China's Luxury Goods Boom
Image Credit: Jennifer Martinez

China's Luxury Goods Boom

 
 

The Chinese may have an age-old reputation as great savers, but China's young people are now making up for generations of lost spending time.

Compared with the austere youth of China's older generations, who went through the turmoil of the Cultural Revolution and strove to build savings in a nation without a social safety net, the young, raised in an unprecedentedly wealthy China, are spending freely.

The explosion of middle class consumerism has pushed past discretionary spending to the point where luxury goods are increasingly the norm for a growing number of Chinese citizens. Branded clothing, overseas holidays, dining out and private health insurance are all growth areas for the typical Chinese consumer. 

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As the world's fastest growing luxury market, China's appetite for high-end Western branded goods is fast becoming insatiable, with predictions by Boston Consulting Group suggesting that within five years, 29 percent of global luxury product consumption will come from China. And while European and US luxury sales are making a slow recovery after the global financial crisis, China—relatively untouched and still optimistic—remains the most important market for luxury retailers. Indeed, this was the theme behind last year’s 5th Annual China Luxury Summit, which was given the grandiose subtitle of 'China Luxury Market: An Oasis of Hope and Possibility'.

China as the deus ex machina of the luxury world is a concept familiar to European retailers. Last Saturday, for example, the Italian luxury brand Prada staged its first fashion show in Beijing. Like French cosmetics and perfume brand L'Occitane, which listed in Hong Kong last year, Prada is expected to have an initial public offering in Hong Kong.

But it's not just the traditional high net worth individuals in Beijing and Shanghai attracting luxury brands. As wealth has spread from the coast inland, purveyors of luxury goods have followed. Taiyuan, the capital city of Shanxi Province and infamous for epitomizing the nouveau riche coal mining clique, now boasts a Louis Vuitton flagship store. 

‘Aspirationalism’ is also rife among lesser net worth individuals—a young receptionist in Beijing will routinely save two or three months worth of her rather meagre salary (about 3-5000 RMB per month, or between $450 and $750) for a Louis Vuitton handbag or a pair of Chloe trousers while living at home with mum and dad. Slightly more salaciously, Chinese netizens were cynical when images emerged of two women wearing military uniforms at a Shenzhen airport, laden with LV, Gucci and Burberry bags. One netizen was rendered 'speechless' after calculating that the total amount of baggage would amount to over $50,000.

But attitudes towards luxury goods remain overwhelmingly positive; a KPMG report from 2006 found that fewer than 2 percent of respondents regarded owners of luxury brands as 'superficial'. China's consumers are also becoming more savvy. Downing glasses of Chateau Lafitte is the norm for China's high-rollers, but the once ubiquitous accompaniment of a glass of milk is seen less frequently. 

Of course, having the right 'ming pai' or brand name has long been a fixation among China's wealthy elite. But luxury is a constantly evolving and subjective concept. Anecdotal reports abound of Shanghainese 'second wives' (mistresses) no longer being placated by extravagant LV purchases, since any perceived exclusivity went out the window when their Taiyuan equivalents started buying up handbags in bulk.

But there’s another China reality. About half of China's potential shoppers aren't really consumers in this sense at all. About 900 million people make up China's rural population (three times the total population of the United States), where poverty and subsistence living isn’t uncommon. The trickle down of wealth is still waiting to take place.

The Wall Street Journal, meanwhile, has noted the ambivalence many Chinese feel towards China's economic growth: 'You're only seeing a quarter of China. The majority of China is still underdeveloped. We're all busy taking care of our own businesses.'

 

Catherine Chan is an environmental lawyer and journalist in Beijing.

(This article is an edited version of an entry that appeared in the Lowy Institute's Interpreter that can be found here.)

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