Retail and catering sales in China increased by 6.3% during the Labor Day holiday, according to the Ministry of Commerce.

This growth is slower than the previous year, with the five-day holiday typically being a significant period for shopping and dining.

Purchases of home appliances, cars, and telecommunications equipment saw double-digit growth, likely due to government subsidy programs.

Meanwhile, tourism spending showed modest gains, with per-trip expenditure rising 1.5% year-on-year to 574 yuan (US$79). However, it remains 10% below pre-pandemic levels of 2019, according to the Ministry of Culture and Tourism.

🔗 Source: Bloomberg

🧠 Food for thought

1️⃣ China’s consumption transition reveals structural economic challenges

China’s reliance on domestic consumption to counter trade war effects faces fundamental hurdles beyond immediate consumer sentiment.

Domestic consumption represented only 39% of China’s GDP during the previous US-China trade tensions, compared to 69% in the US, making the transition to a consumption-led economy structurally difficult1.

The current Labor Day holiday spending patterns, growing but at a slower pace than last year, reflect these ongoing challenges in shifting economic drivers.

This consumption pattern aligns with China’s longer-term economic transformation goals, where authorities have been attempting to reduce reliance on exports and investment since the previous trade tensions in 2019.

The double-digit gains in durable goods like appliances and cars, driven by government subsidies, highlight Beijing’s strategy of using targeted stimulus to boost specific sectors rather than broad-based consumer confidence.

2️⃣ Trade wars accelerate consumption shifts rather than halting spending

The current holiday data showing continued but cautious spending mirrors patterns from the 2018-2019 trade tensions, when Chinese consumers didn’t stop spending but adjusted their purchasing behaviors.

During previous US-China trade tensions, Chinese consumer spending remained resilient as shoppers shifted to domestic alternatives and lower-priced options rather than significantly reducing overall expenditure2.

This helps explain the modest 1.5% increase in per-tourist spending to 574 yuan during this Labor Day holiday, as consumers continue spending but with greater price sensitivity.