Looking back at the Year of the Snake, the results tell a different story than many expected. China delivered a remarkable 5 percent real GDP growth rate, once again the world’s biggest single growth engine, responsible for roughly 30 percent of global economic growth in 2025.
Despite persistent skepticism, 2025 proved that consumer demand from China remained resilient and solid—though with an increasingly pronounced differentiation between pockets of strong growth and pockets of meaningful decline. Some categories saw double-digit increases; others saw double-digit declines. Geographic divergence has followed the same pattern.
At the same time, the competitive landscape has shifted dramatically. Companies today must be far more selective about where to invest and where to double down to benefit from China’s growth story. Local companies have been far more effective at applying the new China playbook—one that has shifted from supplying demand and expanding footprint to a much more selective pursuit of growth pockets, paired with high-quality, innovative, and differentiated products. New channels have been central to this advantage. The snack-store channel alone now represents approximately USD 20 billion in revenue, with the two largest players each operating more than 10,000 stores, primarily in lower-tier cities.
Social commerce has become the primary engine of brand discovery and consumer recruitment, allowing local players to test, seed, and scale with a speed that legacy distribution models cannot match. Online-to-offline (O2O) capabilities extend this advantage further by unlocking consumption occasions that traditional retail was structurally unable to serve—a consumer browsing a short-video platform at night can discover, order, and receive a product before a conventional store would even open its doors. This emphasis on product and R&D is also enabling China’s leading companies to expand globally, as evidenced in the auto and healthcare spaces. Innovation increasingly originates from China and from Chinese companies—a development that requires multinationals to fundamentally rethink how they view China’s role, not only as a domestic market but as a center of global innovation.
China has long been at the forefront of digital retail, and it has now leveraged that strength to enable faster product cycles, supported by efficient end-to-end supply chains and influencer marketing. The model for launching new brands and products has been fundamentally reimagined. Companies begin with a test-and-learn phase on social commerce platforms, releasing multiple variants of a product—different flavors, colors, or styles—to generate immediate consumer feedback at minimal cost.
Once a leading candidate emerges, investment flows into social commerce and online flagship stores to build brand heat and recruit new users. Only when sufficient momentum has built does the product roll out across traditional e-commerce platforms and broad physical distribution. This approach enables companies to introduce new offerings with remarkable speed, generating the constant sense of novelty that Chinese consumers actively seek and expect. It is a flywheel that rewards agility—and one that local companies have learned to spin faster than almost anyone else.
While much attention has been paid to China’s declining birth rate and aging population, the near- and medium-term picture is more positive than the headlines suggest. Urbanization and rising incomes will continue to produce a growing middle class for the foreseeable future. And an aging population creates real opportunities for health and nutrition companies, with a well-educated consumer base—shaped in part by China’s dynamic social media ecosystem—driving demand for healthy, nutritious products.
These structural tailwinds are beginning to show up in the latest consumption data. The first two months of the Year of the Horse have been encouraging on consumption. While autos and appliances have faced steep declines following the end of demand subsidies over the last few months, other categories are off to a strong start.
As China settles into the Year of the Horse, here are five takeaways on what’s new and different.
1. The End of Subsidies—and Growth of Traditional Product Categories
The growth story of the past several months stands in stark contrast to what drove consumption in the first three quarters of 2025. During that period, electric vehicles and home appliances surged on the strength of government demand subsidies—with EVs growing 32 percent and appliances growing nearly 29 percent. That growth was powerfully supported by those subsidies, which are now being phased out.
The explanation is straightforward: subsidies made cars and washing machines unusually affordable, pulling forward purchases that would otherwise have been spread across future years. Consumers who had been considering a new appliance or vehicle made those purchases while the incentives were available. Now that those purchases have been captured, demand in both categories has turned sharply negative—auto volumes declined 26 percent in January–February 2026 compared with the prior year, while home appliances posted double-digit declines.
The good news is that spending is shifting into other discretionary categories. Beauty & personal care, as well as fashion, apparel, and sportswear, are seeing a meaningful uptick—returning to growth rates closer to their historical norms. Food & beverage continues to hold strong momentum, both in volume and—increasingly—in value terms as prices rise. Foodservice is also continuing its positive trajectory.
Chinese New Year provided an additional tailwind. The extended holiday period boosted travel, dining, entertainment, and gifting categories, adding seasonal momentum to a consumption landscape that was already showing signs of rebalancing. (Exhibit 1)
2. AI-Driven Export Growth
For the first time in several years, China is registering meaningful inflation. Core CPI—which excludes food and energy—has turned positive after hovering near zero for much of 2025, and food prices have risen more sharply, consistent with the strong performance of the F&B category. The chart shows a clear upward inflection in both overall CPI and core CPI in early 2026, a welcome contrast to the deflationary pressures that weighed on the economy through much of last year. (Exhibit 2)
My initial assumption was that this might reflect energy price pressures from global supply chain disruptions. It does not. Through the end of February, energy inflation has remained subdued. The inflation we are seeing is largely demand-driven, concentrated in food and core consumer categories. This is worth watching closely in the coming months.
Two other macroeconomic signals have stood out in the early weeks of the year. Exports have grown by around 20 percent year-on-year—driven in part by strong demand for AI-related hardware and technology exports, reflecting China’s expanding role in the global AI supply chain. And—perhaps most encouragingly—private domestic investment has shown positive signs after an extended period of weakness. After years of declining confidence among Chinese entrepreneurs, this is a tentative but meaningful shift. Both indicators remain early-stage, and it is far too soon to declare a trend. But after two years in which weak private investment was a persistent concern, the direction of travel in early 2026 is more hopeful than it has been in some time.
3. Strengthening Connectivity with the Rest of the World
In an increasingly fragmented and geopolitically tense world, it has been encouraging to see China record its highest number of international visitors ever in 2025. The momentum has continued into the Year of the Horse, with inbound travel from most countries continuing to rise. (Exhibit 3)
Two data points stand out. First, the volume of visitors from South Korea to Mainland China in January–February 2026 exceeded the number of visitors from Hong Kong—a remarkable milestone that speaks to the deepening connectivity between China and its Northeast Asian neighbor. South Korea posted 19 percent growth in arrivals to China, against an outbound flow of Chinese visitors to South Korea that grew at 20 percent.
Second, looking at the top overseas destinations for Chinese outbound air travelers, Thailand has surpassed Japan as the number-one destination, with over one million outbound passengers in January–February alone. The United States has become a top-ten destination from China—a signal of continued interest despite geopolitical headwinds— though the asymmetry in flows is notable: Chinese outbound travel to the US significantly exceeds US inbound travel to China (approximately 400,000 outbound compared to only around 150,000 inbound).
One notable exception to the broader trend of growing connectivity is Japan. Travel between China and Japan has declined sharply in both directions, reflecting the impact of recent diplomatic tensions. Outbound Chinese travelers to Japan fell by roughly half compared with the same period last year— from approximately 1.4 million to around 700,000 in January–February 2026. Japan’s total inbound visitor numbers have nonetheless held steady, with South Korean and Taiwanese travelers stepping in as the top two source markets. Japanese outbound travel has also reoriented: South Korea has become the primary destination, followed by the United States, with double-digit growth in both. For China, the reduced Japan travel appears to have redirected visitors toward other markets in Southeast Asia.
This strong inbound and outbound travel activity— particularly among Asian countries—is laying the groundwork for deeper cultural exchange and greater connectivity across the region. Europe is also gradually entering the picture. While travel volumes between China and Europe remain modest relative to intra-Asian flows, they are growing. The United Kingdom, Italy, and Germany have all appeared in the top-20 destinations for Chinese outbound air travelers, each recording double-digit growth. The direction is right, even if the scale has yet to catch up.
4. Local Brands Continue to Capture Share
This topic continues to generate more interest than almost any other topic among readers of China Brief—and the data from 2025 makes clear why.
Across most major consumer categories, local Chinese brands have expanded their share at the expense of foreign players. An analysis of the rolling top-20 brands by category tells a consistent story: from confectionery, candy & snacks to facial skincare, from non-alcoholic beverages to sports & outdoor, from infant nutrition to women’s care—local brands have gained ground, sometimes dramatically, between 2021 and 2025. (Exhibit 4)
Worth noting is a distinct third group: what might be called locally owned foreign brands—Chinese companies that own and operate global brands. These brands offer consumers the perceived prestige and benefits of a foreign product while the company behind them operates with all the agility, supply-chain efficiency, and market familiarity of a local player. Their rise complicates any simple narrative about patriotism driving the shift to local. Chinese consumers are rewarding brands that combine quality, value, and relevance—and a growing number of Chinese brands as well as foreign brands have learned to deliver exactly that.
What underlies this broader shift? Several forces are converging. Local companies have mastered the new China playbook: fast product cycles enabled by efficient supply chains, deep integration with social commerce and influencer marketing, a relentless focus on value, and a willingness to experiment continuously with new products, formats, and occasions. They have also moved with a speed and agility that most multinationals struggle to match. These dynamics—test on social commerce, build brand heat, then scale—are the same ones described in the introduction of this Brief. In China’s consumer market today, that playbook has become table stakes. At the same time, some multinationals have been slow to adapt their product portfolios, pricing architectures, or go-to-market models to the realities of a more demanding and more value conscious Chinese consumer.
The question for multinationals is not simply how to recapture share—it is how to redefine the role that China plays in their global strategy. For many, the answer increasingly lies not in competing across the board, but in identifying the specific segments, occasions, and value propositions where they can genuinely win.
5. Growth of Upper-Middle-Income Households to Drive Demand
The property and construction sector remains in a prolonged trough. Floor space sold, average housing prices, and floor space under construction have all remained deeply below their peak levels, with no clear catalyst for recovery visible on the horizon. The data through early 2026 shows no meaningful reversal in any of these indicators.
Against this backdrop, a word on urbanization and demographics—both of which are often cited as headwinds for China’s consumer story, but deserve a more nuanced reading.
Yes, China’s birth rate has been falling for more than a decade, and the country’s population has entered a period of structural decline. In major cities, fertility rates have reached exceptionally low levels. These are real, long-term challenges.
But for the next decade, the demographic picture is more favorable than it is often portrayed. China is expected to add roughly 60 million new urban households over the next ten years—more than the total number of households in my home country Germany. Growth among upper-middle-income and higher-income households will be even more pronounced. China surpassed 200 million upper-middle-income households for the first time in 2025. These are the households most likely to drive demand for branded and premium products.
Youth unemployment remains a concern—at approximately 17 percent, it reflects both the continued entry of large birth cohorts into the workforce and China’s high rate of college attendance, now above 60 percent. Consumer sentiment overall remains subdued. These are genuine headwinds.
But the headline numbers should not obscure the underlying dynamism. Consumption is growing, segments are shifting, and the demand for health, wellness, services, and experiences continues to accelerate. For companies willing to look beyond the aggregate figures and engage seriously with where growth is actually happening, China in the Year of the Horse continues to offer significant opportunity.
Looking Ahead
China’s growth has moderated from its historic highs, but the economy—and especially the consumer market—has proven remarkably adaptive. The rotation from subsidized categories to organic growth in apparel, beauty, and F&B, the continued expansion of services and experiences, the return of inflation as a signal of demand strength, and the early signs of recovery in private investment all point to a market that is rebalancing rather than stalling.
The rise of local companies is perhaps the most important structural development global executives need to grapple with. It is not a temporary phenomenon. It reflects a genuine shift in capabilities, consumer preferences, and competitive dynamics—reinforced by new channels and new ways of building brands—that will shape the China market for years to come.
For global companies, success in China now depends less on broad market exposure and more on precision: the right segments, the right channels, the right value propositions, and—increasingly— the right role for China within a global innovation and supply chain strategy. The Year of the Horse is likely to reward those who have done that thinking carefully, and challenge those who have not.