China's economy is undergoing a critical transition from a traditional growth model to one driven by innovation: emerging sectors like AI are flourishing, while traditional industries face significant challenges. However, some enterprises have cleverly adapted and thrived against the trend. For instance, a stylish set of screwdrivers has become a bestseller in major US supermarkets, and bamboo-wrapped hot water bottles priced at 2,999 yuan sold out rapidly, with tens of thousands of units snapped up soon after release. Why? Economist He Fan has spent the past year uncovering such stories, exploring how Chinese companies find competitive advantages and market opportunities during what is often termed an "economic downturn." His discovery is that these companies have caught the wave of the "aesthetic era," tapping into the heightened consumer demand for product appearance during economic slowdowns.
In the final installment of the "Diagnosing China's Economy in 2026" series, He Fan, Professor of Economics at Shanghai Jiao Tong University's Antai College of Economics and Management and Dean of the China Development Institute, shared his intriguing observations. He noted that during periods of rapid growth, people often belong to the "material generation": macroeconomically, GDP is prioritized; individually, purchasing homes, cars, and luxury goods is emphasized. However, as this phase passes, a "spiritual generation" emerges. Led by the youth, this generation is more concerned with self-expression, finding small joys in life, and making daily existence more interesting. Against this backdrop, product "aesthetics" have gained importance. On one hand, the younger generation's aesthetic standards have significantly surpassed those of their predecessors; on the other, they place greater value on the emotional satisfaction derived from visually appealing products.
The 15th Five-Year Plan emphasizes "new demand guiding new supply, and new supply creating new demand," indicating that the aesthetic revolution is just beginning. Moreover, it is worth noting that many hold a pessimistic view of China's economy during this transitional period. Since 2019, as part of his 30-year, 30-book writing project, He Fan has moved beyond academia to conduct fieldwork across China. After seven years, his strongest impression is that greater exposure to grassroots China fosters greater optimism. "The reason for optimism lies in whether you believe in the Chinese people's originality. This nation is characterized by high pragmatism and remarkable resilience. Despite numerous challenges, it continues to thrive. Regardless of economic fluctuations, you see people in all walks of life finding new paths in their own ways," he explained.
At the end of January, He Fan discussed his observations on China's "aesthetic era" over the past year. When asked why, as an economist, he chose to study "aesthetic economics" rather than war economies—given the global military conflicts and the 80th anniversary of China's victory in the War of Resistance—He Fan clarified that his approach remains rooted in economics. He pointed out that many societal changes correlate with economic cycles. Citing Harvard scholar Benjamin Friedman's "The Moral Consequences of Economic Growth," he explained that social morality is influenced by economic cycles: during upturns, people become more optimistic, tolerant, and globally minded; during downturns, pessimism, insularity, and exclusionary attitudes rise. Thus, the increased negativity online and heightened nationalism internationally are linked to economic cycle shifts.
He Fan's research for "Variable 8" on the "aesthetic era" also stems from observing economic cycles. He identified another pattern: cultural and fashion trends shift with economic cycles. During growth periods, fashion is elite-driven, with the masses emulating trends set by the successful. In times of major social upheaval, "counter-culture" movements challenge mainstream norms. However, in the current prolonged economic slowdown, subcultures—often led by youth, women, and minorities—become the dominant fashion force. These groups, facing resource constraints, creatively enhance their lives, and mainstream culture often borrows from their innovations. Denim jeans, originally worn by miners and workers before becoming a fashion staple, exemplify this trend.
Consequently, youth-led trends, and increasingly those led by women, are prominent. This shift aligns with a sociological observation: high-growth eras produce "material generations" focused on tangible assets like property and luxury goods. As subsistence pressures ease, a "spiritual generation" emerges, prioritizing self-expression and life enrichment over material possessions. In this context, aesthetics become paramount. He Fan's interest in aesthetics originated from this macroeconomic perspective, leading him to explore industries like fashion, design, cultural tourism, and beauty technology, which are thriving despite the economic slowdown.
He Fan elaborated on why the aesthetic revolution emerges during slowdowns. First, despite the downturn, preceding growth has raised overall income and living standards; people continue to seek better lives. Second, with fewer money-making opportunities, leisure time increases, and people invest effort in enhancing life quality. Thus, industries like camping, fitness, and marathons grow as individuals pursue meaningful activities. Similarly, as housing investment yields diminish, people focus on improving their living environments, driving demand for interior design and aesthetics. This has rapidly elevated public aesthetic literacy, with online platforms showcasing creative home styling ideas.
The pursuit of life aesthetics also propels technological advancements. For example, smartphone photography algorithms have evolved beyond simple beautification to capture nuanced moments, reflecting higher demands for life aesthetics. This has positioned China as a leader in the imaging industry, surpassing earlier leaders like Germany and Japan in the internet era.
When asked for international parallels, He Fan noted that while technological change has path dependency, brand and business model shifts closely correlate with economic cycles. In Japan's post-slump era, luxury sales declined, but brands like Uniqlo and Muji thrived. This was not merely a shift to cheaper alternatives; rather, youth rejected luxury as passé, seeking "small happiness" and expressing individuality through affordable, well-designed basics. Similarly, globally, economic slowdowns see trends like "Y2K" nostalgia, where youth reinterpret past styles to color their own experiences.
He Fan highlighted youth as the protagonists of the "aesthetic revolution." However, he warned that declining birth rates and aging populations could marginalize youth, as policies increasingly favor the elderly. For instance, financial policies aimed at reducing household leverage inadvertently burden young families more. Engaging youth requires speaking their language—aesthetics—which serves as a conduit for discussing values and worldviews. Governments are already fostering youth-friendly environments, such as Longyou County's initiatives, which attract young talent, spurring vitality and innovation.
He Fan described "deep self-indulgence" as a hallmark of youth entrepreneurship in the aesthetic era. Instead of competing with large brands on scale, small brands cater to niche communities by addressing detailed, enthusiast-driven needs. Founders, often passionate hobbyists, innovate to satisfy their own high standards, attracting followers. This approach enriches China's economic ecosystem, resembling a diverse rainforest where numerous small niches thrive.
He Fan identified aesthetic enhancement as a strategy to break through industrial involution. After phases of prioritizing production, quality, technology, and marketing, Chinese manufacturing now excels technically. The next opportunity lies in design "lowlands"—improving product aesthetics, which is relatively easier than technical R&D but offers significant competitive edges. For example, the electric vehicle industry, initially led by engineers, now aggressively hires designers to appeal to youth and female consumers who prioritize appearance over specs. Chinese designers, leveraging manufacturing prowess, excel in creating practical, attractive products.
He Fan cited
Reflecting on his eight-year "Variable" research series, He Fan shared that transitioning from macroeconomics to grassroots fieldwork has shifted his role from "expert" to "student." This immersion has made him more optimistic about China's resilience and creativity. He believes that ordinary people's innovative approaches across diverse sectors can inspire others facing uncertainty.
Looking ahead, He Fan's next focus is on Chinese companies' global expansion. He sees this not merely as bypassing tariffs but as part of a restructuring globalization toward regionalization. Future supply chains may involve localized production with "Chinese souls"—Chinese expertise managing global operations. This deepens globalization rather than ending it, creating new opportunities for China to support industrialization in emerging markets.
Regarding employment concerns amid such shifts, He Fan noted two challenges: youth reluctance to join manufacturing, threatening the industrial workforce, and aging demographics necessitating overseas investment to sustain domestic welfare. These trends may reshape China's economic geography, potentially boosting inland regions as coastal models relying on migrant labor and exports become less viable.
He Fan concluded that China's unique manufacturing capabilities position it to redefine global supply chains, with domestic implications for employment and economic structure—a area he plans to explore further.