China pushes spending revival as retailers ramp up promotions

China is accelerating efforts to boost domestic consumption, which has been dampened by the country’s prolonged real estate crisis. Retailers are intensifying promotions and discounts, further heating up an already hyper-competitive sector.

A strategy with immediate results

This approach appears to be paying off for major players like Alibaba—owner of platforms such as Aliexpress and Taobao—which reported a 10% year-on-year increase in domestic orders in Q2, reaching nearly €10.6 billion. Although international sales rose by 19%, they still totaled only €4.1 billion for the group.

Rival JD.com saw an even sharper rise in Q2 sales, which jumped 22.4% to €42.6 billion. Beyond offering discounts, JD.com is eyeing a larger share of China’s booming food sector to gain ground on Alibaba.
PDD Holdings—operator of Pinduoduo in Asia and Temu internationally—recorded more modest growth. Sales rose 7% to nearly €12.3 billion in the second quarter, still outperforming forecasts amid weak market conditions and ongoing uncertainty in the U.S.

“Revenue growth slowed further this quarter in a context of intense competition,” confirmed Jun Liu, CFO of PDD Holdings. He added, “Remaining focused on long-term value creation, sustained investments could continue to weigh on profitability in the short term.”

Soaring marketing spend fuels competition

Fierce competition has triggered a surge in marketing spend among Chinese retailers. In Q2 alone, Alibaba increased its marketing investment by 65%, while JD.com’s spending jumped 127%, highlighting the ongoing battle for consumer attention.

While PDD Holdings kept its spending relatively stable, the figure was already substantial—Temu’s parent company spent nearly €3.5 billion on marketing in a single month.

This marketing arms race is squeezing cash flow, particularly among smaller players, many of whom are struggling to keep up. Analysts warn that several may collapse, paving the way for increased market concentration through acquisitions by larger groups.

Beijing is wary of this prospect. The government continues to promote a diverse commercial landscape in hopes of reducing household savings rates and encouraging spending—especially in key segments like apparel, which accounted for approximately €137 billion in retail sales in 2024, according to the National Bureau of Statistics.

Policy incentives drive consumption push

In response to stagnant consumer confidence, several provinces have raised minimum wages by 10% since January. At the national level, the central government has issued directives to enforce the 40-hour legal workweek, along with promises of improved paid leave and expanded childcare subsidies.

These measures are starting to yield results. In July, retail sales of consumer goods rose by 3.7%, bringing the year-to-date increase to 5% for the first seven months of 2024.

On August 29, the National Development and Reform Commission (NDRC) unveiled a new set of initiatives aimed at supporting consumption. “China is already the world’s leading market for physical consumption, but per capita consumption still has significant room for growth, particularly in services,” said NDRC spokesperson Li Chao.

The latest measures include large-scale vocational training, revised wage adjustment frameworks, and targeted support for small businesses, e-commerce players, and startups using artificial intelligence in retail. Other efforts include adapting local stores to better serve families and older consumers.