China’s fast economic growth over past few years has given a rise to the new wealthy elite of spending spree for luxury goods.
Xing Yan, 30, so-called new wealthy elite in China, is an advertisement producer of a Beijing-based culture communication company. She is on a salary of £2,000 a month plus a share of the company’s business profits. She dresses Prada or Dior, drives a BMW and owns a fashionable apartment in the centre business district of the city. As she has no worries on rent and her income is disposable, she spends almost the entire salary on luxury labels every month. “Shopping for luxuries is a treat for me after the hard work at the office, besides, I bought them for their good quality and my confidence”, said she.

Such a case is by no mean of particular in Beijing, in fact, in most big cities in China, quite a number of white-collar employees would spend spree on the expensive hand bags, outfits or other luxuries. Those famous brands, like Prada, LV and Gucci, which have dominated European continent for hundreds of years, suddenly become a fashion among the new wealthy elite Chinese. The country is now the third biggest consumer who accounts for an estimated 12 percent of global luxury market, second to Japan, 41 percent and the US, 17 percent1.

According to a survey from Ernst & Young, the China luxury market currently generates more than US$ 2 billion in sales a year2. It is expected to grow 20 percent3 annually until 2008, and then 10 percent4 per year until 2015. By 2010, China is expected to have 25 million5 consumers who can afford luxury products and the sales are expected to exceed US$11.5 billion6. What is more, if the high living continues as expected, China will surpass the US to become the second-largest buyer of luxury products by 2015, with the 29 percent account7 of the world’s luxury sales.

It is a feast that nobody wants to absent. Driven by the huge potential of China’s luxury market, brand makers are rush to expand their stores in China to pursuit greater profits. Cartier, whose earnings in China almost doubled 2005, is planning to expand the number of outlets from three to 15 in next two years. Chanel, who was a latecomer to the Chinese market, has increased its cosmetic stores from two cities—Beijing and Shanghai in 2002 to 23 cities today, and plan to be in 40 cities by 2008. Also, BMW sold 23,595 marques8 in 2005 and 50,199 marques9 in 2006, which is a significant turnover compared with three years ago.

“There are a lot of people who are willing to buy the luxury goods in China now,” said Miss Tang, public relation manager of Chanel (Shanghai) Corp, “the number of our cosmetic shops has increased to 60 and we are planning our third flagship store to open this year.”

Does China really have a luxury market with almost 10 million consumers? According to report from China State Statistics Bureau last year, nearly 20 percent10 of the population--over 9.5 million individuals or households11--hold nearly a half of the country’s savings worth than 10 trillion yuan12 (£667 billion). They earn as much as 240,000 yuan13 annually and have between 300,000 yuan to 500,000 yuan in savings14. These wealthys help greatly on the evolution of China’s luxury products market.

A survey from the China Association of Branding Strategy (CABS) indicates that in general, China’s luxury consumers can be divided into two groups. One group is comprised by young wealthiest who are able to earn high salary as much as £2000 per month. They are often well-educated, have a taste of fashion, and seek for personalized services. They frequently visit luxury stores for the newest offering without caring for price. The second group consists of white-collar employee. They often work in the foreign companies, with salary about 3,000 yuan to 5,000 yuan (£200 to £330) a month but dare to spend the entire salary on a single purchase. Both groups are under the age of 4015.

Surprisingly, the survey found out that males are no longer the traditional buyers of luxury goods in China. Young white-collar females (under the age of 30) become a significant force on consuming luxury goods as they achieve greater economic independence in recent year.

But consumers in China seldom know what behind the luxury products and why they spend money for. They tend to buy luxury products without study or research, compared with European consumers, who tend to focus on the real value of what they purchase.

Xing Gao Ping, 24, secretary of a foreign trade company in Guangzhou, earns 3,500 yuan (£230) per month. “Two third of my salary spends on brands. I used to save up 3 months’ salary to buy a new arrival Prada bag, because it attracts a lot of envy from my girlfriends. They will think I am well-paid or I have a rich boyfriend or my family are wealthy.”

“People like to show off with luxuries in China, they want to impress others by showing off their expensive handbags, cars,” said Shelley Chen, the lifestyle columnist of FTchinese.com, who wrote a number of articles about the new wealthy elite in China, “they think luxury products can raise their social status.”

“However, they lack of the knowledge of luxury goods. Yes, they may know Hugo Boss suits, BMW marques and LV bags. But they buy these luxury goods just for the high price that can show their finance success. They often go into the shops, look around and say I want this one. Or ask about whether the product is a famous brand. They probably will pay as soon as they get the positive answer. They are in a selfish mood.”

However, sociologists in China show their worries about the increasing of luxury goods consumption. A new phenomenon in China is that the income gap between rural and urban Chinese has grown wider and wider during the last 5 years, despite the swift economic growth. At present, there are still 30 million farmers who are still in the poverty. Consumption tax collection on luxury goods on luxury products, which is one of the effective ways to shrink the gap, has no longer plays a potential role in adjusting incomes distribution.

The tax rule covering only 11 categories of luxury goods16, made luxury brands easily to escape from the heavy tax. Besides, luxury goods companies do not manufacture in China, which means the country cannot levy on the process of circulation. Therefore, they can price their goods to a rich profit, as well as to keep their customers happy. Moreover, the rule proves a far drop behind the consumption growth—we pay consumption tax on cosmetics, jewelleries, cigarettes and alcohols, but not on some even more expensive luxury goods like a private yacht.

Dr Yang Xing, director of economics and socials studies in Jinan University, Guangzhou, said, “China's personal incomes have increased rapidly these years, which influence the consumption habit directly. Unfortunately, the consumption tax has failed to keep pace with the changes. If there are no acts on establishing the new tax rule, the gap between the rich and the poor will become larger and cause the imbalance of our social structure."

“To encourage consumption is right, and I am not against people to buy some luxury products to improve their life quality. However, our state should do something to narrow the income gap. High-grade consumption goods should be levied with consumption tax. ”

Though the State Administration of Taxation is currently considering a proposal to revise the categories of goods subject to consumption tax, it is still very hard to make contribution to narrow down the income gap. The disparity income growth in China still gives people the impression that those who can afford the luxury goods are all upstarts.

Thanks to the market economy, people in China now have chance to wear Prada. You can buy whatever you want as long as it is something you can afford, but before doing that, can you think about those farmers who struggle in surviving with only ten percent of your salary for just one second?