The Consumption Trap
Spurring consumer spending now lies at the heart of efforts by Chinese policymakers to tackle economic challenges. But while liberating the desire for consumption at first seemed to be good news, the darker side of borrowing to spend, particularly for China's youth, is now becoming more apparent.
In this year’s government work report at the 13th NPC session, Chinese premier Li Keqiang did not set a GDP growth target for 2020. Instead of that, he devoted an entire section to discussing “expanding domestic demand” and “boosting consumption.” The concrete measures for achieving this included “promoting the integration of online and offline consumption,” and “supporting the roll-out of e-commerce and express delivery services in rural areas to expand rural consumption.”
Ever since March, as China moved gradually out from the shadow of the Covid-19 epidemic, the Chinese propaganda apparatus has been actively promoting consumption as a political goal. Local party cadres have taken to social media platforms hoping to spur consumption of their regional products. Newsreaders on China Central Television have encouraged the idea that shopping is a path to happiness.
Chinese culture has traditionally adopted notions of frugality and saving money, which remained dominant before 2000. Consumption on credit was regarded as a Western concept unsuited to China's national conditions. Today, the government, banks, online retail companies and consumer finance companies all actively encourage Chinese to spend -- even with the idea that consumption contributes to GDP growth and can support the country.
Young people under 35 years of age in China, those born after 1985, have grown up in the relative material abundance of the era of reform and opening. Unlike their parents, who endured hardships, these young people are eager to consume, and a new industry based on high-interest consumer finance loans has emerged to cater to their desire to spend.
The pitfalls of the new consumption society, particularly for young people, are becoming clearer. Young Chinese consumers are increasingly becoming ensnared by various forms of consumer fraud, including high interest rates and fees, criminal methods to exert pressure over late payments, the sale of personal data and so on.
Consumerism has a short history in China. When China surpassed Japan 10 years ago to become the world's second-largest economy, manufacturing, exports, huge infrastructure projects and real estate were still the largest economic contributors. While economic growth was strong in GDP terms, there were deeper concerns about weak domestic consumption as a point of serious vulnerability in an otherwise strong picture.
The Chinese government responded by introducing policies to spur domestic consumption. Consumer finance pilot programs were begun the same year. Between 2013 and 2017, consumer finance grew dramatically, exposing at the same time serious gaps in existing laws and regulations – concerning, for example, protection of consumer data. Meanwhile, online shopping broke through the barriers of physical space, time and region, opening up a digital world of real-time consumption. China’s annual Singles Day shopping festival – also known as “Double 11” (so named for falling on November 11) – has logged spending records ever since the first event was held by the internet giant Alibaba in 2009. During Singles Day in 2019, turnover rocketed past one billion RMB within the first 14 seconds. By the time the clock reached 1 minute 26 seconds, turnover had shot past 10 billion yuan, or about 1.3 billion euros.
The generational characteristics of consumption patterns in China show clear differences with those in developed countries. Young people, and not wealthier older or middle-aged Chinese, have been the driving force of consumption. Young Chinese have less income to deposit and save, as their parents have done, but few compunctions about living as the so-called “moonlight clan,” or yueguangzu (月光族), a more recent Chinese term for those living from paycheck to paycheck but spending liberally. They are also much more willing to borrow money.
This article looks particularly at young people in China under 35 years of age, those born after 1985. All of the cases and people mentioned in this article were interviewed by the author in person, or their cases reported in the Chinese media. Owing to the “one child” policy, implemented in 1980, they were raised in single-child families or in extended families with few children. They grew up in the relative material abundance of the era of reform and opening, and unlike their parents rarely had to endure hunger or extremes of hard work.
There is also a need to distinguish between the consumption patterns of young Chinese living in larger urban areas and those living in smaller towns and cities, or in the countryside. Those living in third or even fourth-tier cities or towns also pursue fashion and lifestyle trends like their counterparts in major modern cities. But they encounter greater financial difficulties as they feed their consumer lifestyles.
Chinese culture has generally adopted notions of frugality and saving money. Before 2000, it was fair to say that mainstream values in China predisposed Chinese against consuming on credit as was so common among their American contemporaries. The idea circulated that consumption on credit, even if it could be considered an “advanced” Western concept, was not suited to China’s national conditions. With a massive population and limited resources, conspicuous consumption seemed unattainable.
Nevertheless, within just a few years these proved to be antiquated ideas, as consumer loans grew at a feverish pace and Chinese began consuming conspicuously. These days, everyone is in the game. Governments, banks, merchants and consumer finance companies – all are actively encouraging people to spend, even with the idea that consumption contributes to GDP growth, and that it can save the country. To consume is sensible, fashionable, even patriotic.
These days, everyone is in the game. . . . To consume is sensible, fashionable, even patriotic.
The behavior of young Chinese consumers today is far more diverse than many might imagine, running across a broad spectrum. There is typical conspicuous consumption, image-conscious consumption, status-related consumption based on social position, consumption as an expression of personal style, consumption as release, consumption as addictive dependence, and so on. Understanding each of these patterns of consumption requires analyzing them in terms of a multitude of factors, including economic change, commercial strategies, changing policies, individual needs and desires, and changes in mainstream consumer consciousness.
A New World of Abundance
China’s geographical and commercial landscapes have been transformed over the past 30 years. Its cities have swelled, devouring the countryside around them. Skyscrapers and high-rises have sprouted up everywhere. In every city, shopping centers have become landmarks to newfound prosperity – grandiose and buzzing with activity, from shopping and entertainment to leisure and other services. The rollout of signature Wanda Plaza shopping malls, high-rise commercial developments operated by the now multinational Wanda Group, have brought a new level of luxury in most cities.
In China, the developments seen in Western countries over two or three centuries have been compressed into the space of just 30 years. And now, already, the shine has come off China’s shopping malls, all of which show signs of aging and fading in the face of the next revolution: online consumption. The internet and the mobile phone have now become the primary battlefield as merchants try to entice Chinese consumers.
In 2003, Alibaba opened up its Taobao customer-to-customer online shopping platform (similar to eBay). This was closely followed by a chain of competitors, including JD.com, VIPshop, Pin Duo Duo, the NetEase service Yeation and others. Alibaba then developed Tmall (formerly Taobao Mall), a business-to-consumer platform (more like Amazon), as well as other consumer platforms like Haitao, which offers links with foreign retail platforms, and Xianyu, specializing in second-hand online sales.
Fierce competition between platforms has driven prices down and resulted in better and better services. In line with these developments, the express delivery industry has expanded to reach almost every corner of China, with full coverage of rural areas and even of remote mountainous regions. JD.com has developed its own express delivery system, and parcels can arrive on the same day or next day with reliability. In this way online consumption in China has increasingly wiped away distinctions between urban and rural.
Time has also been liberated from its previous bounds. Orders can be placed 24 hours a day and in the midst of the other routines of life – on the way to and from work, between waiting times, during meals, before bed, or before going in for surgery. The "immediate return" of the online shopping experience means a level of intimacy in terms of feedback to consumer demands that is unprecedented. Since the peak time for placing orders happens around midnight, many online stores now provide consumers with live chat services late into the night.
Data shows that young women are the main force in online shopping, and consumption of skin care and beauty products has grown most dramatically, doubling between 2015 and 2017 alone. Sales continued to climb during Singles Day in 2019. These women do not come for the wealthiest segment of the population, but rather from low and middle-income backgrounds.
May, a dedicated online consumer, has been purchasing makeup online for seven years. She tends not to bargain hunt, looking for products under 100 yuan, or 13 euros, but goes instead for products at the higher end – Yves Saint Laurent lipstick, eyeshadow from Chanel and Dior. Her preference is for retro and gothic styles. May, 25, says she decided to live a “moonlight clan” lifestyle, consuming conspicuously, after she decided that she would not get married or have children or pets. But this can also stir up feelings of guilt in a society that emphasizes the importance of the family. Was she being unfilial to her parents by deciding against a more traditional lifestyle?
Young people like May, a white-collar worker in a first-tier city, have been the driving force of growing consumption in China. But consumption growth from this segment of the population has now hit a bottleneck as urban rents and property prices have risen, cutting deep into their incomes. As a result, China’s consumer market, particularly in first-tier cities, has sagged, and consumption in third, fourth and fifth-tier cities has begun to close the gap. The group commonly referred to in Chinese as the “township youth,” those from urbanizing small towns, raised eyebrows at Spring Festival time in 2019 as they rushed to pay exorbitant prices for fresh imported cherries, prized during the holiday season. There were even widespread discussions about “cherry freedom,” white collar workers in first-tier cities bemoaning the fact that despite their high incomes they were unable to purchase delicacies that their peers in smaller cities bought with seeming ease.
Followed by strong consumption of luxury goods, it is a shocking prospect of a "small town market." In a recent study called “The Disappearing Barriers,” the internet giant Tencent noted that young people in small towns in China are the new driving force in consumption because they have fewer financial pressures and more time for online activity, including shopping, playing games and watching videos. They tend to actively follow fashion trends, enter marriage and family life earlier, invest in education, and so on. Moreover, life away from the first-tier cities is still more focused on closer relationships and familiarity with those around you, which translates into greater conspicuous consumption as a means of demonstrating social status and earning social capital.
In the mobile payment scenario, the post-90s generation is the main force driving consumption – and also the main force in borrowing. The zeal for online shopping among those in China under the age of 25 is even imperfectly understood by their parents. But imagine this very real scenario: A strictly managed secondary boarding school in a fifth-tier city, where students are not allowed to have mobile phones in class, but where somehow the students still manage to continue their online shopping [at break times]. Their parcels are sent to shops in the vicinity of the school, usually near the school gate, and can be picked for just one yuan, charged by the shop as a storage fee.
Online shopping parcels are packed under many dormitory bunk beds in China’s boarding schools. In all likelihood, these students rushed to turn the cash they received from their parents, or from relatives during the New Year, into digital currency on platforms like Alipay and WeChat. What their parents may not understand is that this digital conversion has nothing to do with savings, but rather is all about the compulsion to shop online.
The zeal for online shopping among those in China under the age of 25 is even imperfectly understood by their parents.
When shopping becomes daily routine, consumer demand and desire are constantly being generated. This kind of daily routine shapes not only buying habits, attracting eyes and swiping fingertips, but also creates psychological expectations, payment habits, expectations of the receipt of parcels, the thrill of unpacking, and so on. And this shapes at the same time the behavioral patterns and values of young people.
One result of the formation of this chain of expectation is varying degrees of consumer addiction.
Today’s online shopping platforms have essentially taken the consumer catalogue of the past and made it far more graphic and interactive. Young people today are no longer simply choosing goods – the goods are coming to them and at them, seeking to attract and please them. But it is not just about the goods. Consumption itself is the source of enjoyment at a basic level. In the past few years, livestream shopping has become a popular way in China of integrating shopping and shopping guides with various forms of entertainment, star chasing, games and education. The act of consuming is no longer limited to the act of shopping.
Looking at consumption by gender, women in China tend to spend money on their bodies (makeup, accessories, clothing and so on), while men tend to spend money on games and on observing attractive women (including bestowing gifts to beautiful online idols in livestreaming “rooms”).
One young consumer, identified as “Mr. L,” was conservative in his online and offline consumption before he purchased his first gift for an online singer through Momo, a livestreaming platform. He rarely bought clothes, ate out, or purchased videogame equipment or other products – his total annual discretionary spending coming to just two or three thousand yuan, or about 300 euro. As a result, Mr. L. also had substantial savings. But three years ago, on a friend's recommendation, he began spending his spare time following an online singer/blogger hosting livestreams on Momo and other platforms such as Yingke, Douyu and Qi Qi. As he chatted and interacted with the livestream host, he expressed his interest and gratitude by gifting her with gifts costing the equivalent of several euro, to more expensive offerings – the host becoming sweeter and more attentive as the gifts became more generous. Before long, L. had spent tens of thousands of yuan, all of his savings, and eventually started borrowing in order to feed his online habits.
China’s Roaring Age
It is now a fact that many young people in China do not save money, and they spend liberally on credit. This fact is shocking for many Chinese once they are forced to face it. Chinese parents often feel helpless, having assumed that their children will save money as they have been taught. In fact, the spending habits of the younger generation are also a silent protest against the older generation, as though to say: “We are not like you.” Young people feel that they are living in the good times, and they don’t accept that they should be held back and restrained like their parents.
For Chinese young people, shopping is less about the goods themselves than about the pleasure of ordering and receiving. Why should you need one hundred lipsticks, or two hundred pairs of shoes, if you have only one head and two feet? It is about the sense of fulfillment that comes with ownership. And Chinese shopaholics today are turning their homes into storage places for their online fantasies.
Becky, a well-known fashion blogger, purchased a 200-square-meter luxury apartment, most of which is now dedicated to storing and showcasing her clothes, shoes and hats. Her "palace," as she has called it, quickly gained popularity online and defined a new level of consumer aspiration for young Chinese. In China, where housing prices are sky high, having a cloakroom has become an important symbol of luxury. Becky, as a super guru of buying and more buying, has called on young people to “buy the best they possibly can.”