Betting on AI-Driven Retail Tech Amid China's Real Estate Slump

The Chinese real estate market's ongoing slump has exposed deep vulnerabilities in local government finances and consumer sentiment, but within this gloom lies a paradox: affluent buyers are still upgrading their homes. This creates an opportunity for AI-driven retail tech firms that cater to China's luxury consumers, even as broader market risks remain. Companies like China Jinmao Holdings and Whale (assuming Whale refers to an AI-focused retail tech firm) are positioning themselves to profit from this divide, but investors must tread carefully.

The Real Estate Crisis and Its Fiscal Spillover

China's high-end real estate market in 2025 is a tale of two cities. First-tier metropolises like Shanghai are stabilizing—new luxury home prices rose 10.1% year-on-year in Q1 2025—while second- and third-tier cities face steep declines. Yet the broader sector's collapse is battering local governments, which rely on land sales for revenue.

Local governments' land sale revenue dropped 11.4% year-on-year in the first four months of 2025, a slight improvement from earlier slumps but still dire. Land sales now account for just 20-25% of local fiscal revenue, down from 38% in 2021. This fiscal squeeze has forced cuts to public services and infrastructure projects, further dampening consumer confidence.

Why Affluent Buyers Are Still Spending

Despite the broader downturn, China's high-end housing market remains a bright spot. Affluent buyers—driven by limited supply in prime locations, policy support, and pent-up demand—are propelling luxury real estate. For instance, completed high-end units in tier-one cities saw sales surge 18.6% year-on-year in Q1 2025, as buyers prioritize delivery certainty over speculative pre-sales.

This dynamic creates a critical spillover effect: affluent households, shielded from deflationary pressures, are also driving demand for luxury goods, travel, and high-end retail experiences. Retail tech firms that cater to this cohort are thus well-positioned to thrive.

How AI-Driven Retail Tech is Capturing the Luxury Market

Enter AI-driven retail tech firms, which are using advanced tools to target China's affluent upgraders. Here's how they're capitalizing on the divide:

1. Personalized Marketing & Demand Forecasting
   Retailers like Whale (assuming its AI platform) are deploying generative AI to analyze consumer behavior, optimize inventory, and create hyper-targeted campaigns. At the 2025 Chinashop retail tech event, AI-powered systems for demand forecasting and virtual try-ons (e.g., AR fitting rooms) were highlighted as key tools to entice luxury buyers.

2. Frictionless Purchasing Experiences
   AI is streamlining transactions through autonomous checkout systems and blockchain-based supply chain tracking, reducing friction for high-end shoppers who demand convenience and authenticity.

3. Data-Driven Luxury Supply Chains
   Companies are leveraging AI to optimize logistics for luxury goods, ensuring rapid delivery and reducing waste—a critical edge in a deflationary environment.

China Jinmao: A Play on Resilient High-End Demand

China Jinmao Holdings (HK:0817) stands out as a real estate firm uniquely positioned to capitalize on luxury demand. Its city operation model—collaborating with governments to secure low-cost land in prime locations—has enabled it to develop high-margin, high-end projects in tier-one cities.

Key stats:
- 2025 sales: RMB12.4 billion in May alone, with cumulative sales of RMB37.7 billion through May.
- Valuation: Trading at a P/E of 7.5x, far below the real estate sector average of 21.2x.
- Strategic focus: 70% of projects now in tier-one/two cities, targeting affluent upgraders.

Investors should note that while China Jinmao's premium projects are insulated from broader declines, its exposure to land acquisition costs and construction delays remains a risk.

The Cautionary Tale: Fiscal Strains and Trade Tensions

While AI-driven firms and luxury real estate players may thrive, the broader market is risky. Falling prices, deflation, and U.S. trade restrictions threaten to deepen the slump. For instance:
- Deflation: China's CPI dipped to -0.7% in February . This weakens consumer spending power, even among affluent households.
- Trade wars: U.S. tariffs continue to crimp export-driven jobs, limiting income growth for many consumers.

Investment Strategy: Targeted Plays, Avoid the Broader Market

The optimal approach is to avoid broad real estate exposure but selectively invest in firms leveraging AI to serve luxury consumers.

1. Buy China Jinmao: Its undervalued stock and focus on high-margin projects make it a safer bet in the real estate sector.
2. Invest in AI Retail Tech: Firms like Whale (if accessible) or VNET Group (which provides AI infrastructure for retailers) offer growth tied to affluent spending. VNET's 86% jump in data center revenue in Q3 2024 underscores the sector's potential.
3. Avoid Low-Tier Real Estate: Third-tier cities' home prices are down 5-8% year-on-year, with no near-term rebound.

Final Take

China's real estate crisis is a fiscal disaster, but the affluent segment is a lifeline for smart investors. By backing AI-driven retailers and luxury real estate firms like China Jinmao, investors can capitalize on this divide—while steering clear of the broader wreckage.

Word of caution: Monitor U.S.-China trade negotiations and inflation trends closely. A sharp downturn in luxury demand could destabilize even these winners.