Navigating the Evolving Landscape of Chinese Consumption: Strategic Insights for Executives

Now that the second quarter of 2025 is fully underway, it is increasingly evident that China’s consumer market has settled into a “new reality” characterized by single-digit consumption growth. Citing Chinese consumers’ “lack of confidence” and “trading down” behavior, market analysts continue to raise a series of challenging questions: Have pockets of growth narrowed? Has lower sentiment dampened spending intent?

Our latest research reveals that, while challenges do remain, the situation on the ground is not as bleak as some observers have indicated. At the end of 2024, McKinsey’s Consumer and Retail Practice in China completed a nationwide survey covering more than 17,000 Chinese consumers. We segmented consumers into 108 distinct demographic groups based on city tier, age, household income, and other factors.

Based on an analysis of our survey findings, along with macroeconomic analysis of consumption and urbanization trends provided by the McKinsey Global Institute, we highlight three key trends shaping the new reality of China’s consumer market:

1. Consumers are accepting the new reality and moving on: After several challenging years that have dampened their confidence and willingness to spend, Chinese consumers are starting to move past this phase and are adjusting their shopping behavior.
2. Confidence has stabilized: Consumer confidence has stabilized, though urban confidence has experienced a slight decline.
3. Consumers are prioritizing personal fulfillment: Consumers are shifting their spending toward products and services that help them achieve personal fulfillment.

The recent trade dispute between the US and China has added another layer of uncertainty in the market, both for businesses and consumers alike. It is a critically important topic we will continue to monitor closely. Regardless of how the situation plays out, however, we believe the findings from our survey remain relevant to decision-makers trying to craft their strategies in this ever-changing market.

Trend 1: Consumers are accepting the new reality and moving on

China’s GDP continued to grow at around 5 percent through 2024 and the first quarter of 2025. Domestic consumption, while modest overall, remained resilient. Several sectors, such as tourism, dining out, food & beverage, sportswear and outdoor, and consumer health, saw a strong resurgence.

Our survey shows that the consumer outlook for consumption growth in 2025 remains at a similarly cautious level as the previous year. Growth of annual consumption is expected to rise by 2.3 percent in 2025, roughly level with the 2.4 percent growth seen in 2024. This number is driven by a few key factors, such as China’s continued pace of urbanization, which expanded from 65.2 percent in 2022 to 67 percent in 2024. This is driving a rise in the growth of urban households in China, from 0.4 percent in 2024, to an expected 0.9 percent growth in 2025. While modest percentage changes may not look impressive, when translated into absolute numbers, they represent sizeable growth.

Second, consumers in our most recent survey said they expect to maintain growth in the share of consumption as a percentage of income at zero, a slight improvement over the -0.5 percent drop seen in the previous year’s survey.

These positive indicators, while promising, are tempered by more modest expectations regarding growth in household income, which Chinese consumers, on average, expect to grow by 1.4 percent in 2025, down from 2.5 percent in 2024 (Exhibit 1).

The cautious attitude that persists among Chinese consumers is driven largely by their uncertainty regarding future financial prospects, which is driven by concerns over job security and the depreciation of their real estate holdings. Thirty-six percent of respondents in our survey reported experiencing “job anxiety,” aligning with broader data from the People’s Bank of China (PBOC) Q2 2024 survey, which found that 48 percent of urban residents viewed the job market as “challenging/uncertain.” Depreciation of real estate assets remains a key factor restraining consumption for those who hold a pessimistic outlook toward their financial future.

Trend 2: Confidence has stabilized

Since September 2024, the PBOC has announced a series of stimulus measures aimed at boosting consumer confidence. While the full impact of these initiatives remains uncertain, 81 percent of the nearly 9,700 respondents aware of these policies reported feeling more confident about China’s macroeconomic outlook (Exhibit 2).

Consumer confidence has stabilized overall, with three-fourths of respondents maintaining an optimistic outlook on the economy (Exhibit 3). However, sentiment shifts across demographics. Rural consumers, for example, have shown notable improvements in confidence, supported by government policies aimed at rural revitalization and faster income growth compared to urban areas. Rural incomes grew by 6.6 percent year-on-year in 2024, compared to 4.5 percent for urban residents.

In contrast, affluent urban elderly consumers—once the most optimistic group—have seen confidence decline by approximately 20 percent, driven by asset depreciation and underperforming businesses. Tier 1 and Tier 2 low-income millennials remain the most pessimistic, citing high job insecurity, rising living costs, and depreciation of their real estate holdings as major concerns. Meanwhile, Tier 3 consumers and urban Gen Z remain the most optimistic, despite the decline in confidence among some consumers in these segments, driven by high youth unemployment and lower income growth expectations (Exhibit 4).

Despite variations across segments, the broader trend is clear: Even as confidence remains subdued and sentiment levels vary across consumer groups, Chinese consumers are adapting their spending behavior to the new reality of today’s more challenging economic environment.

Trend 3: Consumers are prioritizing personal fulfillment

A key shift in the new reality is the weakening linkage between spending intent and overall sentiment. Consumers are increasingly basing their spending decisions on “hard” factors like the value of their personal assets or their income, rather than “soft” factors such as their confidence level.

Take affluent urban consumers as one example of this shift. While confidence levels among this cohort appear to be declining relative to other consumer segments, their pursuit of a higher quality of life and greater personal fulfillment helps explain their stated intention to increase their daily spending by 2.6 percent in 2025. Many consumers appear willing to dip into their savings to maintain their standard of living, signaling a potential return to more normal spending behavior. These consumers are spending on tangible big-ticket items such as new homes, home renovations, and cars, while also putting more of their money toward intangible services and experiences that will give them joy and personal fulfillment (Exhibit 5).

Conclusion

China’s consumer market is becoming more nuanced and complex as it transitions into the new reality. While sentiment remains mixed, spending intent is increasingly driven by actual income and assets rather than confidence levels. Consumers are rationalizing their spending and prioritizing quality-of-life upgrades.

To meet the evolving needs in China’s ever-changing market, consumer-facing businesses will need to understand these granular shifts and adapt their strategies accordingly. Despite the challenges, the resilience and adaptability of Chinese consumers offer companies an abundance of opportunities for growth in the years to come.