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Consume! China\'s luxury boom

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28 January 2011 13:50

Catherine Chan is an environmental lawyer and journalist in Beijing.

The Chinese have an age-old reputation as great savers, but China's youth is making up for generations past. Compared to the austere youth of China's older generations, who went through the turmoil of the Cultural Revolution and strove to create savings in a nation without a social safety net, the young, raised in an unprecedentedly wealthy China, spend 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 growth areas for the typical Chinese consumer. 

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% of global luxury product consumption will come from China. And while European and US luxury sales are making a slow recovery after the GFC, China – relatively untouched and still optimistic — remains the most important market for luxury retailers. This was the theme behind the 2010 5th Annual China Luxury Summit, 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, 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 IPO 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 to the inland, purveyors of luxury goods have followed. Taiyuan, the capital city of Shanxi province and infamous for meeting the stereotype of the noveau 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 meager salary (approximately 3-5000 RMB per month) 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 US$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 is another China reality. About half of China's potential shoppers are not really consumers in this sense at all. Roughly 900 million people make up China's rural population (three times the total population of the US), where poverty and subsistence living is not uncommon. The trickle down of wealth is still waiting to take place. The Wall Street Journal 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.'

Photo by Flickr user Jakob Montrasio.

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