Spending on China’s major e-commerce platforms for 618, one of the key shopping festivals on the retail calendar, rose 5.4 percent year over year, according to Syntun, a third-party retail data provider collating estimated GMV from JD.com, Alibaba’s Tmall and Pinduoduo. The figure represents the slowest growth rate in three years.

The day originated as a celebration of JD.com’s founding on June 18 but it has since become a widely-adopted promotional event across many retailers and provides a bellwether to the overall health of China’s consumer market.

The country’s two e-commerce giants, JD.com and Alibaba, in headier days used to trumpet their GMV results on major shopping festivals but since last year’s Singles’ Day the platforms have stopped releasing those figures as they no longer provide showstopping growth.

“We [were] not expecting an overall GMV number from the major platforms,” said Jacob Cooke, the Beijing-based cofounder of WPIC Marketing and Technologies, a China e-commerce strategy firm. “We will be looking at category-based growth, as well as numbers from [social platforms] Douyin and Kuaishou to see if they have captured more market share in certain categories.”

While the wealthiest are helping to drive an uneven recovery in the luxury sector, other consumers remain cautious. May brought a raft of disappointing economic data fuelling concerns that China’s wider fashion market recovery is not taking shape as expected. It’s looking unlikely that June will see a reversal of that trend.

The Broader Economic Picture

National retail sales growth slowed to 12.7 percent in May from a year earlier, a marked deceleration from the 18.4 percent in April.

That and other weaker-than-expected data for May spurred economists at several key banks to lower their growth forecasts for the year. JPMorgan Chase, UBS, Standard Chartered, Nomura and Bank of America all trimmed their 2023 GDP growth forecasts to between 5.1 and 5.7 percent, down from between 5.5 and 7 percent. The Chinese government has set its target at 5 percent for this year.

The country’s official manufacturing purchasing managers index — a measure of manufacturing activity which is often used as a bellwether for the wider economy — contracted for the second consecutive month in May.

Among the more troubling indicators is China’s youth jobless rate which rose to 20.8 percent in May, a rate four times the country’s overall unemployment level, and once again setting a fresh record.

Anxiety over Covid-19 is also playing a part. Half a year after China’s ‘zero-Covid’ restrictions were lifted, another variant has been spreading, creating more uncertainty. Chinese health authorities warned that the ongoing wave is forecasted to peak at the end of June with roughly 65 million weekly cases.

But these concerns seem to have petered out with no major disruptions seen yet. For the most part, people are experiencing mild symptoms and, after staying at home for a few days, are then back to work and normal activities.

“It hasn’t impacted the results so far,” said Cooke. “This wave seems to be dispersed so it’s not having a concentrated economic impact.”

However, according to Iris Chan, head of international client development at Digital Luxury Group which advises brands on operating in China, “the confidence of the consumer is not really fully there yet for everyone across the board,” she said.

In the luxury sector at least, “it’s being compensated by the fact that the high net worth [individuals] are still able to make up for the 20 bags that isn’t being bought by the mass consumer. It’s still overall not as high as it should be. There’s an uneasiness in some fundamental parts of life for consumers inside [China],” said Chan.

Lingering Effects on Consumer Psychology

According to Christopher Wood, the Hong Kong-based global head of equity strategy at Jefferies, there was “massive damage done by last year’s Covid policy in China, not only in terms of the concrete economic impact but also in terms of the damage done to general consumer psychology.”

“There is no doubt that Chinese people have lost their previous unbridled confidence in the future and are also much more focused than prior to the pandemic on the country’s negative demographics,” Wood said.

For younger Chinese consumers this is the first time they’ve ever experienced a slowdown, said Brian Busse, head of Kirk Palmer Associates’ Asia practice.

“Unlike the cyclical economic downturns experienced by the US and Europe every seven to eight years, China has enjoyed continuous high growth since the 1990s, making people now somewhat apprehensive about the future.” Busse said. “Adjusting to this new normal will require time, as people learn that life goes on even amidst uncertainty and that they can still spend and weather economic fluctuations.”

The government may also be able to step in. Whereas Hong Kong’s local government has repeatedly handed out cash payments to stimulate local spending, mainland Chinese authorities have resisted so far. But Beijing is believed to be considering issuing roughly one trillion yuan, equivalent to about $140 billion to help boost confidence, The Wall Street Journal reported citing sources.

An announcement about the stimulus was expected before now but has not yet materialised, causing concern among some observers of the Chinese economy.

Implications for Fashion and Beauty

Although a full recovery of the Chinese fashion market hasn’t yet come to pass in aggregate numbers, brands, especially new and niche ones, still have opportunities to gain traction. As customers become more value-orientated, they are showing more interest in product quality and features, instead of defaulting to big labels.

In addition, certain categories related to beauty and wellness are outperforming in China such as health supplements and outdoor sports products such as cycling apparel.

“If you look at sector-by-sector, we’re seeing double digit growth in categories like nutraceuticals and pet, which reflect dominant lifestyle trends that seem to be insulated against economic headwinds,” said Cooke.

“We’re seeing some real strength in health supplements because there’s this whole trend of self-care and is starting to mimic what’s been going on in the US,” said Franklin Chu, the US managing director of Chinese e-commerce enabler and consultancy Azoya Group. “There’s much much more attention being paid, especially among young people and the middle-class, for physical conditioning or appearances.

Fragrances are another bright spot, according to Azoya data.

“Fragrances have become increasingly viewed as an affordable luxury. Consumers can buy something that they view as a luxury product but still be somewhat budget conscious,” said Chu. “And there’s just been a proliferation of brands in the fragrance area from the budget-end to the prestige so there’s been a lot of new choices for the Chinese consumer to select from.”

“The [youth un]employment situation clearly is a big demographic issue [for example] but people are trying to find ways [like this] to make themselves feel better while spending.”

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China Decoded wants to hear from you. Send tips, suggestions, complaints and compliments to our Senior Correspondent Tiffany Ap at tiffany.ap@businessoffashion.com