China’s Restaurant Industry Struggles Amid Deflationary Pressures in 2025

Economic Slowdown Fuels Fierce Competition

In a rundown warehouse on the outskirts of Beijing, businessman An Dawei surveys rows of industrial refrigerators, heavy-duty stovetops, and commercial baking ovens, all awaiting resale to desperate dining establishments across China. "For the average person, opening a restaurant is almost a guaranteed failure," the 38-year-old remarks, his voice tinged with resignation as he reflects on the current state of China’s restaurant industry amid deflationary pressures in 2025. Each piece of equipment tells a story of a shuttered Beijing restaurant, often launched with the optimism of a post-COVID economic rebound, only to collapse as consumers tightened their belts in a slowing economy. This economic downturn has sparked a brutal price war, with coffee priced at a mere $1.40 and four-person set meals slashed to $14, as restaurant owners scramble to attract dwindling customers in a deflation-hit market.

China’s leadership has made expanding domestic demand a top priority for 2025, aiming to counter the effects of U.S. tariffs and a lingering property crisis that continues to sap economic vitality. However, consumer inflation took a sharp dive in February 2025, dropping at its fastest rate since January 2024, raising alarm bells about a potential deflationary spiral that could further erode spending power. This deflationary environment has hit the restaurant sector hard, with An Dawei and his team dismantling an average of 200 restaurants per month in 2024, a staggering 270% increase from the previous year. Nationwide, data from the company registry Qichacha reveals that nearly 3 million catering businesses dissolved in 2024, marking a historic peak in closures. "In major cities like Beijing, Shanghai, Guangzhou, and Shenzhen, the monthly restaurant closure rate exceeds 10%, sometimes climbing past 15%," An explains, underscoring the relentless pace of failure in China’s restaurant industry amid deflationary pressures in 2025.

The fallout is visible across Beijing, where An’s workers can be seen stacking chairs, ovens, and storage units, using forklifts to load equipment onto trucks for resale, while buyers cart off tables from shuttered sites. His business, which thrives on reselling used kitchen gear, saw its revenue drop by just over 20% in 2024, a reflection of shifting trends in the industry. Smaller, low-overhead ventures like beverage stalls and bakeries have surged in popularity, requiring less upfront investment in equipment compared to traditional restaurants. In a nearly abandoned mall near Beijing’s Olympic Park, the manager of a failed bakery franchise, speaking anonymously, blames exorbitant rents of $6,900 per month and sparse foot traffic for its closure after just 14 months. "There are shops next door with similar products that don’t taste as good, but they’re $1.40 cheaper. Most people will pick the cheaper option," the manager laments, adding, "People just have no money, or if they do, they’re reluctant to spend it like they used to because it’s so hard to earn now."

Analysts estimate the average lifespan of a restaurant in China is around 500 days, plummeting to as little as a year in Beijing, where municipal data show net restaurant profits nosedived by 88% in the first half of 2024. "Mid-range restaurants charging $13 to $16 per person are the most vulnerable because they’re not cost-effective," says food industry analyst Zhu Danpeng, highlighting the precarious position of establishments caught between budget options and premium dining. This relentless competition has forced many surviving restaurants to slash costs to $9 or $11 per customer, offering ever-changing menus to entice increasingly picky diners. An Dawei traces this price war back to 2023, when China lifted its pandemic restrictions, triggering a flood of new entrants into the restaurant sector after widespread layoffs in industries like real estate, education, finance, and technology. The result is a vicious cycle of cut-throat pricing that threatens to degrade quality, as An warns, "Once restaurants can’t afford to lose money anymore, they’ll cut corners on ingredients to turn a profit, and that’s when consumers will feel the impact."

The broader economic implications are stark. China’s food and beverage industry saw revenue growth slow to a sluggish 5.3% in 2024, a sharp decline from the 20.4% recorded in 2023, as surviving businesses slashed profit margins to stay afloat. At a major legislative meeting in March 2025, Chinese officials pledged to tackle "involution," or excessive competition, but the restaurant sector remains a glaring example of this pervasive issue. The influx of low-cost options, while a lifeline for some consumers, has upended an industry once buoyed by a growing middle class willing to dine out. In Shanghai, for instance, even Michelin-starred establishments like Opera BOMBANA have shuttered, unable to weather the storm, while in Beijing, mall-based eateries struggle against rising rents and declining sales. The shift toward smaller operations like drink shops reflects a broader adaptation to these harsh realities, yet it offers little solace to the millions of entrepreneurs who bet on a recovery that never materialized.

This deflation-driven crisis in China’s restaurant industry amid deflationary pressures in 2025 paints a grim picture of an economy at a crossroads. With consumer confidence waning and prices falling, the government faces mounting pressure to stimulate demand, yet tangible solutions remain elusive. For now, the sight of abandoned dining tables and idle ovens serves as a stark reminder of the human cost behind these economic trends, as business owners like An Dawei navigate an increasingly unforgiving landscape, reselling the remnants of shattered dreams to the next wave of hopeful restaurateurs. Whether this cycle of closures and cutbacks will ease or deepen depends on broader economic forces, but for China’s restaurant sector, the race to the bottom shows no signs of slowing.