Consumer Spending Slows Despite Policy Support, E-Commerce Remains Robust

BEIJING – September 19, 2025: China’s consumer recovery is showing signs of fatigue. Retail sales grew only 3.4% in August, the slowest pace since late 2024 and a downgrade from July’s 3.7% growthreuters.com. The cooling consumption figures – below market expectations – reflect households’ continued caution amid a wobbly job market and property slump. Urban unemployment ticked up to 5.3% in August, a six-month high, as the shaky real estate sector and weak business confidence curbed hiringreuters.com. With property values stagnating and youth unemployment elevated, Chinese consumers have become more frugal, prioritizing essentials and shying away from big-ticket purchases. The result is a mixed demand picture: spending on food and daily necessities jumped 15% and 5.7% respectively in Jan–Aug, while discretionary categories like clothing eked out only 2.4% growthenglish.www.gov.cn.

The government has rolled out a flurry of measures in recent months to stimulate consumer spending. Authorities have unveiled subsidies for electric appliance trade-ins, cut EV purchase taxes, and encouraged local festivals and night markets to spur activity. Special policies, such as childcare subsidies and free preschool education, are being introduced to reduce family expenses and boost consumption capacityenglish.www.gov.cn. Several cities have distributed digital shopping coupons and extended e-commerce shopping festivals – with some online platforms stretching mid-year “6.18” sales for over a monthnielseniq.com – successfully driving short-term sales boosts. Thanks in part to these efforts, online retail remains a bright spot: in the first eight months of 2025, online sales climbed 9.6% year-on-year to ¥9.98 trillion, far outpacing overall retail growthenglish.www.gov.cn. Physical goods e-commerce grew ~6.4%, now making up a quarter of all retail purchasesenglish.www.gov.cn. Major e-commerce players report robust demand during promotions – for example, FMCG online sales jumped 16% in Q2, several times faster than offline channelsnielseniq.com. This underscores a structural shift toward digital consumption, as consumers respond to convenient delivery, aggressive discounts, and a glut of online marketing campaigns.

At the same time, service consumption has shown resilience, aided by China’s reopening and pent-up demand. Travel and hospitality have rebounded – domestic tourist trips during the summer surpassed 2019 levels, and catering revenue has been growing at high single digits. The NBS non-manufacturing PMI indicates expansion, with services PMI above 50 for August as entertainment, sports, and leisure sectors recoverreuters.com. Upcoming holidays (the Mid-Autumn/National Day “Golden Week”) are expected to further lift spending on travel, dining, and retail, thanks to cross-provincial travel promotions and discounted attraction ticketsenglish.www.gov.cn. However, consumer confidence remains fragile. Notably, China entered a brief period of deflation in consumer prices this summer – the CPI fell 0.4% year-on-year in Augustenglish.www.gov.cn – reflecting falling food prices and soft demand. Core inflation (excluding food and energy) stayed positive at +0.9%, but the dip into negative headline inflation prompted the government to caution retailers against excessive price cuts. Regulators even cracked down on “price wars” among certain firms to prevent a deflationary mindsetreuters.com, an unusual step highlighting policymakers’ concern about weak demand.

Despite the slower growth rates, China’s consumer market by value remains enormous. Total retail sales reached nearly ¥3.97 trillion ($545 billion) in August aloneenglish.www.gov.cn. Year-to-date, retail sales are up 4.6% (to ¥32.4 trillion) – a solid pace, though below the official 2025 target of ~7%english.www.gov.cn. Within this, online retail of goods (~¥8.1 trillion) now accounts for about 25% of total retailenglish.www.gov.cn. Key growth areas include food and beverage consumption, boosted by restaurant reopenings and grocery e-commerce, and auto sales, which have improved thanks to EV subsidies. On the other hand, property-linked consumption (home appliances, furniture) has lagged due to the housing slump. Consumer credit data show households remain cautious: new short-term consumer loans grew only modestly over summer, while the savings rate is still elevated compared to pre-pandemic norms. [End market data]

Industry implications: General counsel and market strategists at multinationals are parsing these trends to adjust their China playbooks. One clear takeaway is the increasing importance of digital channels. Companies in China’s consumer sectors are accelerating their omnichannel strategies – integrating online marketplaces, social commerce (like live-streaming on platforms), and brick-and-mortar experiences. The fact that online sales growth (≈+9–10%) is double overall retail growthenglish.www.gov.cn signals that e-commerce capabilities are no longer optional but essential for capturing the Chinese consumer. Global brands are investing in local e-commerce partnerships, optimizing for big sales festivals (Singles’ Day 11.11, 6.18, etc.), and ensuring compliance with China’s evolving data and advertising regulations that govern online consumer data use.

Another implication is the need for agility in pricing and product mix. With deflationary pressures and fickle sentiment, companies find success by tiered product offerings (value-for-money lines to attract budget-conscious buyers, alongside premium lines for the affluent segment that’s still spending). Promotional compliance is an emerging issue too: recent government intervention in pricing means firms must balance promotions with the risk of regulatory pushback on predatory pricingreuters.com. Legal teams are reviewing pricing strategies and marketing claims to ensure they don’t run afoul of anti-unfair competition laws or new coupon regulations.

Market gaps are also evident. One gap is in rural consumption – rural retail sales (+4.7% YoY) slightly outpaced urban (+4.6%) in Jan–Augenglish.www.gov.cn, thanks to e-commerce penetration. Companies that can effectively reach lower-tier cities and rural consumers (for instance, via short-video apps and rural logistics networks) stand to gain from an under-tapped segment. Another gap lies in consumer finance: the reluctance to spend on credit suggests room for growth in innovative financing options (like Buy-Now-Pay-Later plans or low-interest consumer loans) if consumer confidence improves. Multinational banks and fintech firms are exploring partnerships in this space, mindful of China’s regulations on consumer lending.

China’s consumer story at this juncture is one of tempered optimism. Policy support is in place – from subsidies to likely interest rate cuts – aiming to bolster spendingreuters.comenglish.www.gov.cn. The upside potential is significant if households begin to feel more secure: trillions in excess savings are waiting on the sidelines. For companies, the near-term strategy is twofold: play defense and offense. Defense means navigating a soft market by controlling costs, mitigating inventory buildups, and ensuring compliance (for example, with China’s new personal data protection in retail and advertising content rules). Offense means doubling down on the channels and products that are growing – notably, online platforms, health and wellness products, affordable luxuries, and experiences. Foreign businesses with a long-term view still see China’s 1.4 billion consumers as a cornerstone of growth, but capturing that growth requires sensitivity to these micro-trends. As one analyst noted, “We had expected retail sales to stay above 4% – the recent dip is a disappointment”reuters.com, yet the coming holiday season and policy tweaks could re-energize the consumer. In summary, success will come to those who can align with China’s pro-consumption policies, leverage the e-commerce boom, and remain nimble in the face of shifting consumer behaviors.