Between a Rock and a Hard Place for Chinese Youth?
‘Is a 79-yuan eyebrow pencil expensive? Is it not your own problem? Please ask yourself if your salaries have gone up for years? Are you working hard enough?’ Lipstick King, Li Jiaqi, excited the angry crowd following his controversial comment in his livestream on the 10th of September. Despite the arrogant attitude and overpriced products, the harsh comments from Li revealed some unspoken truth. Young people in China have become less and less able to afford ‘luxurious’ goods as the past generations have been.
The labour market outcomes for workers aged 15 to 24 years old in China have not been ideal for years. This was worsened as the COVID-19 pandemic hit the country. Figure 1 shows the comparison between youth unemployment and general unemployment rates between 2017 and 2022. Since the beginning of the pandemic, the youth unemployment rate has exceeded 12 percent, meaning one out of every 8 young people in the labour market is unemployed. Yet, the actual numbers of those between 15 and 24 years old who are jobless would be higher in reality as the labour force only considers those who are actively seeking jobs in the past three months. The consistent growth in the 2023 monthly surveyed youth unemployment rate eventually alarmed the socialist government such that it decided to stop publishing unemployment data when it exceeded the record high of 20 percent.
With the significantly high youth unemployment, is ‘consumption downgrade’ taking place among the young? In order to provide some answers to this question, I examined a case study in the bubble tea industry.
Insight of the bubble tea industry
The bubble tea industry has been a promising market since the beginning of the 21st century when various brands entered the market in mainland China: the market between 2015 and 2020 grew at a compound annual growth rate of 9.8 percent. Despite the slowdown in growth during the pandemic, the industry returned strong: tea consumption increased by 150 percent in 2021, far higher than the coffee industry of 99 percent. It has continued expanding its overall market share in the non-alcoholic beverage market. Figure 2 shows that in 2015, it had 28.6 percent of the market sales, 7.5 times more than the coffee industry. It grew to a third of the market in 2020 while the coffee drinks occupied merely 5.3 percent of the market.
While the industry is highly competitive, the brands have targeted different consumers and competition mainly occurs between brands that have similar prices. The market can be divided into three levels based on the price of an average cup - high-end for above 20 yuan, middle-range with price between 20 and 10 yuan, and low-end for below 10 yuan. The brands in different hierarchies try to differentiate themselves from other levels on non-price characteristics, too. For example, Hey Tea of the high-end advertises itself with high-quality tea and flavour while the low-end brand Mixue Ice Cream & Tea (Mixue) strikes the market with its exceptionally low price. The competitive differentiation results in high brand loyalties. According to the ‘Insights into Tea Drink Consumption 2021’ report released by the shopping-and-delivery platform ‘Meituan’ and the beverage industry self-media platform ‘Kamen’, brand names instead of product names account for 65 percent of search items for online ordering.
The report also found that Generation Z, born during the late 1990s and early 2000s, are the key consumers, making up 40 percent of the consumer body. Figure 3 from the study conducted by Qu et al. shows that all participants consumed at least 6 cups in a year; more than a fifth of the participants consumed a cup every two to three days. Drinking bubble tea is gradually becoming a necessity among the young not only because it has become the ‘fourth meal’ for the young consumers due to energy provided by the products, but also because it provides ‘nourishment for the mind’ (jingshen shiliang) - the counterbalance of joy it provides against the high pressure at work.
Did high youth unemployment contribute to the ‘downgrade’ in the bubble tea industry?
The high youth unemployment during and after the pandemic undoubtedly had impacts on the consumption behaviour of Generation Z, who make up the youth labour force. Consumption downgrade refers to the situation where the consumers in general purchase cheaper products. In order to examine whether the high youth unemployment rate between 2019 and 2022 led to a downgrade in consumption in the bubble tea industry, I first attempted to find the correlation of the youth unemployment rate versus the proportion of sales of bubble tea at different price levels. A simple regression analysis is then utilitised to explore potential causual effect of youth unemployment on the consumption behaviour. Due to the limited data available, I only looked at six top brands in the market and categorised them into three price levels as below.
I collected data of consumption from each company’s annual reports between 2019 and 2022 and approximated the missing data by dividing annual revenues from financial reports by the average prices of their products. To control for the expansion of the industry, I calculated the market’s shares of consumption at different price points to demonstrate the shifts in the consumption composition for different price levels over the period depicted in Figure 4. From the graph, it is clear that the quantity of sales of the high-end brands have decreased while the brands of middle-range and the low-end saw an increase in their shares. This rise in sales was especially significant for the low-end brands, who experienced an increase of 10 percentage points.
Calculating Pearson’s product-moment correlation, the sample results shown below suggest that there is a strong negative correlation between the consumption of high-end brands and youth unemployment rate and a strong positive correlation between the consumption of low-end brands and youth unemployment rate. However, the correlation result should be taken with caution as the high p-value indicates a lack of strong statistical evidence, largely explained by the small sample size. Yet, the trend of downgrading is obvious. While taking a linear regression for the consumption shares and youth unemployment rate shown by the simple regression coefficient, it estimates a strong negative impact youth unemployment has on the consumption of high-end products, and it has a strong positive influence on low-end consumption. The consumption downgrade occurs in the industry to some extent and it is closely linked to the high youth unemployment rate.
The strong negative correlation between high-end bubble tea consumption and youth unemployment, and the strong positive correlation between low-end bubble tea consumption and youth unemployment indicates that the impact of youth unemployment has overcome the strong brand loyalty.
Why is the result a serious problem?
What is worrying about the result is that the negative income effect is strong enough to make these young people become rational while facing powerful consumerism. On the 22nd of September 2023, Mixue, who profited on its cheap drinks, published its adjustment of prices for various products. The controversial action raised another wave of anxiety among the young. This tells the power of the growing youth unemployment rate on self recognition of their economic status and the constraint it had on the group in terms of consumption. The consumption downgrade in the bubble tea industry adds to the larger picture of lower living standards among the young labour force.
The high competition in the labour market brought by university degree inflation and preference for white-collar work has led to several unhealthy working conditions. The 996 working hour system requires workers to work from 9am to 9 pm from Monday to Saturday. Studies have also found that typical working hours in China are longer than in the US. Health conditions of young workers, especially in the IT industry, are damaged by the long hours of working and the high pressure. The rise of the new phrase, ‘lying flat’ (tangping), reflects the ‘self protection’ mechanism of the young workers against the high pressure jobs. Young people are not happy.
Furthermore, the downgrade in consumption among the young labour force can be seen as an indication of financial instability. The job insecurity among the young has driven up their savings to be prepared for the ‘future emergencies’. A survey found that 40% of young people save every month with just under a third of the group saving more than 50% of their monthly income. The financial stress can delay the young people’s major life decisions, such as buying a house, which can have societal implications.
On a macro level, the potential impact of the situation on the economy would be detrimental. According to Goldman Sachs, the Chinese young labour force accounts for about 20% of the consumption in the economy. The reduction in the value of consumption from such a large contribution body, China may expect a slower growth in their economy if such a situation persists for long. The multiplier effect of such slow growth may lead to cyclical unemployment, which is likely to affect the unskilled, of whom the young labour force is likely to belong to. This would create a cycle that exacerbates the issue more.
However, while the pandemic has created a series of economic problems in the economy due to the serious lockdowns in China, the government has decided to crack down on many high-tech companies and the real estate industry, cutting down more jobs for the well-educated young workers. Among millions of delivery workers–a job that has once been the last resort or even been looked down by university students–a third of them hold a bachelor’s degree. The leading force of consumption and production of the very near future are not only losing the essential practices in the jobs, but also losing faith in the system.
Where is the young workers’ future lying? The government does not have much time to work out an implicit and satisfying answer.