1China Consumption: Start of a New EraChina Consumption: Start of a New EraChina BriefDaniel Zipser, Leader, McKinsey Asia Consumer & Retail PracticeNovember 2023After an encouraging start in the first quarter of this year, second-quarter and third-quarter consumption data confirms what many in the industry have already come to accept: the era of double-digit growth in China’s retail sector is over.Third-quarter retail sales of goods grew by only 3 percent, with the recent Double Eleven shopping festival eking out a mere 2 percent increase over the previous year. This slowdown is evident across various categories, including cosmetics (3 percent), clothing (4 percent), and appliances (0.8 percent), when compared to the already subdued third quarter of the pandemic-impacted 2022. Despite a promising 7.5 percent uptick in retail sales in October, there are currently few indications that China will see a fundamental reversal in this trend. (Exhibit 1)2China Consumption: Start of a New EraExhibit 1China macroeconomic and consumption indicatorsMacroeconomic indicatorsYoY growth in percent1China macroeconomic and consumption indicators4.93.114.0108.2Real GDPgrowthRetail sales(goods)Retail sales (foodservice)Airpassengersvs. 20225.5%18.7%5.2%Q32YTD31. Volume for autos (CATARC), value for other categories2. Q3 growth data is calculated based on monthly value data, except for GDP growth which is directly released by NBS3. January-September 2023Source: NBS, CATARC, CAAC5.23.03.70.83.4FoodCosmeticsClothingHomeAppliancesAuto5.3%10.6%6.8%-0.6%Growth of key consumer product categoriesYoY growth in percent1Exhibit 1vs. 2022Q32YTD3All vehicles6.7%37%+28% EVsAll vehiclesEVs126.7%Exhibit 2Residential property transactions and consumer confidenceResidential property transactions (sqm)Index 2019=100, adjusted for seasonality (3-month moving average)Residential property transactions and consumer confidence1. The index/sub-index ranges between 0 and 200. 100 is the median, indicating that consumer confidence is neutral. 0 indicates extreme pessimism; 200 reflects extreme optimismSource: NBSConsumer confidence index (CCI)1MonthlyExhibit 24060801001201402020202120222023Q3 2023 Transactions 45% lower than 20198770809010011012013014020202122Sep-23Sep 23Despite initial signs of recovery in consumer sentiment earlier in the year, it has since plateaued, hovering around its all-time low since April. Factors contributing to this include a significant drop in residential property transactions—a past pillar of wealth creation—alongside declining exports and concerns about geopolitical tensions. (Exhibit 2)3China Consumption: Start of a New EraDespite a 5 percent surveyed unemployment rate in urban areas and a continued 6 percent annual increase in disposable incomes, including in 2023, consumers remain cautious about spending, especially on properties. Household savings rates are still significantly higher than pre-COVID levels (34 percen...
