Summary of Key Points
Hefei ranked first among the top 20 cities in China for GDP growth rate in the first half of the year (6.8%), but the growth rate of retail sales of consumer goods was much lower than the national average (1.3%), placing it at 35th among the top 50 cities. This disparity between a high GDP and low consumption is, in the short term, due to the contribution of Changxin Technology, a single company that drove the GDP increase. However, its limited workforce does not sufficient to boost consumer spending. In the long run, it reflects structural issues with an industrial-dominated economy that fails to create a large middle-class population and leads to the outflow of high-skilled jobs, highlighting the deep-seated contradictions between China's production and consumption sectors.
I. GDP Soaring, but Consumption Lagging Behind – The Strange Contrast in Hefei
In the first half of this year, Hefei's actual GDP growth was 6.8%, 2.1 percentage points higher than the national average, ranking first among the top 20 cities; its nominal GDP growth was 8.57%, also the highest in that group. However, consumption data was disappointing: retail sales only increased by 0.6%, 0.7 percentage points below the national average, placing it at a lower level compared to other top 50 cities. In simple terms, although the city's economic volume is growing, residents' willingness to spend is not keeping up, even falling below the national average.
II. The Secret Behind High GDP Growth: One Company Driving the Economy
Hefei's high GDP growth is largely attributed to Changxin Technology:
- Changxin's Significant Contribution: Last year, Changxin's revenue was 15.4 billion yuan, and this year it is expected to reach 110-120 billion yuan, an increase of nearly 100 billion yuan. Based on the semiconductor industry's conversion rate (100 yuan in revenue corresponds to 35 yuan in GDP), Changxin contributed approximately 34.8 billion yuan to Hefei's GDP.
- Upstream and Downstream Industries Benefiting: For every 1 yuan of Changxin's revenue, it generates 1.8 yuan in local supporting economic activity. Assuming a 50% conversion rate for these supporting industries, they contributed another 32 billion yuan to GDP growth.
- The Total Impact is Remarkable: Together, these two factors account for 66.8 billion yuan, which exceeds Hefei's nominal GDP increase for the first half of the year (55.8 billion yuan). This indicates that without Changxin, the performance of other economic sectors in Hefei would be much more modest.
III. Why Can't Changxin Drive Consumption?
The reason why a single company like Changxin cannot boost consumption in a city with a population of millions is straightforward:
- Limited Employee Base: Changxin has fewer than 20,000 employees, including about 11,000 frontline producers and over 6,000 researchers. This small number of employees has a minimal impact on the city's overall consumption.
- Limited Stock Ownership Incentives: Although Changxin offers an employee stock ownership plan, only 6,760 people have received shares (with some duplicates), meaning not many employees truly benefit from it. Even if their wealth increases in the future, it may not significantly boost overall consumption.
IV. Weak Consumption is Not Accidental – Long-Term Structural Problems
Hefei's weak consumer demand is not a recent phenomenon; retail sales growth has been declining over the past three years (5% in 2023 to 4.2% in 2024 to 3.2% in 2025), consistently below the national average. The underlying issues include:
- Industrial Dominance Hindering Middle-Class Development: Advanced manufacturing is capital-intensive and does not create as many middle-class jobs as services (such as e-commerce or live streaming). Hefei's industrial workforce is "dumbbell-shaped," with a few researchers and many frontline workers, resulting in a lack of middle-class positions.
- Outflow of High-Skilled Jobs: Top companies hired by Hefei (such as BOE and NIO) have their core R&D facilities in Beijing, Shanghai, Guangzhou, and Shenzhen. The absence of high-paying jobs means fewer high-income individuals, which suppresses consumption.
- Lack of Quality Consumption Facilities: A shortage of high-end shopping malls and other consumer amenities leads to consumers spending money in other cities (e.g., Nanjing or Shanghai).
V. Hefei's Dilemma Reflects a Larger Pattern in the Chinese Economy
Hefei's situation illustrates the "K-shaped divergence" in China's economy, where the production sector (especially technology manufacturing) is performing well, but consumption is sluggish. To overcome this, potential solutions include stabilizing the real estate market to boost related consumption, leveraging the wealth effect of the stock market, and improving income distribution for ordinary workers. The key is to address consumption issues simultaneously by creating more middle-class jobs, retaining high-skilled talent, and improving consumer infrastructure, so that production growth translates into actual consumer spending power.
Hefei's story warns us that while a good GDP figure is positive, a healthy economy requires residents to be willing and able to spend money.