China's Retail Sector Braces for Falling Prices as Demand Stays Weak

China's retail market remains stuck between soft demand and heavy discounting, even as the government pushes to remake stores into destinations for leisure, entertainment and social activity, analysts said.

Weiwen Han, a partner and head of the Asia-Pacific retail practice at Bain & Company, said price-led competition is unlikely to ease in the foreseeable future. He expects the market to remain "pretty muted," with the sector approaching a stretch of falling prices as weak consumer spending drags on growth.

Han also pointed to the legacy of decades of rapid expansion, which has left China with excess retail space, shopping malls, brands and operators. Over the next three years, he anticipates low growth, intense competition and continued pressure on profits.

Retail sales of consumer goods totaled $3.7 trillion (¥24.87 trillion) in the first half of the year. Government plans call for lifting that figure to $8.94 trillion (¥60 trillion) by 2030 under a four-year program aimed at spurring consumption.

The push to turn stores into leisure and social hubs is part of that effort, but analysts said it has not yet broken the cycle of weak demand and price-driven competition.