Changing Consumer Trends in China: Implications for the South Korean Economy

During China's National Day holiday, while travel crowds remained significant, consumer spending showed signs of decline. Tourist destinations were bustling, and train stations were crowded with travelers, yet the correlation between population movement and increased spending has weakened. This raises a critical question: Why are Chinese consumers traveling but not spending? This question is equally relevant for the South Korean economy, which relies on exports to China and welcomes Chinese tourists.

According to China's Ministry of Transport, inter-regional travel during the first five days of the National Day holiday increased by only 0.5% compared to the same period last year. This is a stark contrast to the high growth rates seen earlier in the year during the Spring Festival. However, this figure alone cannot definitively indicate a consumption slump. Last year, the Mid-Autumn Festival coincided with the National Day holiday, while this year, the two holidays were separated, leading to a dispersion of demand.

Nonetheless, there are signs of change that cannot be explained by this alone. Major tourist sites reported that revenue growth rates did not keep pace with visitor increases, and there was a noticeable trend of consumers being more frugal in duty-free shopping. This does not necessarily mean that consumption has uniformly decreased; rather, while the number of visitors and overall sales may have increased, the revenue generated per customer has declined. For businesses, this shift could be more troubling than a simple increase in total sales, as higher customer numbers may not translate into expected profits after accounting for labor and operational costs.

As holidays increase, people have more time to travel. However, this does not mean that their travel budgets are also expanding. Households tend to spread their fixed budgets over more days and destinations. They may opt for lower-grade accommodations, compare transportation costs, and reduce shopping expenses to enjoy longer vacations. This indicates that rather than a complete loss of consumer desire, Chinese consumers are adjusting their spending to align with their financial capabilities. The expectation that simply extending holidays will revive domestic consumption faces inherent limitations.

Underlying this behavior is a sense of uncertainty about future income. When real estate values fluctuate, households feel a decrease in their assets, and if job security and wages are uncertain, they tend to postpone immediate expenditures. The greater the burden of preparing for healthcare, retirement, and children's education, the more households feel the need to save. Even if the government encourages consumption, households first question whether they can manage their living expenses tomorrow. The key to recovering consumption lies not in discount rates but in job stability and sustained income. The willingness to spend stems from the belief that the future will be better than today.

China's 'Old for New' policy, which supports replacing old appliances and vehicles, should also be evaluated through this lens. Subsidies lower purchase costs and stimulate short-term demand. The issue is determining how much of this demand is new consumption versus purchases brought forward from next year. For households that already own sufficient durable goods, the effect of accelerating replacement timing can be significant. Declaring policy success based solely on increased sales figures can overlook the demand gap that may arise after subsidies end. While policies can shift spending timelines, they do not automatically create sustained purchasing power.

However, it is also inaccurate to depict the entirety of Chinese consumption as plummeting. According to the National Bureau of Statistics of China, the growth rate of service retail sales from January to August this year outpaced that of goods retail sales. While convenience stores and supermarkets performed relatively well, department stores and specialty brand shops struggled. Chinese households are not uniformly cutting back on all spending; instead, they are reevaluating where to allocate their money. They are opting for experiences that provide greater satisfaction than well-known brands and choosing channels that make price comparisons easier over expensive retail outlets.

This trend is also evident in travel choices. Instead of high-end accommodations in major cities, travelers are seeking homestays in smaller towns, and when airfares are too high, they are opting for train travel. However, it is important not to attribute the increase in rail usage solely to cost-saving measures or to explain poor box office performance solely by income declines. The convenience of transportation networks, fuel prices, and the competitiveness of films also influence consumer behavior. The key is to look beyond individual indicators to identify recurring trends. Chinese consumers are attempting to travel further and stay longer while maximizing spending efficiency. An increase in distance and duration does not necessarily indicate a shift toward higher-end consumption.

The South Korean economy must first be wary of the expectation that China's growth rate will continue to align with South Korean corporate revenues as it once did. If China grows, South Korea's intermediate goods exports may increase, and if Chinese incomes rise, South Korean cosmetics and duty-free shops may benefit. However, if domestic demand in China recovers, it may be captured more by Chinese companies, or consumption may increase outside of South Korean firms' core products, limiting the benefits for South Korea. The necessary question now is not just how much China grows, but whose income and which sectors see increased demand.

Exports to China also need to be differentiated. Instead of waiting for a broad recovery in China, it is essential to examine final demand by product and customer investment plans. Even as export figures rise, there is a significant possibility that sales volume, prices, and profitability will vary greatly by item.

Industries such as petrochemicals and steel face risks of demand slowdown and intensified competition. If products that do not sell well in China are directed overseas, South Korean companies may experience reduced orders in the Chinese market while facing price competition in third countries. This represents another pathway through which sluggish domestic demand in China can impact South Korea. Maintaining sales volume by lowering prices may defend immediate operating rates but does not guarantee long-term profitability. Companies should not delay decisions to adjust production scales and reduce reliance on generic products.

Domestic demand in South Korea may also be affected. As Chinese companies expand their overseas markets, the influx of low-cost products may benefit domestic consumers by lowering purchase costs. However, at the same time, small businesses producing similar products and the retailers selling them may face margin pressures. Viewing the influx of cheap imports solely as a consumer benefit or as a detriment to domestic industries is an incomplete perspective. It is essential to ensure fair application of safety and quality standards, taxes, and trade regulations while enabling domestic companies to compete through productivity and differentiation. A response that does not lose sight of fundamental principles is necessary between protection and neglect.

The tourism industry will be the first to feel the gap between expectations and reality. As the destinations for Chinese travelers shift, there is an opportunity for demand to shift to South Korea. However, an increase in flight routes and arrivals does not automatically translate to a recovery in duty-free sales. The number of flights is a supply indicator, while tourist spending is a separate outcome. Businesses should not base their plans on the past memories of Chinese tourists returning with shopping bags in hand. Cost-conscious consumers will compare accommodation, transportation, and product prices even while in South Korea.

Therefore, the metrics for tourism success must change. In addition to the number of arrivals, it is crucial to examine the length of stay, regional spending, revisit rates, and the profitability of tourism businesses. If spending is concentrated in only a few districts in Seoul or if excessive discounts leave no profit, the ripple effects of tourism will diminish. Connecting convenient transportation with reasonable accommodation, food, and cultural experiences is vital to enriching the time visitors spend in South Korea. Policies to attract more guests and ensure that those who come are satisfied and willing to spend must be designed together.

There is a need to package local food, markets, performances, and exhibitions into accessible products. Reducing minor inconveniences, such as providing Chinese language guidance, payment convenience, luggage storage, and public transport information, can also aid consumption. While overcharging and hard-selling may generate one-time sales, they undermine repeat visits and trust. The benefits arising from geopolitical conflicts can shift direction at any time. To sustain tourism demand, it is essential to increase the number of customers who find value in South Korea itself.

Companies in cosmetics, fashion, and food must also reassess their strategies of charging high prices simply for being labeled as Korean. As consumers become more price-sensitive, companies must be able to articulate quality, efficacy, and convenience more clearly. Smaller sizes, trial products, and easily affordable price points can lower purchase barriers. However, not all brands need to enter a price war. If there are compelling reasons for higher prices in the premium market, demand will remain. What weakens in a changing market is not the entire high-priced segment but products whose pricing rationale is unclear.

Government trade support must also advance beyond merely increasing total export figures. It should provide small and medium-sized enterprises with information on how Chinese consumption is shifting across regions, channels, and price points. Support for market entry should not end with participation in trade shows. It is necessary to assist in creating a structure that ensures actual profits by considering local distribution networks, settlement conditions, inventory, and return burdens, as well as online sales costs. Market diversification should not stop at merely increasing the number of sales channels. To genuinely reduce dependence on China, products must be tailored to meet the demands and regulations of new markets.

China's closed wallet poses questions for South Korea's domestic policies as well. Consumption coupons, discount events, and extended holidays may create short-term vitality. However, if households' real incomes do not improve and burdens from housing, education, and employment insecurity persist, the effects will be short-lived. For households to take advantage of consumption opportunities created by the government, there must be predictability in their daily lives. Companies also need stable policies and regulations to invest and hire. The foundation of domestic demand is not the frequency of events but the trust in an economy that allows people to earn income and plan for the future.

When assessing future Chinese consumption, principles are also necessary. It is essential to confirm final travel expenditures during the National Day holiday while also considering the length of the holiday, the composition of travel, and comparative periods. Total travel volume does not equate to the number of tourists, and the number of travel rentals does not correspond to the number of different individuals. Major commercial district sales cannot be seen as representative of the overall strength across China. In particular, provisional statistics should not be used to finalize October's overall consumption. It is crucial to monitor whether retail sales, employment, and household income trends continue after the holiday to distinguish between temporary spikes and sustained recovery.

China remains a vast market. However, the mere existence of a large market does not guarantee growth and profitability for South Korean companies. Consumers have not disappeared, but their choices have become more stringent. South Korea faces the challenge of equipping itself with the technology, products, and services that align with these choices. Rather than waiting passively for China's recovery or relying on spillover benefits, it is essential to reconstruct the reasons for sales and the structures that ensure profitability. The key to unlocking China's wallet lies not in South Korean expectations but in the value recognized by Chinese consumers. This National Day holiday serves as a stark warning to the South Korean economy.

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