A Pragmatic View of Economic Risk in China

Seiji Fuji

Secondhand goods are increasingly popular in Japan and China

 The Nikkei Morning Edition published an article about Asian trends in its International/Asia Biz section on May 1. It was titled, “Used Luxury Goods are Popular in China: Economic Slump Leads to Focus on Price-Performance.”

“More Chinese consumers are buying used luxury products. The overall Chinese secondhand market is growing due to factors that include an increasing interest in low-priced products, and more consumers want designer items that offer good price-performance. In the past, it was said that many Chinese consumers wanted to show off their wealth. The prolonged economic slump is changing their way of thinking.” “In late April, a consumer viewing luxury items at a secondhand shop in Guangzhou, Guangdong Province plainly stated, ‘I came to look at used products because new ones are expensive.’ The shelves were full of products from Louis Vuitton, Burberry, and other brands, some marked with ‘80% off’ tags.” “The Chinese secondhand market continues to grow. According to sources like Tsinghua University’s Institute of Energy, Environment and Economy, this market may reach three trillion yuan (approximately 66 trillion yen) in 2025, which is twice the market size in 2022.” “Consumers are interested in used products, even luxury brands, and there are more online agency services for these. Komehyo Holdings operates shops that buy and sell used goods in Shanghai. Because companies must take steps to identify counterfeit goods, Komehyo provides a sense of security by hiring skilled staff members and using artificial intelligence to verify logos.” “The price-performance trend is expanding from daily shopping to luxury brands, and is one factor behind the popularity of secondhand luxury items. ITOCHU Research Institute Senior Research Engineer Chao Wei-Lin said, ‘Middle-class consumers, the main segment in China, are afraid to spend money.’” “Overall luxury brand sales are sluggish in China.” “LVMH Moët Hennessy Louis Vuitton, a French conglomerate that is the world’s largest luxury brand, reported that its year-on-year sales fell 6% in the period from January to March and were negative in the Asian region only, excluding Japan. China accounts for most of this market. Kering, which owns the Gucci brand, is also struggling with retail sales that fell 19% in the Asia-Pacific region, excluding Japan.” “According to Bain & Company, a major American consulting firm, the mainland China luxury product market was 444.7 billion yuan in 2023. It grew by 12% compared to 2022, when impacts were seen from the Zero-COVID policy. However, it has not returned to the 2021 level, when it set a record at 456.4 billion yuan.” “Bain Partner Weiwei Xing stated, ‘There are bigger obstacles to luxury brand consumption in China.’ Some say that secondhand products still make up a smaller part of the Chinese luxury brand market compared to the United States, but this trend will likely grow if consumers continue trying to save money by buying used products.”

 Secondhand shopping is also popular in Japan, particularly among the growing number of foreign tourists who want to buy used Japanese brand-name products, clothing, video games, and other items. Last year, Condé Nast Traveler listed the Oedo Antique Market, which takes place twice per month at Tokyo International Forum, as one of its “27 Best Things to Do in Tokyo.” The list also included Shimokitazawa’s secondhand shops. It appears that foreign travelers like to shop for used goods in Japan because they seem even more affordable due to the weak yen, along with the good condition of secondhand items like luxury brands and clothing. I also think we can attribute this to an increasingly pragmatic way of thinking around the world.

A logical society sees less value in ownership

 Owning brand-name items used to convey certain benefits. For instance, a luxury automobile like the Toyota Crown was a mark of social status. During the economic bubble era, consumers demonstrated their fashion sense by buying the latest Louis Vuitton bags every year. These actions were all aimed at showing off luxury goods to other people; it did not matter whether the products were actually useful or not.
 The concept of ownership has been greatly transformed, and luxury goods no longer bring the same type of status while more people have come to value practical lifestyles. In their opinion, it is more logical to utilize ride-sharing services than to own a luxury automobile they only drive on the weekend, which costs a great deal of money to store and maintain. Products like designer bags are well made and come with good after-sales services, including the ability to repair them at any time. It makes a great deal of sense that people want to buy practical, useful items at much lower prices than brand-new products.
 The Japanese secondhand market has been growing for 13 consecutive years, the entire period in which statistics are available. According to Recycle Tsushin, it reached 2.8976 trillion yen in 2022, a 7.4% year-on-year increase. Today’s consumers believe it is smarter to sell brand-new items and buy used ones, rather than fixating on ownership. Mercari estimates that the average Japanese household has 530,000 yen of unused products, with a nationwide total of approximately 67 trillion yen. Based on these factors, predictions indicate that the secondhand market will grow to four trillion yen in 2030. I think more people will value pragmatic ways of thinking along with this atmosphere that increasingly encourages secondhand shopping.

The main reason for China’s instability is young people’s anxiety about the future

 The Nikkei article got me thinking about the grim state of China’s economic stagnation. The Japanese version of The JoongAng, a South Korean newspaper, published an article on May 6, “Long Lines for Cheap Food: China’s Lackluster Economy Inspires Young People to Save Money.”

“Maggie Shiu (29), an accountant in Shanghai, eats lunch at a nearby state-run cafeteria every day. A large, filling plate of food costs 10 to 15 yuan (approximately 210 to 317 yen). The main customers of these state-supported establishments are elderly people, but recently one can see long lines of young, highly-paid company employees as well. In an interview with the New York Times, Shiu said, ‘Spending less and saving money is the only way I feel secure […] I can’t stop worrying about the future.’” “The Chinese economy is extremely sluggish, including the real estate crisis and high unemployment rates among young people. These young consumers are continually seeking out cheap prices for food, clothing, and shelter, leading to the popularity of budget meals that help minimize food costs, mainly at state-run cafeterias where they can get additional helpings for free.” “The Generation Z demographic (people born from 1995 to 2009) makes up 20% of China’s population. The New York Times, The Nikkei, and other foreign news companies say this generation is spearheading the trend of spending less money due to their powerful economic anxiety.” “This is demonstrated by the increasing number of chain restaurants competing to offer cheap combo meals for ‘poor ghosts.’” “The Nikkei interviewed Biao Xiang, a member of the Max Planck Chinese Studies Research Committee in Germany, about this extremely low level of consumer spending. Xiang said, ‘I don’t think we should simply interpret this as an anti-consumption trend […] It stems from uneasiness about the future, and a deep sense of distrust and disappointment about what they have received and been told since childhood.’” “A recent report indicated that China’s economic growth rate from January to March 2024 was 5.3%, exceeding the market prediction of 4.6% to 4.8%. In contrast, actual consumer behavior has fallen to an extremely low level. It is highly likely that chronically poor spending by young people will hinder economic expansion for a long time.”

 The Chinese economy seems to be rallying to some degree, as described in this article. Although the manufacturing industry and other types of production are favorable, demand is slowing down and conditions in the real estate market are particularly harsh. Sales in the housing market have been poor since 2020, when the Chinese government put regulations on total loan amounts. This has led to a vicious cycle of more housing stock, falling prices, and worse sales. I wrote as follows in my essay from January 2012:

“The collapse of the real estate bubble in China – which is certain to happen in the future – will likely do more damage to the stagnant world economy after the Lehman Shock.” “These inconsistencies were somehow hidden through rising real estate prices, but now that the real estate market is cooling down, the chance of a massive explosion is growing.” “The degradation of the Chinese economy, which has served a leading role in the world economy, could cause the economies of all countries throughout the world to crumble. I hope that this will cause past contradictions to detonate, resulting in the collapse of the Communist Party of China dictatorship and the division of China into several independent states like what happened to the former Soviet Union. However, there is a good chance that the result will be the birth of an anti-Japanese government that makes irrational demands, has a radically anti-Japanese stance, and stirs up public opinion with anti-Japanese and patriotic slogans through the democratic process. Japan must make preparations in order to ensure that we do not repent at this time, thinking that the Communist Party government was better. We should immediately revise the constitution and create an army that is capable of defending our country, which will result in strong deterrence and allow us to not respond to unreasonable demands.” “The U.S. is declining economically and consequently losing its influence in the world. Conversely, up until now China has worked to strengthen its army based on its economic power and has attempted to expand its influence. Right now, power relationships in the world are starting to change. But since 80,000 incidents of insurrection occur in China annually even now, it will be unable to use its power to restrain the dissatisfaction of its people if economic growth becomes halted. In such a case, demonstrations and uprisings will occur in various locations.”

 My predictions have come true; the Chinese real estate bubble has burst, causing economic impacts that are directly harming Generation Z. There seems to be a growing possibility of protests and uprisings resulting from civilian dissatisfaction, just as I feared back in 2012. I think the Chinese government is doing all it can to nip these insurrections in the bud via its information technology-based surveillance system.

China is rapidly getting closer to European countries while considering its relationship with the U.S.

 Chinese President Xi Jinping visited France on May 5. The Sankei Shimbun described this on May 6 in “Xi Calls for Enhanced Cooperation With France: Meeting to Strengthen the Traditional French-Chinese Friendship in Paris.”

“China and France marked their 60th anniversary of diplomatic relations this year. France entered into a diplomatic relationship with China in 1964 despite American opposition during the Cold War. Xi praised this decision, saying, ‘The China-France relationship broke through the Cold War wall.’ It seems he is commending France, which has traditionally attached importance to independent foreign relations, and encouraging distance from American-led pressure on China.”

 Xi met with French President Emmanuel Macron and President of the European Commission Ursula von der Leyen. A shift is underway from American unipolar rule to a multipolar world, and China is striving for hegemony. I imagine it is hoping to strengthen its relationship with the European Union, which will certainly become one of these poles, as a way to oppose the U.S. However, economic stagnation is causing instability in China. Japan should keep a careful eye on China’s internal and external affairs, and must draft and execute strategies to cope with these circumstances.

May 15 (Wednesday), 5:00 p.m.