Consumer spending slumps, dragging China economy down

Here’s the uncomfortable truth: most China consumer platform models were built on a false sense of predictability. Not just of demand—but of aspiration. The assumption? A generation of users would climb an income ladder fast enough to absorb margin-rich upgrades, embrace digital consumption layers, and drive the engine of scale economics.

That model worked—until it didn’t. Now in 2025, with consumer sentiment slumping and youth unemployment stubborn, what’s collapsing isn’t just retail spend. It’s the logic that platforms scaled on. This isn’t short-term belt-tightening. It’s structural retraction. And it exposes every monetization layer built on velocity without resilience.

Chinese consumers haven’t “disappeared.” They’ve changed posture—from aggressive spending to defensive prioritizing. And that has ripple effects all the way down the funnel.

Spending is still happening—but it’s narrower, flatter, and less susceptible to upsell logic. In categories like beauty, education, and fitness, aspirational upgrades are being deferred indefinitely. Users aren’t laddering up. They’re laddering sideways—or retreating altogether. For platforms, this kills two levers at once: LTV expansion and ARPU layering.

Let’s talk funnel logic. Platforms like Douyin and Taobao structured monetization assuming conversion curves would steepen over time. New users would convert faster. Repeat users would spend more. Ecosystem engagement would cross-pollinate purchase behavior.

But in a value-reprioritized market, funnels don’t just slow. They flatten. User acquisition still happens—but downstream monetization stalls. You see app opens, not checkouts. You get scrolling, not cart adds. It’s retention with no revenue. Loyalty with no lift. The core flywheel—engagement → trust → higher spend—doesn’t spin. Because the consumer isn’t climbing, they’re holding.

For years, China’s platforms ran what I call “subsidized loyalty”—fueling stickiness through discounts, red packets, and bundled perks.

The idea was: get them in cheap, then monetize deep. But in a value-maximizing consumer environment, users never graduate out of the promo layer. They stay locked in discount mode. The moment subsidies pull back, engagement vanishes.

This creates a platform-level margin trap:

• You can’t pull incentives without risking churn
• You can’t raise price without pushback
• And you can’t scale ops unless unit margins improve

It’s a stalemate—and the burn still runs.

Some sectors feel this harder than others.

• Education platforms bet on middle-income parents trading up for tutoring and online enrichment. But regulatory shifts + spending caution means this funnel collapsed first.
• DTC beauty brands now face a nightmare loop: lower conversion rates, shrinking basket sizes, and rising CAC on Douyin and Xiaohongshu.
• Social commerce plays like Pinduoduo still see traffic—but monetization is moving down-market. They win share, but not margin.

And then there’s fintech: credit platforms are watching both delinquency rates and user resistance rise. Consumers don’t want to borrow. Platforms don’t want to lend. That’s the definition of spread collapse.

One of the last places holding up platform revenue? Ad spend. Especially brand spend on content-led apps like Douyin and Kuaishou. But even that’s softening. And here’s the quiet fear: many advertisers are still spending based on 2021-era conversion assumptions.

In other words: they’re chasing ROAS that no longer exists. As that mismatch becomes clear, ad budgets will recalibrate—and content ecosystems could face their own cliff.

This is where the TikTok-China vs TikTok-US divergence gets interesting. While US creators are pushing for better monetization tooling, China’s platforms may quietly pivot back to system-owned content + closed-loop commerce. Because if users won’t spend—and advertisers pull back—control becomes the last hedge.

Another missed variable: infra cost doesn’t flex downward just because consumer demand does. Logistics still needs trucks. Cloud still charges compute. Content still needs moderation and hosting. Payment rails still charge fees. So even as consumer LTV falls, infra remains fixed or grows.

This means platforms can’t simply “ride it out.” They either:

• Slash ops and risk service degradation
• Reprice (and lose users)
• Or find entirely new monetization plays (good luck)

Most will try to spin new “AI-led” offerings. Some will mask churn with engagement metrics. But the cash logic won’t lie forever.

Some Western observers think this slowdown mirrors US consumer cooling. But the comparison doesn’t hold.

In the US, even cautious consumers still transact within credit cycles. BNPL is normalized. Loyalty points still stimulate demand. Spending psychology remains intact, if slower. In China, the consumer psychology has shifted—toward precaution, skepticism, and downgrade logic. It’s not just about price. It’s about trust in the system. That’s why product bundling logic fails. And why top-funnel growth won’t automatically drive monetization anymore.

If you’re a founder in Southeast Asia or LATAM copying the China playbook, take note: the consumer staircase may never appear.

• SEA markets like Indonesia and Vietnam are mobile-forward, but wage growth is patchy. Don't over-index on aspirational LTV.
• LATAM markets have seen brutal inflation cycles. Users are trained to price-shop, not brand-upgrade.

Assuming you can build China-style commerce platforms without China’s ’10s-era optimism is a dangerous hallucination.

So what’s the takeaway for builders? You need to rerun your unit economics with 3 brutal assumptions:

1. Flat LTV growth over time—your best user today may not be “better” in year two.
2. Zero price elasticity for upgrades—don’t expect anyone to buy the premium tier unless it’s 10x clearer.
3. Infra costs that don’t flex—build efficiency first, not hope.

Also: shift your monetization lens from the user to the ecosystem.

Where else can value be extracted that isn’t directly ARPU-tied?

Some examples:

• Loyalty arbitrage via bank partnerships
• API-level monetization of internal infra (logistics-as-a-service)
• Down-funnel cashflow leverage for vendors (PDD style)

If you stay locked in top-funnel fantasy, you’re building a model that’s already obsolete.

This isn’t a normal slowdown. It’s a structural reckoning. The China consumer story of 2010–2020—rising income, rising credit access, rising digital spend—is no longer the default. It’s a finished chapter. And every platform still priced on that story? They’re not misaligned. They’re hallucinating.

What’s needed now isn’t a new campaign or a fresh UX. It’s a full rewire of the model logic—one that assumes users are cautious, infra is fixed, and growth means loyalty, not leapfrogging. The old model was about extracting from optimism. The new one has to survive without it.