China Trip Part 2 - What is going on with the Chinese consumer?
In Part 1, I laid out my central thesis: I'd rather own Chinese companies selling to the rest of the world than global companies selling to China. That thesis rests on two key pillars:
- Chinese companies are quietly producing high-quality products and services, and the Western brand premium is slowly eroding: particularly with the younger consumer. I covered this in Part 1.
- The China macro is still weak. Domestic companies serving local consumers face both a weaker consumer base and tight regulation that prevents outsized pricing power. Companies that can export are explicitly supported.
This piece is about the second predicate. What's actually going on with the Chinese consumer right now, who's spending, and why the conventional investor framing of "China consumer weak" ignores too much of the detail.
The China macro: bottomed, but not recovering
The single most common phrase I heard on the trip, as well as from my seat abroad, was some version of "not getting worse." Which is not the same as getting better.
The Chinese consumer has stopped deteriorating. The internet sector is no longer compounding regulatory fear on top of macro fear. Property prices in Tier 1 cities have stopped falling. It looks like a floor, formed somewhere mid-late 2025. After a short-lasting rebound in September 2025, sentiment is largely wait-and-see, not animal spirits returning.
The wealthy 10% have returned to spending for the first time in eight years, that's real. The middle 90% have not. No bonuses for five to six years, little salary growth, youth unemployment still elevated. Property prices are stabilising in places. Equity markets are up. But only 6–7% of Chinese hold equities, versus 65% of Americans, so the 'K' shaped consumer is more pronounced in the US than in China. The wealth effect doesn't transmit the way it would in the US.
One more observation: anecdotal but consistent across enough conversations that I trust it.
When I'm in Manhattan meeting bankers and people in the technology sector, things are fine. Restaurants are full, life is great. But as soon as I talk to people outside finance, especially anyone in the broader services economy, the message is much gloomier. People are living paycheck to paycheck. Cost of living is ballooning. Genuine concern about being able to afford rent or groceries.
The data backs it up. The US personal savings rate is 4–5%. The rich are spending freely. The bottom 80% can't.
China is the inverse. Most of the global companies I met with called out their US revenues as strong and China revenues as weak. But the Chinese consumer is, in aggregate, sitting on much healthier savings, domestic savings are running at 40–45% of GDP.
The Chinese consumer isn't unable to spend. They're choosing not to.
The reasons people gave on the ground were mostly forward-looking economic fears. "Will I lose my job to AI?" "Will my house price keep falling?" "Can I get any salary growth?" Most of these are seen as policy-driven concerns, not cash constraints. If policy shifts in a way that dissipates that fear, even modestly, there's a meaningful pool of dry powder that could come back into the economy.
A quick history
From 1990 to 2017, the Chinese consumer was structurally optimistic. Upward mobility was nearly universal, the middle class was expanding, young urban consumers wanted American and European brands as signifiers of taste and ambition. Part of this, according to a few luxury experts I spoke to, was that "new money" did not come with taste, people were not confident in their own style and gravitated to well-known established brands. This was the golden age of LV, Nike and Apple in China, and the period where Sam's Club, Costco and IKEA established themselves.
From 2019 to 2024, came the worst period in modern Chinese consumer memory. The urbanisation trend was largely completed, or at least mature. Covid was worse than the West realised. US-China relations deteriorated, particularly under the Biden administration, which was described as "ideological" in its hostility. Property collapsed. Tech regulation crushed equity values. Household savings ballooned to around $20 trillion as people stopped spending on almost everything other than gold, insurance and time deposits. Consumption cratered. Youth unemployment hit the headlines at 21%. On top of this, there was a fear that anything great that China produced, America would put the hammer down on.
Huawei was the height of this..
At one stage, Huawei was on track to become a real rival to Samsung and Apple, but was effectively wiped outside of China when it was deemed a "security risk" by the US. I'm not in a position to judge whether the security designation was justified. But inside China, the message landed:From January 2025, animal spirits returned for the wealthy. The DeepSeek moment was the psychological inflection. Chinese consumers began to think that Chinese technology could win despite sanctions. One contact described it as the first time in eight years he saw the top 10% of his research sample return to meaningful spending. But "bullish" meant "not as bad as feared" rather than great. The middle class is still bearish. The young aspirational consumer, who drove the 2010s luxury boom, is still suffering under unemployment and long working hours.
Who is actually spending
Most Western coverage talks about "the Chinese consumer" as a single variable. After this trip, I think a useful frame splits them into five bands.
| Segment | % of pop. | Direction | What they're buying |
|---|---|---|---|
| Top 0.5–1% — Super wealthy / UHNW | ~0.5% | Trading up | Hermès, quiet luxury, premium travel, Sam's Club memberships, medical tourism. |
| Affluent / upper middle | ~10% | Cautious premium | Arc'teryx, Hoka, On, Coach, Ralph Lauren, Maogeping. Price-sensitive but still spending. |
| Real middle class | ~17–20% | Flat | No bonuses in years, no salary growth. Trading down within categories. |
| Aspirational / young | ~30–35% | Structurally weak | Not buying logo luxury. Value quiet brands, individualism, and Chinese premium (Songmont, Laopu, PopMart). |
| Blue collar / lower tier | ~35–40% | Mixed | Still a growth pocket. Targeted by JD's 1-hour delivery, Douyin, Mixue, low-tier Pinduoduo. |
Two things this table tells you that the headline numbers don't:
- The "400 million Chinese middle class" figure is misleading. The genuinely middle-class population is closer to 240–280 million. The rest of what gets called "middle class" is actually aspirational, and it's the aspirational band that has hollowed out since 2019, with no signs of a recovery.
- The investible Chinese consumer is small. When you net out the bottom 65–70% (who don't shop at the brands you can own as a global investor) and the flat middle 20%, the listed-luxury / premium-brand story is really a 10–12% of population story. The hard-luxury and premium-experience story is 0.5%. They are still spending, but that is already underwritten in the existing revenue pool. Any growth from here will need to come from the remaining cohort.
Hermès, at the top, continues to grow mid-to-high single digits. Coach, at the bottom of luxury, is growing double-digits in China because it's collecting customers trading down. Everyone in the middle is struggling.
The sector isn't dead. But there needs to be a reset in expectations, and many of the global luxury houses are still talking about China macro as if a broad-based recovery is around the corner. I don't think it is.
A stock picker's market
One of the bigger takeaways I got was that you can no longer be long or short a consumer sector. Within sportswear, Arc'teryx, On, Hoka, Salomon and Adidas are all delivering double-digit growth. Nike has been terrible. Within luxury, Hermès, Ralph Lauren and Coach are winning. Gucci, Kering and Michael Kors are losing. Within beauty, Maogeping is up 30% and most of the Europeans are flat to down.
We're in a stock-picker's market for the Chinese consumer. Brand cycles have compressed from 5–7 years to 2–3, which means even the winners need to be revisited even more often.
Right now, what ties the winners together (and this can change quickly) is not sector. It is premium positioning combined with credible local execution. Adidas designs 60% of their Chinese product in China, for the Chinese consumer. Their "Tang jacket", one I unfortunately could not get my hands on because it is sold out everywhere is a local design collaboration. Nike, in contrast, has a "one size fits all" approach to global product, which has stopped working in China.
Arc'teryx and Salomon, both part-owned by Anta via Amer Sports, are the cleanest expression of the winning model. Chinese parent, European/Canadian brand heritage, premium positioning, technical credibility. Anta itself has a multi-brand portfolio, spotted the outdoor sportswear trend early, and has been rewarded for it. Channel checks of luxury malls found that sportswear brands are gaining prime locations at the expense of traditional European luxury, Fendi and Loewe are moving out, Arc'teryx, On and Salomon are moving in.
Guochao is a quality trade, not a patriotism trade
Peak Guochao: the Chinese domestic brand preference phenomenon was 2020 to 2022, when 90% of Chinese consumers in surveys said they'd prefer a local brand. That was driven by genuine political anger: the Huawei ban, the Xinjiang cotton controversy, US attacks on TikTok. Li-Ning's advertising strategy in that period was literally "I love China," and it worked.
The patriotism trade is mostly over. Some of its effects are permanent.
Consumers no longer care whether a brand is foreign or local. They want craftsmanship, innovation, design and fit, and after going domestic for a few years, local consumers see the products as just as good. The Chinese brands that are winning: Laopu, Songmont, Maogeping, Mixue, PopMart are winning because their products are genuinely good, often better than Western equivalents for Chinese taste and body type. Western brands that adapted (Adidas, Coach, Hoka) are also winning. Western brands that didn't (Nike, Michael Kors) are losing.
This is not a nationalism story or a macro story. The management of these companies, without a sound strategy and placing the entire blame on China macro and the property market, may be in for a shock.
The young consumer is the one to watch
The generational shift was one of the most interesting things I observed, and it's changing the most rapidly. The 2000s–2010 Chinese consumer bought luxury because they were not confident in their own taste. Their purchasing decisions were driven by brand, marketing, celebrity endorsement. A handbag was a shortcut to status.
Today's 20-something is the opposite. They have travelled, studied abroad, consumed global content through Douyin and Xiaohongshu. Many of them have travelled to both regions and come back thinking Beijing and Shanghai are better-designed cities than Paris or Milan, with better service, infrastructure and food. They want reasons to buy a product. They care about whether a garment is cut for their body, not whether it carries a European monogram.
The young Chinese consumer's prospects
On top of the shifting tastes I covered earlier, the other thing I came away worried about was the future of the young Chinese consumer.
I asked several prominent bankers, analysts and experts the same question: what do you want your child to study?
The response, more often than not:
There are fewer jobs around. Graduates from Peking University, China's equivalent of Harvard are working delivery routes or sitting unemployed. Youth unemployment is in the high teens, approaching 20%.
The government has tried to push back. AV robotaxis have been limited or paused in several cities, partly to preserve driver jobs. Subsidies have been rolled out for new graduates. New AI-related university majors are being launched at speed. But the problem is that the Chinese economy stopped creating jobs for college graduates somewhere around 2019, and there is no clear path to fixing that within the current macro environment.
This was the one question I came away from the trip without an answer to. None of the people I spoke to, most of whom have spent decades inside this economy had one either. A solution will need to be found. I don't yet know what it looks like.
Where this leaves us
Pull these threads together:
- The macro has bottomed but is not yet recovering.
- The health of the Chinese consumer is better than the headlines suggest. Some policy changes that improve sentiment may see spending return.
- Consumers are either trading up or trading down. Premium positioning with credible local execution, or value, are the only models that are working.
- The Guochao trade has become a quality trade, and that's structural rather than cyclical.
- The young consumer is not coming back to mid-tier Western luxury.
For an investor, the implication is that most listed Western consumer names with significant China exposure are mispriced. The recovery they're guiding towards is a recovery for the middle and aspirational consumer, who in my view aren't coming back in the form their models assume. The names that work in this environment are the ones serving the top 10% (Hermès, Sam's Club, Arc'teryx) and the Chinese brands moving up the premium curve.
Over the next three pieces:
- Part 3 — AI. Why China's approach is fundamentally different from the US, and why investors are mis-framing the race.
- Part 4 — The ByteDance problem. The most important Chinese company in the world is not listed.
- Part 5 — The companies. The specific names I came back thinking differently about.
