Lance's work

Luxury Consumption in China, Necessary or Reasonable?


Luxuries, as a rare, useless and expensive image to people, traditionally, in China, they only belong to nobles or very rich people in the past. However, due to the dramatic economic development, the middle class has become the main consumer of luxuries; the image has become a symbol of rich and power. It is normal that a middle class wears a full set of luxury logos driving a posh car to work. Indeed, in the past few years, the pace of luxury consumption has kept increasing as 20% every year, even when the world is suffering the global financial crisis, it stood still. In comparison, Japan used to be the largest luxury market in Asia, the second largest in the world, and now, China had taken it over. Many luxury brands came to China to in order to expend their market share. Versace, a world famous brand, has declared that they had decided to shut down all the shops in Japan one month ago, and they are willing to double their shops in China which would possibly reach 44 next year.

It all seems that China is so rich that people are encouraged to purchase these rare and expensive goods which most people could hardly dare to think about. It is said that people should save their spending on luxuries as much as possible in order to fight against the economic crisis that the whole world is suffering. The aim of consumption is to stimulate productivity. Should this kind of consumption behavior which is considered to be unnecessary really be encouraged in China, or reasonable and sensible?

As a social value, only rich people could afford luxuries, which shows their wealth, and it’s unnecessary. However, more and more people in China could purchase luxuries without any hesitation, which suggests the economic development in China for the last 20 years is successful. One benefit of luxury consumption is to encourage rich people to share their wealth with others. More than 20 years ago, when China was about to process the economic reformation was to have a few people become rich first, in order to excite consumption, then the rests would be rich in future. Indeed, the millionaire club has kept increasing and the result is obvious. As a research shows (Mckinsey, 2009), there are 18 thousand billionaires, 4.4 thousand millionaires, 250 million middle class and 195 million of the population is able to afford luxuries in China as a result of the economic development during last 10 years. A consumption chain has formed, higher consumption rates lead a higher social need, which acquires more production, and then more welfare will be offered to the workers, and as time goes by, they may be rich one day. It seems all of these are good for the economic development in China, or is it?

KPMG had a investigation in China about the luxury market last year (China luxury consumers, 2008), which was collected as questionnaire in 15 cities, between the age of 20 to 44 and the average monthly incomes are above RMB 3,500. 59% of them are bachelors and 11% are masters, and 56% are male. This research shows the luxury market in China has become saturated since last two years. It is interesting that these consumers still keep a conservative and cautious attitude to credit consumption, which suggests that credit model was not the reason why luxury consumption has kept increasing. Additionally, it also illustrates there will be a steady growth in future. Another aspect that this report focuses on is the reason why Chinese customers are seeking luxuries, the result showed that to flaunt is the most significant consumption power rather than collection or enjoyment. And the goods that people prefer the most are watches, jewelries and clothes, rather than super cars or IT products.

However, most of those luxuries which are chasing by Chinese are more likely to be made in Europe or North America or originally from these areas. Most native brands of luxury are considered to be lack of competitive strength. Overseas brand are more attractive than natives, even they are made in China. When purchasing, these overseas brands are the first priority to be consider by consumers. In contrast, the native brands are impacted by such consumption behaviors, in other words, there will be no place for them to survive in the market. In this case, the purpose of economic innovation is missing; the great amount of wealth which supposes to share with other classes is going abroad. The living condition of other classes could hardly improve unless spending reasonable and sensible.

As a result of the global economic crisis, the global luxury market has kept decreasing; companies need to expend their market share in order to reduce the lost. Obviously, China is the best option. It is no doubt that the pace of economic development of China is the fastest in the world, which suggests higher consumption in order to improve productivity. However, this blind consumption behavior could only lead to a situation that the wealth which has obtained generation by generation may be lost soon. In addition, China also has the largest population in the world, when rich people spend money on goods unnecessarily, there are a lot of people are needy and suffering illness in the countryside. One of the traditional and basic principles suggests frugality. In another words, wealth should have been spent on other aspects which are more reasonable and sensible rather than on luxuries.










References:
Atsmon, Y, Ding, J, Dixit, V, St-Maurice, I & Suessmuth-Dyckerhoff, C (2009) ‘2009 Wealthy China consumer report’. Insight China, McKinsey&Company. Available at: http://www.mckinsey.com/locations/chinasimplified/mckonchina/reports/mcKinsey_wealthy_consumer_report_cn.pdf [Assessed 19/11/2009]

Chinanewsweek. (2009) China will become the largest luxury market in the world. Available at: http://city.finance.sina.com.cn/city/2009-11-30/118029.html [Accessed: 30/11/2009]

Huicongzhengbaishi. (2009) The report of luxury consumption of Chinese citizen. Available at: http://info.huicong.com/2009/10/15142080323.shtml [Accessed: 7/11/2009]

KMPG (2008) China luxury consumers, KMPT CHINA. Available at: http://www.kpmg.com.cn/sc/virtual_library/Consumer_markets/ChinaLuxuryConsumers.pdf [Accessed: 18/11/2009]