Analysis: What Noodles Tell Us About China’s Consumption Downgrading

The article explores the phenomenon of "consumption downgrade," where people reduce their spending due to economic constraints or pessimistic forecasts [para. 1]. Data from Shouqianba, a mobile payment solution platform for offline merchants, is used to gain insights into public consumption habits, particularly among small and micro businesses, which are often overlooked by macroeconomic data released by the National Bureau of Statistics [para. 2][para. 3].

To examine consumption downgrading, the article highlights the case study of a typical customer who frequented the same restaurant over 300 times from late 2022 to July 2023. Initially, the customer spent 10 to 12 yuan ($1.40 - $1.70) on lunch daily, purchasing items such as pork noodles with pickled mustard greens and a bottle of iced tea. By late July, the customer's spending had reduced to 7 to 9 yuan, opting for cheaper meals like noodles with an egg or vegetables. Importantly, the restaurant's menu prices remained unchanged during this period [para. 4][para. 5][para. 6].

A graphical representation of this person’s lunch expenditure indicates a gradual upgrade in spending until April, except during the Lunar New Year. However, a significant downgrade started in May, leading to expenditure being more than 20% below average in May, rebounding in June, and then falling again in July to 12% below average [para. 7][para. 8].

Expanding this method to a national level, the article calculates a "consumption upgrade/downgrade index" for all sampled customers across stores using Shouqianba's payment services. The index reflects a weighted average of their spending. The index peaked in January 2023 but trended downward and remained below zero for four consecutive months leading up to July, underscoring a shift towards reduced spending when compared to a three-year average. This index also exhibits clear seasonal trends, particularly around the Lunar New Year [para. 9][para. 10][para. 11].

Further analysis reveals that from October to July, the year-on-year index remained negative for ten consecutive months, implying an ongoing consumption downgrade across the dining and retail sectors [para. 12]. Of the 32 sample cities, only seven saw an upgrade in consumption during the first half of the year compared to the previous year, while 25 experienced varying degrees of downturn, highlighting a notable trend in consumption reduction [para. 13].

The reasons behind consumption downgrading are more closely linked to falling housing prices and stock indexes rather than declines in employment income. Housing prices heavily influence this trend due to the "wealth effect," where rising or falling prices of primary assets like property impact perceived wealth and thus spending behavior [para. 14][para. 15]. Whether housing prices and stock indexes rise or fall reflects public confidence in economic stability and future income potential. Consequently, the public’s belief in market and economic improvement is fundamental for any shift back towards consumption upgrading [para. 16][para. 17][para. 18].

Chen Qin, the chief economist at Shanghai Pulse Data Technology Co. Ltd., provides this meticulous analysis to shed light on the nuanced dynamics of consumption behavior in China. The article, edited for length and clarity, concludes with contact information for the translator Qing Na and editor Joshua Dummer [para. 19][para. 20][para. 21].