Four months after China's chaotic opening from COVID-zero, conspicuous consumption in China has returned, and the country has continued its long-running love affair with luxury goods. Shares in LVMH Moët Hennessy Louis Vuitton, the world's largest luxury group, jumped 5.7% on Thursday after the company announced expectations-beating sales growth earlier this week, with notable strength in China. The jump briefly made the company the world's tenth largest and propelled the net worth of LVMH CEO Bernard Arnault—who surpassed Elon Musk the world's richest man in 2022—to $210 billion. Yet there may be more happening than just a resumption of pre-pandemic spending patterns.
Youth culture in China is changing its attitudes towards work and personal comfort—such as the social media trend of "lying flat" that emerged over the last several years—and that may end up changing the country's economy in permanent ways.
“These young people like leisure more,” Keyu Jin, associate professor of economics at the London School of Economics and author of the forthcoming The New China Playbook: Beyond Socialism and Capitalism, told Fortune. “They don’t see life as a matter of ruthless survival.”
That changing attitude could be a new twist in the story of China's economic development. Previous generations bought less and saved more, fostering an economy fueled by manufacturing and cheap labor and turning it into the "factory of the world." But today's young Chinese, with different expectations on individual comfort, could be, to paraphrase former leader Deng Xiaoping, developing a version of conspicuous consumption with Chinese characteristics.
The return of consumption
China’s COVID chaos in December and January helped drag down corporate earnings. Companies like Apple and Starbucks reported falling retail sales in China, as consumers stayed home amid the country’s record outbreak.
Now, however, multinational companies are seeing sales recover.
On Wednesday, LVMH, the French owner of brands like Tiffany and Dior, reported global quarterly sales of $23.1 billion, a 17% increase year-on-year and ahead of analyst expectations.
Sales in Asia (excluding Japan) grew by 14%, compared with an 8% drop the previous quarter. LVMH does not report China sales separately, but the company’s CFO, Jean-Jacques Guiony, told the Financial Times that China accounted for about 80% of the company’s Asia activity.
“We were very affected by events in China in December, our business was practically at a standstill,” Guiony said, referring to China's repeal of COVID controls and a simultaneous wave of COVID cases.
But “we’re definitely out of the zero-COVID period now, the page has turned,” Guiony said.
LSE professor Jin thinks that discretionary spending will rebound in the immediate term, yet durables consumption may take a while to recover as confidence rebuilds. “There’s a lot to expect in terms of a big rebound in consumption, but only in certain types,” she says.
Consumer sentiment in China has recovered to the same level it was last March, according to Morning Consult’s most recent Global Consumer Confidence Report, released Friday. Consumer confidence is now back to where it was before a two-month lockdown in Shanghai, which ran from April to June 2022, which sparked months of COVID lockdowns and other disruptions that dragged down the economy.
Chinese retail sales grew 3.5% year-on-year during January and February, beating expectations. Chinese leaders have declared consumption a "topmost priority," but slowing consumer inflation might indicate that overall consumer spending is losing steam.
What is ‘lying flat’?
The return of Chinese discretionary spending may reflect changing attitudes towards work-life balance, social mobility, and individual comfort among China's younger generations.
Over the past several years, the country's young flocked to social media to reject expectations on careers, work and family. One of the most prominent terms has been “lying flat,” which reflects a belief among some Chinese young professionals that it’s better to emphasize personal comfort than career or family success. (These Chinese social media trends are similar to younger employees in the U.S. also challenging career expectations, most famously expressed last year in the TikTok-driven concept of "quiet quitting")
Some young Chinese are even leaving high-paying, yet demanding, professional careers in favor of lower-skilled and lower-paying manual labor, citing better hours and work-life balance, according to the New York Times.
Chinese couples are also delaying marriage and having children, leading to a rise in “double-income, no kids” households. (China’s birth rate plunged during the COVID pandemic, and statisticians reported the country’s first decline in population since the 1960s earlier this year.)
This phenomenon is in part “a form of protest” against the social expectations placed on children, says Jin. But she also points to China’s stubbornly high youth unemployment rate. The country reported an unemployment rate of 18.1% among 16-24 year-olds in February, up 1.4 percentage points since December.
Young Chinese joined social media groups promoting frugal living and saving money due to economic uncertainty during the COVID pandemic. And a fear about social mobility has spurred the use of a new phrase on Chinese social media: the “moonlight clan,” reports CNBC. The term started in Taiwan but has since taken root in China as well among young workers who live paycheck-to-paycheck.
Members of the moonlight clan purchase small luxuries in the short term to make up for longer-term disappointment. “It could be anything from buying a cup of coffee from Starbucks, to going on an overseas trip—things that will give you a small sense of happiness to compensate for the loss of an overall goal in life,” Chung Chi Nien, a professor at Hong Kong Polytechnic University, told CNBC.
It's a different spin on the idea of conspicuous consumption, expressed over 100 years ago by the great sociologist Thorstein Veblen, on the economic idea that people buy higher-value goods as a display of status. China's growing middle class (or quasi-middle class) is choosing to spend now as a personal statement—whether to push back against social expectations, or to paper over fears of getting left behind.
That may be reflected in China's recent consumption data, with one recent report showing that luxury and restaurant spending are strong, while longer-term purchases—like appliances and furniture—are taking a while to recover.
Is the Chinese Gen-Z’s focus on personal comfort good?
Chinese officials have criticized terms like "lying flat" in state media. Yet Jin is optimistic that changing attitudes towards work, “without going to the extreme of lying flat,” will be good for China’s economy.
“There’s going to be less raw hunger that can lead to a race to the bottom in terms of competition” with other economies, she says.
China’s next generation has “real high consumption power,” she says. “They spend more, they borrow more, and they spend their future income, which is not something that any of the older generations ever imagined to do.”
She also points to the many Chinese workers who still earn less than $290 a month, which she estimates at 600 million, as a possible source of a “massive boost to consumption” as incomes increase.
However, Jin says that China still faces problems with youth unemployment and the skills mismatch. China’s young “need to have some type of stability in their jobs and in life to unleash that consumption power,” she says.
