China’s economic downturn has significantly influenced consumer behaviour, particularly among Gen Z.
As economic challenges persist, young Chinese consumers are shifting from high-end luxury items to more affordable, high-quality replicas known as ‘dupes’.
Economic Pressures
The economic slowdown in China is not a distant concept for many young professionals like Zheng Jiewen, a 23-year-old working at an advertising agency in Guangzhou.
Once earning a substantial monthly salary, Zheng’s income has plummeted due to declining business, prompting her to cut back on spending. With a reduced salary, the allure of luxury brands has faded, giving way to more affordable alternatives.
Rise of the ‘Dupe Economy’
As consumer confidence hits historic lows, the ‘dupe economy’ is flourishing. High-quality replicas, known as ‘pingti’ in China, have become increasingly popular.
These dupes often mimic the originals closely, or sometimes offer additional features like varied colours and textures, making them an appealing alternative for budget-conscious shoppers.
According to Laurel Gu from market research firm Mintel, the shift towards affordable alternatives is becoming mainstream as consumers move away from coveted Western brands.
Impact on Established Brands
Luxury brands like Louis Vuitton are feeling the impact. A significant drop in sales in the Asia region underscores this trend.
As the popularity of dupes grows, established brands are struggling to maintain their market share against cheaper, yet comparable, alternatives.
The general economic malaise, coupled with the rise of the ‘dupe economy’, has hit retail sales hard, contributing to missed growth targets and economic uncertainty.
Consumer Sentiment
Eighteen months after China’s reopening post-pandemic, consumer confidence remains shaky. A slight dip in the consumer confidence index reflects ongoing economic turbulence.
With wages stagnating and the threat of unemployment looming, many are focusing on preserving their existing earnings.
Xinxin, an elementary teacher, exemplifies this cautious approach. After a significant pay cut, she opted for budget-friendly alternatives, turning away from her preferred high-end products.
Policy Interventions
In response to the economic slowdown, China’s central bank has taken measures to stimulate growth, such as cutting key interest rates and reducing bank reserve requirements.
These policy moves aim to inject liquidity into the market and bolster consumer spending, although their long-term efficacy remains to be seen.
Despite a positive reaction in stock markets, with indices in Hong Kong and Shanghai experiencing gains, the broader economic sentiment remains cautious.
Real Estate Crisis
A significant factor underlying China’s economic woes is the real estate sector’s collapse. Once a major economic driver, the sector now struggles with falling prices and diminished consumer confidence.
The government’s restrictions on borrowing for developers have led to a precipitous decline in property values, exacerbating the economic downturn.
The resulting wealth erosion, estimated at a staggering $18 trillion, has deeply affected household finances, leading to a reduction in both consumption and investment.
Shifts in Spending Habits
Many individuals, despite relatively high incomes, are cutting back on luxury spending.
Nicole Hal, a businesswoman from Guangzhou, has reduced her expenses significantly due to a lack of confidence in the economy.
The persistent cycle of reduced consumption has further dampened economic activity, prompting revised growth forecasts from various investment banks.
Future Outlook
The Chinese government is focusing on expanding sectors like electric vehicles (EV) to offset the decline in real estate.
However, efforts to promote manufacturing and export surplus capacity face challenges, including potential tariffs from trading partners.
The path to economic recovery remains uncertain, as domestic demand struggles to align with manufacturing growth.
The shift towards ‘dupes’ reflects broader economic challenges facing China’s younger consumers.
As the country grapples with economic uncertainty, the ‘dupe economy’ underscores the growing need for affordable alternatives in a climate of financial caution.
