China Learns to Love Secondhand Goods

China's consumers have been on a 30-year shopping bender that's finally starting to wear off thanks to high debt levels, rising prices and a trade war. That's bad news for the country's struggling retailers. But it could be a boon for secondhand goods, one of the few areas of China's economy with the potential for significant growth during a downturn.

Between 2014 and 2018, China’s secondhand market grew by more than 450%, to $100 billion. That boom isn't led by thrift stores. Instead, it's being driven by tech companies, including Tencent Holdings Ltd. and Alibaba Group Holding Ltd. With their expertise in e-commerce and social networking, the companies are erasing stigmas and helping Chinese to continue to consume even when their pocketbooks feel empty.

China had a thriving secondhand market as far back as the early 1980s, when savvy entrepreneurs began importing used goods – everything from clothes to computers – from developed countries. Two factors quickly dampened that trade. First, the government began restricting the import of used goods as a means of boosting domestic manufacturers and retailers. Second, Chinese incomes rose enough that consumers could afford to buy new stuff. That trend was helped in part by long-standing cultural biases against used things – especially clothes – and an emerging status-conscious consumer culture.

Of course, secondhand goods never went away completely. For years, the trade in castoffs from China's wealthier regions has thrived in its countryside and smaller cities. But so long as the economy remained buoyant, the number of people keen to own used versus new kept shrinking. That, in turn, contributed to an extraordinary surplus of unwanted stuff – less than 1% of the textile waste generated in China is reused, for example.

Now, though, Chinese are taking a renewed interest in that surplus. There are several reasons for this. The first is a shift by consumers toward more sustainable consumption. One recent survey found that 51% of urban Chinese were willing to rent products or buy secondhand to help the environment. Young, educated consumers were more likely to opt for sustainable goods, suggesting a significant generational shift.

Second, in key sectors Chinese are consuming less new stuff by volume thanks to rising prices. For example, the volume of clothing purchased between 2017 and 2018 declined by nearly 25%. Government data suggests that inflation accounts for most of this decline. Shoppers seem to agree: Last week, a hashtag roughly translated as "Why don't Chinese buy clothes anymore?" went viral on the popular Sina Weibo social network. "I want new clothes but can no longer afford them," said one typical user.

But even before the recent slowdown, China’s tech giants had been taking an interest in secondhand stuff. In 2014, Alibaba founded Idle Fish, a used-goods platform modeled after its Taobao marketplace. The next year, 58.com, China's version of Craigslist, opened Zhuanzhuan, an online flea market that last week completed a $300 million funding round led by Tencent. Rather than simply offering an eBay-like buy-and-sell experience, these platforms are cleverly integrated with interest groups and social networks, thereby helping to build trust and erode stigmas. Their users are expected to soar – from 40 million in 2017 to around 80 million next year.

These services are likely to thrive as China's economy matures and throws off more used stuff. And secondhand goods, long stigmatized, are likely to become one more lucrative niche in the world's most dynamic consumer market.