Editor’s Note
This analysis examines the structural slowdown in China’s economy, focusing on the pivotal real estate sector’s prolonged crisis as a primary drag on growth. Despite meeting official targets, these underlying pressures continue to shape the nation’s economic and social landscape.
After numerous crises, China’s growth is gradually slowing down. The real estate crisis, which has persisted since 2020, is a major factor in the progressive slowdown of the Chinese economy. It prompted the IMF to revise its growth forecasts for the Asian giant in 2024 downwards, despite achieving 5% growth. Furthermore, the real estate sector long represented over a quarter of China’s GDP. However, measures taken from 2020 onwards led to a tightening of credit conditions for real estate developers and significantly impacted the sector. Additionally, Chinese local governments are burdened with debt exceeding 5000 billion euros.
A period of financial crisis exacerbated by a post-Covid economic recovery less spectacular than expected. To this situation is added an abnormally high unemployment rate among China’s young population. The result is a faltering economic health and a decline in overall purchasing power. This weakening of household wealth is causing structural changes in Chinese consumer habits.
To address the challenges of this precarious budgetary and economic situation, the Chinese government chose to invest 1000 billion yuan into its economy (133 Billion euros). A choice officially aimed at boosting household consumption. However, the benefits generated by this decision will “likely go towards mortgage repayments or savings in China” according to Carole Madjo, author of a study on luxury and analyst at Barclays. In short, an expected decrease in spending that does not bode well for French luxury brands.
Furthermore, if the luxury market suffered in 2024 and risks struggling to see the light at the end of the tunnel in the coming years, it is also due to a reorientation of Chinese consumption in the clothing sector. Chinese consumers are gradually turning away from luxury brands towards more common categories, such as sportswear or beauty. A performing sector that resonates with consumers in a period where purchasing power is declining, and the government seeks to advocate for sobriety.
Staying within the luxury domain, it is necessary to note that Chinese consumers prefer second-hand products to new ones, justifying the growth of the second-hand luxury goods market. This highly sought-after market still requires significant financial capital. The rise of pingti, Chinese counterfeit products, fills this capital need by offering goods that replicate the signatures of luxury brands (excluding the logo), for prices 10 times lower than the originals.
In addition to new, less costly markets, there is also a growing reluctance to engage with the luxury market for two reasons. First, what Frédéric Grangié, president of the watchmaking and jewelry division of Chanel, calls “luxury fatigue“. Second, an irritation linked to being “harassed” by the luxury world and its advertising, increasingly focused on improving personal image and ostentatious purchases. A factor more durable and structural than other causes of declining consumption (economic situation, counterfeits…).
This situation is also intensified by a search for meaning among consumers (notably the younger ones) in their purchases. There is thus a change in the Chinese clientele, which is beginning to prioritize physical experiences, albeit temporary, over luxury goods (hospitality, travel, personal services, tourism). A search for meaning that goes hand in hand with a growing feeling of “luxury shame,” heralding the end of ostentatious displays of wealth and a French luxury synonymous with social success.