The Diminishing Wealth of China’s Middle Class: Insights from Real Estate and Consumer Goods

The Diminishing Wealth of China’s Middle Class: Insights from Real Estate and Consumer Goods
An Apple Store employee prepares for the opening of business in Beijing, on Dec. 6, 2023. (Wang Zhao / AFP via Getty Images)
Shawn Lin
Sean Tseng

The unfolding real estate crisis in China has led to a marked decrease in the purchasing power of its middle class. This shift is evident in the declining sales of products usually favored by this demographic, such as Apple’s latest smartphones, pianos, luxury cars, and high-end watches.

In early 2024, Apple’s smartphone sales in China saw a dramatic 30 percent drop compared to the year-ago period. Attempting to counteract this trend, Apple introduced a “Spring Festival Limited Time Offer” on Jan. 15 on its official Chinese website. This unprecedented move included discounts on a range of products, with savings of up to 500 yuan (about $70) on smartphones and up to 800 yuan (approximately $110) on the MacBook Air.

This price reduction quickly became a hot topic on Weibo, stirring widespread discussion about Apple’s rare pricing strategy.

According to a report by Jefferies Group, a U.S.-based investment bank, these discounts, including significant reductions on models like the iPhone 15 Pro and iPhone 15 Pro Max on major Chinese e-commerce platforms, were not enough, however, to halt a sharp decline in sales.

The piano industry in China is experiencing similar challenges. Mr. Fan, a veteran in the second-hand piano sales sector for over two decades, observed that more than half of the piano dealers and shops in China shut down in 2023.

The industry downturn, which began in 2019, was exacerbated by the pandemic and then sharply declined from April 2023. He noted that dealers maintaining even 30 percent of their previous sales volumes are considered successful, with the average hovering around 15 percent.

Pearl River Piano, China’s leading piano manufacturer, reported a 60.62 percent year-over-year revenue drop in the first half of the previous year. Although the company’s report didn’t specify the causes, it highlighted a sluggish musical instrument market and challenges such as increased competition and a slow economic recovery as key risks.

The impact extends to piano training institutions as well, with about 30 percent of the 650,000 music-training institutions in China closing by the end of 2022.

Similarly, the markets for luxury cars and high-end watches are facing downturns, especially in the second-hand segments. On Jan. 15, the self-media platform Explosive Angle Tracking reported that both new and used luxury cars in China are experiencing significant price cuts, yet sales volumes continue to decline.

The second-hand luxury watch market has seen even starker downturns, with transaction volumes falling drastically since May 2023, prices plummeting by year’s end, and many items selling for half their original price.

These trends across multiple sectors underscore the economic challenges facing China’s middle class and signal a broader shift in the market landscape.

The Real Estate Crisis and the Burden on China’s Middle Class

The diminishing fortunes of China’s middle class are not only a consequence of the ongoing real estate crisis but also reflect broader economic strains within the country. The crisis has significantly impacted the wealth of many Chinese households, especially those with mortgaged properties, posing a dilemma: to sell at a loss for liquidity or to hold on in hopes of market stabilization.

Data from a Chinese residential real estate information service indicates a shift in the secondary high-end residential market in 2023. In the first-tier cities of Beijing, Shanghai, Guangzhou, and Shenzhen, transactions for secondary homes priced above 10 million yuan (about $1.4 million) rose by 34 percent year over year. Concurrently, the listing prices of these high-end residences dropped by approximately 5 percent to 15 percent.

For many families in these cities, their primary assets are their homes, heavily reliant on robust property values. With the downturn in the real estate market, a significant number of properties are being sold at reduced prices or are struggling to find buyers, leading to financial distress for the middle class.

For example, a family that purchased a home for 10 million yuan ($1.4 million) with a 3 million yuan ($420,000) down payment and a 7 million yuan ($980,000) loan faces a precarious situation if the property value drops by 3 million yuan ($420,000). Such a scenario could erase the down payment value, leaving the family with substantial debt.

This scenario is compounded by job insecurities or pay cuts, making loan repayment more challenging and curbing spending among the middle class.

According to international economic studies, the downturn in China’s real estate sector has profound implications for its middle class. With about 70 percent of family assets in real estate, a mere 5 percent drop in property prices could wipe out approximately 19 trillion yuan (about $2.7 trillion) in housing wealth.

In addition, the middle class has also been affected by losses in the stock market. The Shanghai Composite Index experienced a significant decline, falling below key thresholds over the past year, with only a slight rebound recently.

The middle class, typically characterized by education, professional knowledge, occupational skills, consumer power, stable income, and social status, is seen as a crucial stabilizer in societal development. A robust middle class contributes to social stability, while its decline can lead to an increased wealth gap, diverging social needs, and heightened social conflicts.