China's economic recovery is increasingly characterized by a notable retail rally in third- and fourth-tier cities, which are outperforming their top-tier counterparts. According to a recent report by McKinsey, consumer confidence in these lower-tier locales stands at an impressive 82%, significantly higher than the 74% confidence reported in major cities like Beijing and Shanghai. This disparity can be attributed to the lower financial pressures and debt burdens faced by consumers in smaller cities, where household leverage ratios hover just above 50%, compared to over 70% in first- and second-tier cities [fad2892c].
In October 2024, China's retail sales reached 4.54 trillion yuan (approximately US$627.3 billion), marking a year-on-year growth of 4.8%. However, this growth was not uniform across the country; while Shaoxing in Zhejiang province experienced an impressive 8.7% increase in retail sales, Beijing's retail consumption grew by only 2.9%, and Shanghai's figures even saw a decline of 2% [fad2892c].
The trend of stronger retail performance in lower-tier cities is further emphasized by the fact that retail sales growth in these areas outpaced that of higher-tier cities during the first half of 2024. This shift suggests a significant change in consumer behavior, as shoppers in lower-tier cities are more willing to spend, driven by a more optimistic economic outlook [fad2892c].
As Hong Kong grapples with its own economic challenges, including a decline in retail sales and a shift towards supporting local businesses, the contrasting dynamics in mainland China's retail market highlight the varying consumer sentiments across different regions. While Hong Kong shoppers are increasingly prioritizing local products amid economic uncertainty, the robust growth in lower-tier cities in China indicates a different narrative of recovery and consumer confidence [ebb6729e][b577e2d4].