China’s economic slowdown isn’t an abstract concept for Zheng Jiewen, 23, who works full time at an ad agency in the southern megacity of Guangzhou.
Mainly a print model, Zheng used to rake in 30,000 yuan ($4,230) a month when she began working two years ago. But, starting last year, when new business at the company she worked for started to decline, her salary was reduced incrementally, culminating in a major cut in February that slashed her earnings to just half of her previous pay.
“I was extremely shocked,” she told CNN. She said she immediately brought down her spending to match her new salary. That meant no more Louis Vuitton, Chanel or Prada, formerly her go-to brands.
These days, she and her friends are spending their more limited funds on so-called “pingti” products, high-quality replicas of branded goods known in English as dupes. Some are virtually indistinguishable from the real thing, while others are inspired by the original design and offer more colors or textures. The popularity of this product category is soaring as consumer confidence in China nears a historic low, according to analysts.
The “obvious” economic slowdown has resulted in social media searches for dupes tripling from 2022 to 2024, said Laurel Gu, a Shanghai-based director of Mintel, a market research firm.
Gu said that unlike 10 years ago when Chinese shoppers, the world’s top luxury spenders, were clamoring for Western goods from famous brands, consumers are now increasingly turning to more affordable alternatives, a trend that is becoming “the new mainstream.”
Dupes can be considerably cheaper than their branded rivals. A pair of Lululemon’s (LULU) Align yoga pants costs 750 yuan ($106) on its official Chinese website. By contrast, a search of popular e-commerce sites including Tmall yields dozens of other options, often using Lulu in their store names, touting similar leggings for as little as $5 and claiming to be of comparable quality.
China’s growing love for dupes isn’t just a problem for established brands such as Louis Vuitton. Sales at its luxury powerhouse owner, LVMH, dropped 10% in the first six months of this year in its Asia region, which excludes Japan, compared to 2023. That market is dominated by China.
The pingti trend is contributing to overall lackluster consumption and retail sales, which missed what were already-low expectations last month. A slew of economic data over the summer has been so weak that economists are concerned China may miss its 5% target growth rate announced in March.
On Tuesday, China’s central bank unveiled a fresh package of measures to revive growth by cutting its main interest rate and reducing the amount of cash that banks need to hold in reserve, which would free up money for lending. Stock markets in Hong Kong and mainland China have rallied strongly in response, with the Hang Seng index and the Shanghai Composite each closing 4% higher.
Cautious consumers
A year and a half after China reopened its borders following the Covid-19 pandemic, consumer confidence is still struggling to recover, economists at investment bank Nomura wrote in a research note earlier this month.
Its consumer confidence index dipped to 86.0 in July from 86.2 in June, they said, only slightly above the historical low of 85.5 hit in November 2022, when the country was still mired in pandemic woes. (The index measures consumer confidence on a scale of zero to 200, with 100 indicating a neutral stance.)
Shoppers are sitting on the sidelines due to a combination of falling stock prices, capital flight and “tepid” wage growth, the economists said. According to CNN’s interviews with consumers in different parts of China, though, holding on to your existing salary is already considered a win.
An elementary math teacher from Chongqing, southwestern China, who gave her name as Xinxin told CNN that she was previously a loyal fan of Estée Lauder’s Advanced Night Repair serum.
But after a “brutal” pay cut of over 20% this year, which she attributed to “fiscal issues” in her school district caused by economic challenges, she turned to budget-friendly alternatives. She found one with the same key ingredients priced at a massive discount of about 100 yuan (about $14) for 20 milliliters (just over half an ounce), compared to Estée Lauder’s 720 yuan ($100) for 30 milliliters (one ounce).
“Why dupe? Pay cut, of course!” she quipped.
Xinxin and Zheng, the model, consider themselves lucky to have jobs. On Friday, China revealed that the unemployment rate for people aged 18 to 24, excluding students, rose to 18.8% in August. It was the highest level since the figure was reintroduced in January. China stopped releasing the metric for several months after it hit consecutive record highs last summer.
A precipitous fall
On Tuesday, central bank governor Pan Gongsheng sought to address widespread concern about stalling growth by announcing cuts to one of its key lending rates, the seven-day reverse repo rate, from 1.7% to 1.5%. It also cut the reserve requirement ratio for banks by half a percentage point, which would free up about one trillion yuan ($142 billion) for new lending.
He additionally revealed cuts to existing mortgages and lowered the minimum mortgage downpayment from 25% to 15% for second-time homebuyers to support the ailing property sector, which many economists believe is the root cause of China’s numerous economic woes.
The real estate sector once accounted for as much as 30% of economic activity. It began to cool in 2019 and fell into a deep trough about two years later, after a government-led clampdown on developers’ borrowing.
The resulting crisis has resulted in a precipitous fall in real estate prices and loss of confidence among consumers. Individuals and companies have been trying to preserve their wealth by selling assets and cutting consumption, as well as investment.
Prices of existing homes are down nearly 30% from 2021, Nomura said, citing research from Beike, a platform that tracks housing transactions, based on a sample of 25 large cities.
“Unlike the huge positive wealth effect seen in the US post-Covid, Chinese households have suffered a massive loss of wealth from the housing slump, amounting to an estimated $18 trillion,” Barclays economists wrote in a September 12 research note.
To put that in perspective, they said, it’s as if each three-person household in China has lost around $60,000, an amount that is almost five times China’s per capita gross domestic product.
Nicole Hal, a 33-year-old self-employed businesswoman in Guangzhou, told CNN that her lack of confidence in the country’s economy has led her to slash spending, even though she expects to make at least four million yuan this year ($570,000) together with her husband.
“I’ve stopped buying luxury goods and expensive skin care products, including expensive clothes. I stopped eating out, instead I cook myself at least four days a week,” she said.
That “vicious cycle” of reduced consumption, which has contributed to a slew of pessimistic economic data, has prompted a number of investment banks to cut their estimates for Chinese growth below its official 5% target.
To make up for the shortfall caused by the property sector, Chinese leaders have been largely focused on promoting expansion of manufacturing, including in its electric vehicles (EV) sector. But its strategy of exporting excess capacity to overseas markets has been causing global pushback, especially among EV makers in Europe.
“In China, weak domestic demand and strong manufacturing growth have pushed the goods trade surplus to extremely high levels,” economists at Goldman Sachs wrote in a September 13 report, adding that Beijing is likely to face further tariffs from trading partners if it continues to export its surplus.
