Consumption Collapse in Shanghai and Beijing: What’s Really Happening?

Hi, I'm Don Shan. Welcome to Digging into China, where we explore China in depth to review unique perspectives. Today, we are diving into the consumption trends in Shanghai and Beijing, China's wealthiest first tier cities. Surprisingly, even these economic powerhouse are struggling to sustain consumer spending. Just last week, we examined the China's first quarter GDP data and observed that the reported consumption figures appear significantly inflated. The National Bureau of Statistics claims that the retail sales of consumer goods rose by 4.6% year on year in the first quarter. However, a closer look at the last year's data reveals that the bureau quietly reduced the baseline by about 1 percentage to inflate this year's growth rate. Additionally, last year, China launched a tradein program for consumer goods, which typically involves discounted prices. Logically, consumption totals should reflect these discounts. But the bureau has admitted to using original prices for calculating CPI and consumption data, further distorting the numbers. More compelling evidence of data manipulation emerged recently when Shanghai and Beijing released their first quarter economic reports. These reports showed that the consumption in China's most affluent and consumer-driven mega cities actually declined. To put it plainly, if consumption is faltering in Beijing and Shanghai, it's highly unlikely that the second or third tier cities or rural areas could generate enough spending power to offset this decline and drive a national growth rate of 4.6%. I'm confident you'll agree with this assessment. So, in this segment, we'll explore why even the residents of Shan China's premier cities are holding back on spending. The National Bureau of Statistics reported a consumption rebound in March with retail sales soaring by 5.9% well above the quarterly growth of 4.6%. Yet Beijing's Bureau of Statistics tells a different story. Retail sales in the capital dropped by 9.9% in March. Interestingly, January and February data was stronger, but the first quarter still saw a 3.3% year-on-year decline. This trend starkly contradicts the national narrative. Shanghai mirrors this pattern. The Shanghai Bureau of Statistics reported a 1.1% year-on-year decline in retail sales for the first quarter. While March specific data wasn't provided, we can calculate it by subtracting January and February figures from the quarterly total, revealing a staggering 14.1% drop in March. Both cities show a similar structure. Stronger consumption in January and February followed by a sharp decline in March, resulting in an overall quarterly decrease. Intrigued, I investigated historical data to determine if this pattern is typical for Shanghai and Beijing. Before 2024, Shanghai's consumption typically dipped in January or February due to the Luna New Year with a recovery in March. However, since 2024, this trend has reversed with January and February outperforming March. For instance, in 2024, Shanghai's retail sales grew by 1.9% in January and February, but fell by 3 and a half% in March, leading to a modest 0.1% increase for the first quarter. This trend worsened in 2025 with the March retail sales plummeting by 14.1% signaling a deepening consumption slump. This raises a critical question. Why did Shanghai's consumption weaken during the Luna New Year before 2024, but now performs better in January and February than in March? In a city like Shanghai, the Lunar New Year often sees residents leaving for their hometowns and the locals taking holidays. So, a dip in consumption during this period seems reasonable. So, why the shift? The primary cause traces back to late 2023 when retailers facing declined sales and profits due to deflation intensify the pre-Luna new year promotions. This shifted the post holiday consumption demand to January. Additionally, the economic downturn has reduced job opportunities in cities like Shanghai and Beijing, prompting many migrant workers to remain in smaller towns after the holiday rather than return. Without the usual post Luna New Year influx of workers, the consumer base in these cities has shrunk, weakening March consumption. Compare 2024's national consumption data. I found it aligned with the Shanghai's pattern. March underperformed January and February. This suggests that in 2024, national consumption trends matched those of first tier cities. But in 2025, while Shanghai and Beijing retained the last year's pattern, the national data diverged dramatically, reverting to a pre2024 structure where consumption rebounds after the Luna New Year. This anomaly is striking. The national consumption pattern reported by the National Bureau of Statistics being entirely at odds with local data from Beijing and Shanghai is unprecedented in my analysis of years of consumption data. This leads me to conclude that inflation in this year's national consumption figures is likely the most significant on record. Now, let's examine why consumption in China's wealthiest cities, Beijing and Shanghai, is so lackluster. Focusing on Beijing, which provides detailed category breakdowns, unlike Shanghai, we see that in the first quarter of 2025, only gold, silver, and jewelry consumption stood out, surging by 29%. In March, this category maintained a robust 28 and a half% growth, likely driven by rising gold prices prompting purchases for wealth preservation. In March, aside from a modest 1% increase in grain, oil, and food, all other categories in Beijing declined. Catering revenue, for example, fell by 3.1% in March and 3.8% for the quarter. This aligns with a consumption downgrade where people opt to cook at home rather than dine out, boosting grain and food sales while reducing catering spending. Less elastic categories such as daily necessities and cosmetics saw March declines of 13% and 10.9% respectively through they eaked out a slight quarterly gains. This suggests heavy stockpiling in January and February during Luna New Year promotions which sapped March spending. It also indicates that absent holiday discounts, consumers are reluctant to spend, a hallmark of deflationary psychology. Turning to heavily subsidized categories, automobiles and household appliances, Beijing's automobile consumption fell by roughly 20% in both March and the first quarter. Household appliances dropped by 6.7% in March, but the rose by 9.9% for the quarter. This indicates that the car subsidies are no longer effective as cars are costly and not replaced annually. Appliances, however, saw a buying spree during Luna New Year subsidies, leaving little demand for March. Communication device like a smartphones present uh another puzzle. In January 2025, China expanded subsidies to include digital products such as phones, tablets, and smart watches with officials touting significant success. The National Bureau of Statistics reported a 26.9% surge in communication device retail sales for the first quarter. Yet, Beijing's data shows a 24.9% decline for the quarter and a 38.2% 2% plunge in March, suggesting Beijing residents are resisting purchases despite subsidies. Looking at Shanghai, the consumption structure largely resembles Beijing with a sharp March declines in automobiles and appliances. However, Shanghai diverges in two ways. Gold, silver, and jewelry consumption is declined unlike Beijing's boom, while electronics and communication devices saw a 12.7% increase in March. Essentially, Beijing residents are saving to buy gold while Shanghai residents are spending on phones without hesitation. Nevertheless, both cities undermine the national consumption narrative. Even Shanghai's enthusiasm for electronics couldn't achieve the 26.9% growth claimed by the National Bureau of Statistics. Following the bureau's logic, one might conclude that the China's wealth is so vast that second and third tier cities or even rural areas can propel national consumption when first tier cities falter. That would be nothing short of miraculous. In truth, Shanghai and Beijing's consumption trends align with China's current economic reality. Consider this. When the tradein program launched last year, appliance and car consumption in these cities surged, but household don't buy new cars or refrigerators every year. Thus, this year's data reflects the exhaustion of that stimulus. Discounts and subsidies pull future consumption forward. you buy a car this year instead of next. Over time, future spending vanishes, explaining why Shanghai and Beijing's consumption looks so weak this year. Last year's demand was already tapped out. If Beijing and Shanghai residents exhibit this consumption mindset, isn't it reasonable to assume other Chinese cities follow suit? If consumption is declining in these wealth centers, how can other regions defy the trend and fuel a national search? Does the National Bureau of Statistics logic hold? Beijing and Shanghai boast China's wealthiest populations. No city can claim superior consumption power. If even their residents are cutting back, yet the bureau reports a national consumption boom with a dramatic March spike. How credible is that? To counter weak consumption, the government plans to double subsidies, potentially increasing from 300 billion UN to 600 billion this year. The scope is also expanding. Last year covered the cars and appliances. January 2025 added electronics and the services will soon follow. But subsidies merely borrow from future consumption to inflate today's numbers, sacrificing tomorrow's growth. With the China US trade war, shrinking export orders, falling incomes, and rising unemployment, these challenges are inescapable. What good are subsidies when people's wallets are empty? The sobering reality is that even Shanghai and Beijing's consumption data, though more reliable than national figures, is inflated. Last year's baselines were lowered to boost this year's numbers. Without this adjustment, the Beijing's March decline would have been 11.1% indicating a baseline reduction of about 1 percentage point. Moreover, since the tradein program began, retail sales are recorded at original prices, not discounted once. If we strip away this inflation, China's consumption data would likely appear far more dire. Thank you so much for watching. If you find this video helpful, please like it, drop a comment below, and hit the subscribe button right here. 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