In the first half of this year, social consumption growth in China’s four major first-tier cities is facing pressure. Beijing and Shanghai rank at the bottom in terms of year-on-year growth in per capita disposable income. With the weakening Chinese economy, consumers’ attitudes are changing, shifting from chasing brand effects and luxury goods to pursuing value for money and quality assurance.
On August 15, data released by the National Bureau of Statistics of the Chinese Communist Party showed that the total retail sales of social consumer goods from January to July (referred to as “total social retail sales”) increased by 3.5% year-on-year. The growth rate decreased by 0.2 percentage points compared to the period from January to June, and by 1.2 percentage points compared to the first quarter.
Since March this year, the growth of total social retail sales has been under pressure, with the year-on-year growth rates in April and June reaching 2.3% and 2% respectively, hitting new lows since the beginning of 2023. In July, the growth rate of total social retail sales was 2.7%.
The slowdown in the growth of total social retail sales in the four first-tier cities (Beijing, Shanghai, Guangzhou, Shenzhen) is particularly noticeable. In the first half of the year, Beijing and Shanghai experienced negative year-on-year growth in total social retail sales by 0.3% and 2.3% respectively; Guangzhou and Shenzhen saw declining cumulative growth rates month by month, with the total social retail sales growth rates falling to 0% and 1.0% by June.
The decline in June was most pronounced. According to calculations by Tianfeng Securities, consumer data in Shanghai, Beijing, Guangzhou, and Shenzhen showed a steep decline in June. The year-on-year growth rates in total social retail sales for these four first-tier cities in June dropped by 11%, 12.8%, 10.2%, and 3.2% respectively compared to May, reaching -9.4%, -6.3%, -9.3%, and -2.2%.
First-tier cities, traditionally seen as the “leaders” in consumption, have now not only failed to drive overall consumption in China but have become a drag on it.
“First-tier cities” refer to cities with higher levels of economic development, larger populations, thriving business activities, and strong external influence.
In terms of per capita disposable income, Beijing and Shanghai currently have the lowest growth rates in China.
According to data from the National Bureau of Statistics of the Chinese Communist Party, in the first half of this year, the year-on-year growth rates of per capita disposable income in Beijing and Shanghai were only 4.2% and 4.4%, respectively, ranking at the bottom of China. The national per capita disposable income in China increased by 5.4% in nominal terms compared to the same period last year.
Regarding this trend, a research report by Shenwan Hongyuan Securities believes that real estate holds an absolute position in residents’ assets, and its price adjustments directly affect residents’ balance sheets. Fluctuations in the real estate market also impact the prosperity of related industries, thereby affecting the salary levels of related employees.
In June, the prices of second-hand houses in Beijing, Shanghai, and Guangzhou dropped by 7.8%, 6.3%, and 12.4% year-on-year. The sluggish property market has had a significant impact on assets of residents in first-tier cities, leading to a corresponding slowdown in the growth of residents’ property incomes.
Due to the economic weakness in China affecting domestic demand, many people have reduced purchases of luxury goods, resulting in decreased profits for many international brands in China in the first half of this year.
WPP, a London-listed advertising giant, reported a nearly one-quarter plunge in sales in China in the second quarter this year. French skincare and cosmetics group L’Oreal estimated that sales in China in the first half of this year decreased by 2% to 3% compared to the same period last year. The well-known German car brand Porsche stated that sales in China in the first half of this year dropped by one-third compared to the previous year.
According to the Financial Times, L’Oreal CEO Nicolas Hieronimus stated that China is the only place globally where consumer confidence remains low, and coupled with an unhealthy job market, many Chinese people are investing their savings in the real estate market, which has already depreciated significantly.
In the first half of this year, the sales of Mercedes-Benz cars in China decreased by 9% compared to the same period last year. CEO Ola Kallenius mentioned that the luxury goods market in China is cooling down, partly due to the property crisis in China, and it is uncertain how long it will take for Chinese consumers to regain confidence.
In mid-July, industry insiders in China released a report titled “2024 Young Consumer Trends in First-tier Cities.” The report reveals through the study of consumption patterns among young people in first-tier cities in China that consumers’ attitudes towards consumption are changing. They are moving from chasing brand effects and luxury goods to seeking value for money and quality assurance, from blind consumption to rational consumption, and from single consumption to diverse consumption. They are no longer blindly pursuing brand effects and price premiums but are looking for products and services that satisfy their inner needs and emotional appeals.