When Shanghai’s Menghua Street Wonton reopened in 2017, it took a nudge from the very top. The hole‑in‑the‑wall shop had been shuttered for licensing issues, then given a second life after Premier Li Keqiang publicly backed its return—an emblem of how policy can either snuff out or revive the small, cash‑intensive businesses that lubricate urban spending.
Beijing: bricking up vitality
In 2017 Beijing set out to “seal holes in the wall”—blocking illegal doors and windows that let thousands of tiny shops and cafes trade directly onto the street. The plan targeted some 16,000 such openings, gutting hutong micro‑retail in places like Fangjia Hutong almost overnight.
The campaign dovetailed with a broader push to “relieve non‑capital functions,” which shut or expelled wholesale markets and informal clusters that served, employed, and were often owned by migrant workers. The once‑bustling Zoo and Dahongmen clothing markets were closed and traders pushed to Yanjiao, Cangzhou, and other sites in Hebei and Tianjin—far from their customer base and city footfall.
After a deadly apartment fire in Daxing, authorities also launched a 40‑day “cleanup” that evicted tens of thousands of migrants—many running small shops or working in low‑tier services—hardening a shift away from street‑level commerce and cheap services that underpin everyday consumption.
Shanghai: from “bald chickens” to designer conformity
Shanghai pursued a parallel project of visual order. A signboard rectification drive stripped storefronts into uniform black‑and‑white fascia on certain streets, prompting locals to grumble that once‑lively blocks now looked like a row of “bald chickens.” The city later softened the rules, but the instinct remains: standardize aesthetics, centralize control.
From alleys to atriums
The logic behind “tidy‑up” has often been to channel trade into managed spaces—indoor markets and malls—where compliance is easier to monitor and fire codes easier to enforce. Beijing’s open‑air Silk Street was famously moved into an indoor mall back in 2005; variants of that model have since proliferated.
The economic costs are real. When street vendors are evicted, local fruit and vegetable prices rise—by about 4.7% on average, according to city‑level evidence on the impact of chengguan enforcement—eroding consumers’ purchasing power and thinning the very margins that keep low‑income households spending.
The macro backdrop: consumption still too small
Despite years of exhortation to rebalance, household consumption remains structurally low by international standards—about 37% of GDP in 2022, compared with an upper‑middle‑income average of roughly 45.5%. That gap is not only about social insurance and hukou; it is also about how policy has reallocated street‑level value added away from high‑turnover micro‑retail.
The policy mechanics of dampened demand
1) Friction at the point of sale.
By extinguishing kerbside retail, cities increased the “distance” between impulse and purchase. Uniform signs and mall corridors may be neat, but they reduce serendipity and discovery—the small jolts that turn window‑shopping into spending. Shanghai’s 2019–20 signage crackdowns illustrate how aesthetic centralization can homogenize retail variety, even as more nuanced rules have since tried to reverse that sameness.
2) Forced format shift.
Redirecting vendors into malls and managed marketplaces raises fixed costs (rents, service charges, decoration standards), consolidates bargaining power in landlords’ hands, and displaces owner‑operators who once relied on minimal capital and proximity to foot traffic. The closures and relocations of major Beijing markets (Dahongmen, Zoo) are canonical examples of such “format hardening.”
3) A labor squeeze.
The eviction of “low‑end” workers—delivery riders’ families, cooks, cleaners—removed both supply (cheap services) and demand (their own local spending), creating a double drag on neighborhood cash flow.
From cash on the kerb to cash in claims: the “yansehu” rent‑sink
When businesses move from sidewalks to malls, a larger slice of each yuan spent becomes rent or related property income. In China, as elsewhere, higher‑income households and corporate landlords have lower marginal propensities to consume (MPC) than street vendors and low‑tier workers. IMF work shows that since 2020 the rise in savings was especially pronounced among higher‑income groups, while micro evidence and recent scholarship confirm MPC falls with income and wealth—meaning each extra yuan accruing to richer owners generates less immediate consumption than the same yuan in a hawker’s till.
Shift the income split from stallholders (high‑MPC, cash‑spending households) to mall landlords (low‑MPC, debt‑servicing entities), and the velocity of consumer cash falls. That helps explain why “orderly” retail formats can coexist with anemic aggregate demand.
The effect is amplified by the property cycle. With property investment down 10.6% in 2024 and continuing to fall this year (‑11% to ‑13% y/y depending on month), developers and LGFVs prioritize deleveraging and interest payments over spending. As demand softens, new starts tumble (about ‑23% in 2024), and landlords lean harder on rent extraction from existing assets—again routing income to low‑MPC pockets.
The distributional channel matters. China’s wealth has concentrated at the top, and recent reporting suggests growing concentration even within the rich—a pattern consistent with lower aggregate MPC. (WID and other datasets show long‑run increases in top shares; Hurun’s 2025 readout highlights more wealth clustering among elite households.)
The feedback loop: weaker spending, less building, wider gaps
Clamp down on informal commerce → push activity into high‑rent formats → direct larger shares of retail value to low‑MPC recipients → subdue consumption growth. With consumer demand tepid, retail developers cancel or delay projects; new construction shrinks; household wealth tied to property looks riskier, reinforcing caution and savings. This loop is visible in the ongoing slump in property sales, investment and starts.
Meanwhile, consumers pay more for basics when street competition disappears. The measured 4.7% bump in fruit‑and‑veg prices after vendor evictions is small individually but large in aggregate, especially for lower‑income households with high budget shares in food.
Policy pivots that would raise consumption rather than merely rearranging it
- Legalize, don’t just tolerate, street vending.
Cities have already experimented—Shenzhen’s designated vending areas and the “night economy” pilot loosened blanket bans. Scale this with micro‑permits, health training, and “clean‑stall” design codes, not blanket prohibition. - Decompress the cost stack for the smallest firms.
Exempt sub‑10‑employee retailers from uniform signage mandates; allow one additional exterior sign if it displays prices or menus; lighten fit‑out standards for kiosks. (Shanghai has already moved away from one‑size‑fits‑all signs—codify that pragmatism.) - Cap and share rents in managed markets.
Set graduated rent caps in government‑backed markets, and link tenancy to revenue‑sharing instead of fixed charges so landlords have skin in the game. Encourage public‑interest REIT pilots that return a sliver of market cash flows to stall‑holders via rebates when turnover dips, minimizing the “rent sink” effect. - Restore proximity.
Reverse relocations that severed daily‑life commerce (produce, tailoring, phone repair) from residential demand. The national “urban renewal” drive already instructs cities to avoid large‑scale demolition and favor micro‑renovation; use that to reinstate ground‑floor retail where safe. - Target the MPC margin.
Boost consumption where it responds: expand portable social insurance for migrants; allow schooling access tied to actual residence; cut employee social‑security contributions for micro‑firms. IMF analysis and micro evidence agree: high‑income cohorts saved more post‑2020; push incremental income toward lower‑ and middle‑income households with higher MPC. - Measure what matters.
Publish granular indicators for street‑level retail diversity and stall turnover alongside headline retail sales. If prices for fresh produce climb where vendors vanish, that’s a policy‑relevant signal.
Bottom line
China’s consumer shortfall is not just about macro levers. It is also a spatial and institutional story: tidy streets and uniform storefronts reduce frictionless buying; relocating commerce into malls shifts income toward low‑MPC rent recipients; evicting low‑tier workers removes both supply and demand. Re‑legalizing the messy, inexpensive, high‑turnover edge of the city would not only make neighborhoods livelier; it would raise the share of each yuan that returns to spending rather than pooling in balance‑sheet reservoirs—your “yansehu”—that do little for demand.
Sources (selected)
- Beijing “holes‑in‑the‑wall” plan (c. 16,000 closures): Caixin.
- Wholesale market closures/relocations (Zoo, Dahongmen → Hebei/Tianjin): Xinhua/China Daily.
- Street‑vendor evictions raise produce prices (~4.7%): Cities (Sun & Zhu, 2022).
- Shanghai signboard unification (“bald chickens”) and subsequent relaxation: Sixth Tone.
- Menghua Street Wonton reopening with Premier’s support: State Council (english.gov.cn).
- Household consumption share (China vs. UMIC average): World Bank, China Economic Update (Dec 2023).
- Property slump (investment, sales, new starts): Reuters tallies from NBS.
- High‑income savings/MPC heterogeneity: IMF; academic micro evidence.