Summary of Key Points
In July, the national consumer growth rate (excluding wholesale and retail sales) was only 0.6%, lower than the 1.3% expected by analysts, mainly due to extreme weather and changes in the 618 promotional campaign. There is a clear structural divergence in consumption: within first-tier cities, there are varying levels of activity, and there is a shift from purchasing goods to enjoying services; in rural areas, consumption is moving from seeking affordability to pursuing quality. The two main directions for future consumption are: first-tier cities will focus on improving the quality of service-based consumption, while rural areas will expand physical consumption.
I. Consumption Slows Down in July: Weather and Promotional Cycles Held Back Growth
The lack of growth in July was not due to a sudden reluctance to spend, but rather two unexpected factors:
1. Extreme Weather Deters Offline Consumption
July 2026 was the second hottest on record, with record-breaking temperatures in Sichuan and Chongqing, and more typhoons than in previous years (5 formed, 3 made landfall, including 4 super typhoons). High temperatures discouraged people from going out for shopping and dining, and typhoons prevented businesses from operating. Data shows that extreme heat reduced household spending by 0.2% per day. A Korean study found that bank card transactions decreased by 7% and rain reduced them by 6%. Online consumption (up 3% year-on-year) remained stable, but offline physical consumption fell by 0.3%, and service-related activities (such as tourism and movies) also declined, with the service retail sales growth rate dropping from 5.3% to 5%. The PMI (Purchasing Managers Index) for the service sector fell below the 50% threshold for the first time, to 49.3%.
2. 618 Promotions Drained Consumption in July
This year’s 618 promotions were the strongest in the past five years, with total sales reaching 934 billion yuan, but the timing was different. Last year, promotions started on May 13; this year, Tmall and Pinduoduo began on May 21, and JD.com started even later, in late May. As a result, June became the peak consumption month, while July saw a decline, as people had already spent most of their money on household appliances and clothing during the promotions.
If consumption does not pick up in August despite improved weather and the fading impact of promotions, that would be a real problem.
II. Consumption in First-Tier Cities: Some Areas Are Cool, Others Are Hot, and There’s a Shift in Focus
Consumption in first-tier cities is not uniform. Some cities are showing weakness, while others are thriving, with a shift from buying goods to experiencing services:
1. Differential Trends Within Cities:
- Shanghai and Beijing: Consumption fell from 0.7% in June to -0.2% in July, with car sales being the main drag (down 14.7% in the first seven months and nearly 30% in July). However, car sales were relatively stable year-on-year, suggesting that people are buying cheaper cars. Additionally, the stock market downturn in April affected consumer spending among investors.
- Chongqing: Sports and entertainment products (up 14.9%) and telecommunications equipment (up 11.1%) performed well, driving consumption.
- Guangzhou: Clothing, footwear, and beverages (up 29.6%) and cars (up 5.6%) saw growth, despite declining sales volumes. Guangzhou has provided car purchase subsidies, which have benefited 60,000 people since May, with another 100 million yuan allocated in August.
2. Shift to Service-Based Consumption:
Physical consumption in first-tier cities (such as cars and appliances) is reaching saturation, so there is a shift towards service-based activities:
- Beijing: Service consumption grew by 4.6% in the first seven months, with online entertainment (up 10%) and culture and tourism (over 5%) being the main drivers.
- Shanghai: Tourism was strong, with 313 million visitors in the first half of the year (up 17.6%), and inbound tourism increased by 27.8%. Events like the F1 race and Disneyland contributed significantly to the 540.09 billion yuan in cultural and tourism spending (up 8.75%).
The statistics indicate that service consumption will be the main driver of future growth, with first-tier cities leading the way.
III. Rural Consumption: Moving from Affordability to Quality
Rural consumption is changing:
1. Upgrading Consumption: People are no longer solely focused on price; they are more interested in quality. Nielsen reports show that the proportion of consumers sensitive to price in rural areas has dropped from 56% to 53%, while those seeking quality has increased from 23% to 31%, narrowing the gap with urban areas (40%).
2. Brands Entering Rural Areas: Large brands are entering rural markets. Starbucks aims to cover 1,500 counties by 2025, with 166 new entries this year, and Sam’s Club has expanded to more counties. This is due to increasing incomes and less pressure on housing loans compared to cities.
3. Young People Returning to Rural Areas: Over 15 million people returned to rural areas to start businesses in the first quarter of 2026, and the proportion of recent graduates working in cities below the prefecture level has risen from 42% to 63%. They bring urban consumption trends back to rural areas.
4. Tourism Boosts Consumption: Urban tourists spend more in rural areas. Meituan data shows that rural consumption increased by 14.1% in the first half of 2026, with per游客 spending 58 yuan, 50% higher than in urban areas.
Government policies are also supporting rural consumption, with nine departments working together to elevate it to city-level standards. Rural consumption is expected to account for 66% of the national total.
IV. Future Trends in Consumption
- First-Tier Cities: Service-based consumption will be the focus, as physical consumption (cars, appliances) has reached its peak.
- Rural Areas: Physical consumption will remain a driver, with significant room for quality improvement, making these areas new markets for manufacturing and businesses.
- Business Strategies: Manufacturers should focus on exports and expanding into rural areas, while retailers should target rural markets to capitalize on the demand for quality products.
In summary, China’s consumption pattern is diverging: some areas are upgrading their service offerings, while others are focusing on improving the quality of physical products. Understanding this differentiation is key to predicting future trends.