What a $5000 Chanel handbag tells you about China’s economy

From his small shopfront in the backblocks of Beijing’s glitzy Sanlitun shopping strip, Wang Pengfei is ready to cut a bargain deal on a pre-loved white Chanel handbag.

The glass cabinets in his second-hand luxury shop are brimming with Chanel and Hermes clutches and totes from recent seasons that are now being sold at a loss.

His shop, Deng Bao Zhan, a family-owned business, has plenty of customers, he says. The problem is that most of them want to cash in the splurges made in better economic times. Very few are buying his stock, and the price is constantly sliding as the second-hand stockpile grows.

“People are running out of money so they are selling their bags in exchange for cash,” he says. “Certainly, everyone is being impacted by the general economic environment.”

As for the Chanel clutch, he’d gladly offload it for 25,000 yuan ($5435), about $1000 less than he paid for it.

“If we don’t sell it at a loss now, we will make a greater loss in the future.”

Wang’s business is far from an anomaly. Consumer confidence has dropped off a cliff as the country struggles to shake off a pandemic-era slump that has been turbocharged by the collapse of its property market.

The consequences of the economic downturn reach into all corners of Chinese society, as households stockpile their savings at record levels, with signs that even the once-reliable cohorts of shopaholics have joined the nationwide belt-tightening.

This crisis of confidence has Beijing on edge, fighting to drive up consumer spending while trying to offset the added destabilising impact of a trade war with the US.

A man watches his mobile phone this week in a secondhand luxury goods shop in Beijing.Credit: Sanghee Liu

China immediately fired back this week with its own package of tariffs and retaliatory trade measures after US President Donald Trump doubled duties on Chinese imports to 20 per cent – a move that strikes at the heart of the export-dominant engine room of the world’s second-largest economy.

While the escalating trade feud overshadowed the Wednesday opening of the National People’s Congress – China’s rubber-stamp parliament and the premier event on its political calendar – some experts regard it as a sideshow to Beijing’s foremost concern.

“The overall attitude from the very top in China is super-clear. Boosting consumption is job number one,” economics professor Li Daokui, a former adviser to China’s central bank, told Bloomberg TV this week.

“I strongly believe this time around that tariffs are no longer a big issue … I don’t even put it in the top three [issues in China].”

While the consensus among seasoned China watchers is that Beijing is better prepared this time around than during Trump’s first tariff battle in 2018, the country’s reliance on exports for its growth leaves it vulnerable to Washington’s whims in the absence of a solid plan to get Chinese consumers to open their wallets.

“Trump’s tariffs are not an existential threat to China, but they are still concerning to economic policymakers,” says Neil Thomas, a fellow on Chinese politics at the Asia Society Policy Institute. “Beijing is worried that Trump’s policies could damage China’s development by hurting exports through higher tariffs.”

Shoppers walk past the World of Ralph Lauren in Taiku Li Sanlitun, a popular shopping and dining area in Beijing.Credit: Sanghee Liu

Chinese Premier Li Qiang used the platform of the congress this week – and the domestic and international spotlight that it commands – to signal China’s economic pivot, as he declared that “vigorously boosting consumption” was the country’s top priority for 2025.

Addressing an audience of almost 3000 Communist Party delegates in Beijing’s Great Hall of the People, with President Xi Jinping sitting centre stage, Li urged officials to move faster “to make domestic demand the main engine and anchor of economic growth”.

He outlined plans for stimulus measures that would put the country on track for its biggest budget deficit in more than three decades. But he gave little concrete detail about what form these would take and how they would achieve the government’s ambitious 5 per cent growth target, leaving analysts sceptical that Beijing can match its rhetoric with action.

“It was not particularly aggressive in the details and probably not enough to secure that 5 per cent growth target unless a lot of things go Beijing’s way, including US-China trade risks,” economic analyst Michael Hirson told an Asia Society panel this week.

In the beating heart of the Sanlitun shopping district is a corner where street photographers hover around a thoroughfare that runs past the luxury retailers. It doubles as a runway for Beijing’s fashionistas hoping to parade their avant-garde couture in the style blogs.

It’s the place to see and be seen.

Even amid the glammed-up Sunday shopping crowd, a Mr Liu and his wife were hard to miss as they strolled into a Louis Vuitton pop-up shop – a clear favourite haunt of theirs if their matching Louis Vuitton sneakers were anything to go by.

Liu, a 42-year-old businessman, confesses he is an unabashed label lover as he examines the price tags. Their sneakers cost more than 10,000 yuan ($2174), he says, and her Louis Vuitton coat? That was 50,000 yuan ($10,859).

They haven’t stopped throwing down the credit card just yet, but they have reined in the frequency of their high-end splurges.

“The trend of the economy is very bad. My business scale was 100 million yuan in the past, but now it’s only 50 million,” he says.

He works in the railway sector and deals with state-owned enterprises. Lately, he says, government payments are coming in well after their due date, something he attributes to local authorities “running out of money”.

Sustaining the luxury economy is hardly a priority for Xi and his officials, as hundreds of millions of low- and middle-income workers watch their savings slide from the pre-pandemic boom era. However, the squeezing of the upper middle class is a sign of how far the economic slowdown has reached into Chinese society.

People walk past a store of American luxury brand Tom Ford in Beijng’s Sanlitun shopping district.Credit: Sanghee Liu

Luxury brands that rode the boom of seemingly insatiable demand from China’s aspirational classes took hits of up to 20 per cent to their bottom lines in 2024, consultancy group Bain Capital reported.

Louis Vuitton, one of the most popular brands in China, didn’t escape pain. Its new sprawling multi-level flagship store in Sanlitun remains fenced off, more than a year after it was due to open. Revenue at its parent company slid 16 per cent in Asia in the year to October, before recovering slightly in the final quarter.

Among the throng of Sunday window shoppers are a couple in their 30s pushing their one-year-old son in a stroller.

“As a regular Chinese guy, my salary is not that high. We cannot afford that [luxury] stuff,” says the man, who gives only his surname, Xiong.

For the first time last year, Xiong says, his wage as an auto-engineer did not keep pace with inflation. He knows the government wants people to spend, and that there’s a national rebate scheme offering subsidies for those who buy electronic goods. But for now, he and his wife are saving as much as they can for the next few years.

“I think most of us will not use [the rebate scheme]. We just keep saving money to avoid some future risk,” he says. “Until now, things have been OK, but maybe in the next few years one of us could lose our jobs.”

A man enters a Chanel shop in the Sanlitun shopping district. While many customers are still spending, others are trading in their luxury goods.Credit: Sanghee Liu

The scale of China’s consumption challenge is borne out in the economic data. Consumer spending accounted for just 30 per cent of economic growth last year, down from more than 65 per cent in 2018, at the outset of the last trade war with the US.

Injecting an extra 300 billion yuan into existing consumer goods trade-in and rebate schemes was one of the few concrete stimulus measures announced by Li on Wednesday.

He also signalled 500 billion yuan of special debt to recapitalise large state-owned commercial banks and support the economic recovery, and more cash for debt-laden local governments to help stabilise the property market.

But the package signalled the party leadership remains opposed to direct cash handouts, such as nationwide vouchers, and is still avoiding the bazooka-style stimulus package that many economists and investors argue is needed to fire up spending and confidence.

Monash University associate professor He-Ling Shi, who has advised Chinese officials on economic policy in the past, says rebate-style schemes will only marginally boost consumption.

People walk past the flagship Beijing store of French beauty products retailer Sephora.Credit: Sanghee Liu

“If you want to have a proper policy in place to encourage people to consume now, they have to solve the lack-of-confidence problem,” Shi says.

Chinese households have one of the highest savings rates in the world, squirrelling away about 30 per cent of their disposable income. One of the reasons for this, Shi says, is that people fear they will not have enough social support if they fall sick or for aged care. He suggests reforming the pension system and health insurance policies as a key lever to boost confidence.

At one of the tightly stage-managed press conferences on the sidelines of the People’s Congress this week, top economic officials signalled they were waiting to see how the trade war plays out. Finance Minister Lan Fo’an said the government had “reserved sufficient back-up tools and policy space” for future measures.

Wang Pengfei, the handbag seller, is just hoping to ride out the storm. But others won’t be so lucky.

“Those new shops opened by beginners, they will perish sooner or later,” he says.

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