China’s Deflation Deepens as Price Wars Hit Luxury Resale Market

In May, China's consumer prices dropped by 0.1% year-over-year, deepening the country's deflationary trend amid economic sluggishness and global tariffs. This is a worrying sign for policy makers, signaling weak domestic demand and expanding oversupply across sectors.

A deflationary spiral is taking hold, with intense price competition emerging across industries—autos, coffee chains, e-commerce platforms, and budget eateries. For instance, restaurants are offering 3 yuan breakfasts (≈$0.40) and supermarkets are running multiple flash sales daily. Though attractive to shoppers, experts warning that shallow margins could force smaller businesses to close and cost jobs, potentially reinforcing economic decline .

Luxury items, traditionally insulated from price volatility, have not escaped the downturn:

• Second-hand luxury bags are being discounted by as much as 70–90%.
• Shops like Super Zhangzhou offer Coach handbags bought at 3,260 yuan ($454) now for just 219 yuan ($30).
• A Givenchy G Cube necklace first priced at 2,200 yuan can now be found for as little as 187 yuan.

This flood of discounted items reflects weak spending and a saturation of resale inventory, driven by consumers turning to second-hand markets for value .

High-profile shoppers like Mandy Li, a 28-year-old energy-sector worker in Beijing, have switched to second-hand stores after a 10% wage cut at her state-owned employer and a 50% drop in her family’s real-estate assets. According to Lisa Zhang from Daxue Consulting, while affluent buyers are shifting to resale, sellers are slashing prices to stand out amid fierce rivalry.

Several resale outlets are grappling with oversupply. As one resale business founder (who asked to remain unnamed) observed, while the number of sellers has grown by roughly 20%, the buyer base remains flat . They warned that many new shops are likely to shut down soon, unable to sustain operations in crowded markets.

University professor Riley Chang, visiting Super Zhuanzhuan to explore selling her own luxury goods, noted that “stores all try to push your price as low as possible.” Shoppers are becoming savvy and wary—not just hunting bargains, but critically eyeing overly aggressive valuations.

China’s downturn stems from deep-rooted issues: its property sector has been in decline since 2021, pandemic-related shocks linger, and recent U.S. tariffs have dampened export momentum. Capital Economics warns that persistent industrial overcapacity is likely to sustain deflation throughout this year and next.

The People's Bank of China may respond with further rate cuts or targeted stimulus, but traditional monetary measures might lack the punch needed to combat entrenched deflation. Experts emphasize the urgency of reviving domestic demand and easing excess capacity to prevent a deeper economic malaise.