2025 was another strong year for China’s economy — on paper.

Beijing reported the world’s second-largest economy hit its 5% GDP growth target for the year. Exports held up. Industrial output stayed resilient.

Underneath the surface, however, things were not as anodyne. There is China’s ongoing real estate bust and the continued trade battle with the US. And then there’s another ongoing problem that could prove even tougher to solve: getting young people to believe in the future.

Many young Chinese millennials and Gen Zers, who are trading down on everything from fashion to career ambition, are gripped in a deep sense of morass. The stepping stones to a solid, middle-class life seem to be sinking away, and the promise of long-term financial stability is crumbling as the housing market does the same.

“Even though a recession has not taken place, a lot of the symptoms of recession have been experienced by this young generation, particularly around unemployment and underemployment,” Zak Dychtwald, who runs consumer research firm Young China Group, tells me.

Youth unemployment is high — around 17% — and that number also doesn’t capture the growing number of graduates taking jobs they never expected to need. Last year, Chinese social media lit up after a Ph.D. graduate posted about turning to food delivery work. Around the same time, a gas company announced it was recruiting graduates and postgraduates as meter readers.

“College education has become much more attainable for young adults,” said Zhou Yun, an assistant professor of sociology at the University of Michigan. “Yet the returns to college education have not kept pace.”

As young adults in China confront an economy that no longer seems able to deliver on the promise of a steadily better future, a scarcity mindset is shaping their everyday spending decisions. Caution has replaced confidence. Stagnant job prospects and weak price growth have revived questions about whether China could face a prolonged period of stagnation similar to Japan’s “lost decades,” when consumers delayed spending in anticipation of ever-lower prices, reinforcing a cycle of weak growth, subdued wages, and resignation that the future would look no better than the present.

That doesn’t mean China is on the verge of repeating Japan’s lost decades. Dychtwald described 2025 as a more stable year than the earlier post-pandemic period. But the problem isn’t collapse. It’s hesitation. And once hesitation is entrenched, it can be hard to reverse. What has shifted is not just economic momentum, but generational expectation.

A new normal

When China lifted pandemic-era restrictions at the end of 2022, economists and businesses expected its once free-spending consumers to unleash a wave of “revenge spending.” The flow of pent-up cash, the thinking went, would lift the country’s economy and send money cascading around the globe. That boom never quite arrived.

After a brief bump in early 2023, consumption quickly lost momentum. Retail sales growth consistently trails the 10% year-over-year gains common before 2020. More recently, retail sales growth in December slowed to a paltry 0.9% compared to the same month a year ago, which was the weakest pace since reopening and a stark contrast to the supposedly stable GDP numbers. The nine-day Lunar New Year holiday in February — one of the country’s most important consumption periods — has a few bright spots: daily revenues at key retailers and restaurants rose 5.7% year over year, while tourist revenues rose 5.7%, according to official figures. But average spending per trip actually slipped 0.2% from a year earlier, Nomura economists found, suggesting that while more people traveled, they remained cautious about how much they spent.

Spending is particularly slow among younger millennials and Gen Z consumers. Once lovers of all things luxury, China’s young are retreating from the likes of Louis Vuitton and Gucci to safer stores of value like solid-gold beans, or small comforts such as Pop Mart collectibles and a viral crying horse plushie — muted expressions of unease that have survived the censorship. Mainland Chinese consumers now account for around one-fifth of global luxury brand sales, down sharply from about one-third at their peak.

The shift to saving is a hard pivot from China’s pre-pandemic wave of so-called “moonlight tribes” — people who empty their funds and have no savings by the end of the month. At the time, many analysts worried more that young people were overspending.

“The confidence that it takes to do that is the belief that next month you’re going to have a job. It takes the belief that next month is going to be as good as the last month,” Dychtwald tells me.

Beijing has turned to a familiar playbook to revive demand: subsidies, discounts, targeted incentives, supportive housing measures, and confidence-boosting messaging. But China’s demand problem increasingly looks like it can’t be solved by nudging wallets alone. It hinges on something more fragile: whether young people — once expected to power the consumer economy — still believe the future will reward risk. And many have lost their faith.

The broken wealth machine

For nearly 50 years, the Chinese Dream wasn’t all that different from the American dream: study hard, land a stable job, buy a home, and move steadily into the middle class. Perhaps no element was more important than getting in on the real estate game. Housing was treated as a marker of adulthood, a prerequisite for marriage, and a symbol of upward mobility.

“A lot of young people thought their ticket to security was to buy a house,” Dychtwald says. “But if you did that, then you’re probably in the red right now.”

Similar to its Western counterparts, China is now seeing that narrative fall apart. Not only are jobs harder to find, but the source of wealth for most middle-class Chinese, real estate, has tanked. New home prices in China have fallen nearly every single month since mid-2022. Nationwide, property prices have fallen by about 20% since they reached their peak in the third quarter of 2021. Even state-backed developers are in trouble.

The carnage is the result of a decadeslong asset bubble that saw real estate activity become up to one-third of the country’s GDP, compared to under one-fifth in the US. This nasty deleveraging is destabilizing a key source of security for young people, Dychtwald says. The idea that buying a home could be a setback rather than a milestone is psychologically disruptive.

“It was the only asset in China that went up and to the right consistently,” he says.

And while the Chinese stock market has been booming since DeepSeek shocked the AI world last year, its wealth effect tends to be smaller than the housing wealth effect in China, Goldman Sachs wrote in a recent report. That difference matters because the wealth effect in China works differently than it does in the US. Chinese households hold the majority of their assets in real estate — often estimated at 60% to 70% of total wealth — whereas stock ownership is less widespread and accounts for a much smaller portion of household balance sheets. That fundamental shift helps explain why even a big stimulus project can land softly. When security feels uncertain, incentives become something to bank rather than burn.

Lying flat

While the statistics alone paint a bleak picture, if you really want a sense of how Chinese Gen Zers and millennials feel about the economy, just check out their social media. The proliferation of dejected internet memes — including the “let it rot” movement and extreme frugality challenges — is a clear example of the mood swing and social disenchantment.

The first sign of discontent was the “lying flat” movement, which popped up in 2021 as a quiet rebellion against China’s grueling work culture — including the “996” schedule that normalized working from 9 a.m. to 9 p.m., 6 days a week. What began as a refusal to overwork has, for some, hardened into a broader withdrawal from ambition altogether. In the past year, some unemployed millennials and Gen Zers have begun openly embracing what they call “rat people” lives, describing days spent largely in bed, doomscrolling, and surviving on cheap takeout. And then there are young adults who are employed as “full-time children” by their parents, who pay them to run errands, clean, and prepare food.

This online malaise has real-world consequences. In 2024, prominent Chinese economist Gao Shanwen made headlines at an investor conference after describing China’s young people as “lifeless,” remarks later scrubbed from the internet by censors. Gao says his analysis of regional data showed that the younger a province’s population is, the slower its consumption growth tends to be.

“China is now full of vibrant old people, lifeless young people, and middle-aged people in despair,” Gao says. “Young people are tightening their belts and eating noodles with the lights off.”

In other words, weak consumption is less a sign of economic cycles than it is a generational phenomenon. Younger regions, far from powering demand, were lagging behind it.

Concerns about moving up the wealth ladder are even manifesting in the country’s plummeting fertility rate. The number of newborns in China dropped to 7.92 million last year — the lowest since records began in 1949. Beijing has rolled out incentives to encourage childbearing, but that may not be enough to convince young married couples to take the plunge if they see a diminished future for their children.

“For young urban adults in China, there are concerns about the enormous time and financial inputs required for child-rearing. There are also concerns about whether one’s child can maintain an upward or at least similar social mobility trajectory,” Zhou tells me.

China’s malaise is the world’s worry

China’s weak consumer demand is no longer just a domestic problem. It is increasingly a global one.

For years, global companies and policymakers assumed that Chinese households — especially younger, urban consumers — would become one of the world’s most powerful sources of demand, absorbing exports, buying luxury goods, traveling abroad, and underpinning global growth as China’s economy matured. If that consumer engine continues to sputter, the consequences extend well beyond China’s borders.

“For the global economy in 2026, a slowdown in China’s pace of economic growth from the 5% pace recorded in 2025 remains a key risk to world GDP growth and exports,” Rajiv Biswas, an international economist and the CEO of Asia-Pacific Economics, tells me.

One of the most significant downside risks for China’s economy next year, he adds, would be if private consumption fails to show a meaningful rebound from its sluggish pace in the second half of 2025.

China’s current growth model — buoyed by exports and industrial production but weighed down by cautious households — may be enough to keep headline GDP on target. But it does far less to support the kind of demand global companies have been counting on, from luxury goods and autos to travel, services, and commodities. A prolonged period of consumer caution would also complicate Beijing’s long-stated goal of rebalancing the economy toward consumption-led growth. It can also lead to a flood of cheap exports to the rest of the world, putting pressure on economies from Europe to Southeast Asia.

Biswas expects policymakers to continue rolling out measures to boost demand and stimulate household consumption.

However, if younger consumers remain hesitant — shaped by job insecurity, falling housing wealth, and a scarcity mindset — no amount of policy fine-tuning will quickly change behavior — because economic recoveries depend on spending, and spending starts with belief.

Huileng Tan is a senior business reporter based in Singapore, covering markets, the economy, and commodities.