Plan” in March. Despite these efforts to enhance domestic demand and counterbalance U.S. tariffs, Beijing and Shanghai, as leading cities and consumption benchmarks in China, are still struggling to show improvement in consumption data.
Professor Sun Guoxiang, from the Department of International Affairs and Business at Nanhua University in Taiwan, believes that the sharp decline in retail sales in Beijing and Shanghai in March can be attributed to the depletion of the consumption subsidy effect. He points out that the substantial consumption subsidies implemented in the past two years have already been utilized by consumers, leading to a lack of sustained new demand and a rapid decline in the effectiveness of consumption stimulation.
Moreover, Professor Sun highlights that due to the continuous decline in real estate prices in major cities, residents have experienced a significant reduction in wealth, prompting a shift towards defensive savings rather than expansive consumption. Additionally, high-debt residents in these cities have seen a decrease in disposable income available for daily spending after loan repayments.
The closure of TOTO’s ceramic sanitary ware production facilities in Beijing and Shanghai, affecting around 2,000 employees, is just one recent example of foreign companies withdrawing from China. Amid the escalating tensions of the U.S.-China trade war, many multinational corporations, including Apple, are relocating their production lines outside of China. Simultaneously, numerous private enterprises in China are at risk of closure due to the inability to secure overseas orders.
Professor Sun remarks that as cities at the forefront of China’s economic fluctuations, the pressure of job cuts in Beijing and Shanghai is more pronounced, directly impacting residents’ economic expectations and consumption confidence.
In response to these economic challenges, Shanghai resident Ms. Wang expresses disillusionment, pointing out that the population decrease and closures of small businesses are prevalent, leading to a bleak environment where many struggle to survive. The trend of young people opting to “lie flat” by minimizing consumption – refraining from buying homes, getting married, or having children – is a reflection of the lack of hope and opportunities perceived by the youth today.
Amid widespread layoffs and economic downturn, the declining resident population in Beijing and Shanghai, particularly the loss of young consumers with purchasing power, further weakens the cities’ consumption demand. Professor Sun warns that against the backdrop of shifting demographics, disappearing demographic dividends, deteriorating employment market, and the repercussions of the China-U.S. trade war, the fragility of domestic demand in China may become a lasting phenomenon, ultimately posing unprecedented challenges to the country’s economic recovery and the sustainability of the internal circulation model.
The soft consumer demand in Beijing and Shanghai exposes the inadequacy of the Chinese Communist Party’s propaganda about the strength of the domestic market. The gap between reality and rhetoric underscores the deep-rooted challenges faced by China in terms of internal demand dynamics, with the consequences of insufficient domestic demand potentially leading to economic slowdown, fiscal deterioration, employment difficulties, and increased social risks.
Ms. Wang laments the current state of affairs in China: “We don’t know when things will return to normal. Right now, everything feels abnormal to us.”