The substantial growth of household wealth in China has given significant financial power to the very affluent. According to the latest McKinsey & Co. report, the top 10 percent of Chinese households owned two-thirds of the total wealth in China.
Of course, luxury players have not ignored this social milieu. But surprisingly, there are still categories that have underperformed. Cultural factors may play a role. Champagne, for instance, still hasn't been fully adopted by Chinese drinkers, with the country importing just 1.8 million bottles of bubbly in 2020, compared to 14.3 million to Japan.
However, a shift in sentiment has created emerging opportunities within this social strata. Here, we outline three categories that have the potential to create value at the top of China’s wealth pyramid.
Wealth management#
HSBC estimates that Chinese households will own 46.3 trillion of investment resources by 2025. But the infamous Evergrande crisis has put additional pressure on Chinese investors to protect their financial assets and diversify investment risk. That will create an opportunity for China’s asset management and wealth advisory industries to provide wealthy investors with financial advice.
Financial players like HSBC, Citibank, and Standard Chartered have expanded their wealth management activities in China, and others will soon follow. Take BlackRock, which launched an onshore mutual fund services in China in September 2021, the first one in China wholly owned by foreign institutions. It raised 1 billion. The size of China's mutual fund industry is 3.5 trillion, and is expected to rise to 8.75 trillion by 2031. Moreover, Reuters reported that UBS Group AG has been in talks with China Life Insurance Group to launch a joint asset management venture in China. The country's gradual financial market liberalization will help to bolster wealth operations such as these. For example, the recent launch of China's Wealth Management Connect allows residents in the Greater Bay Area, including Shenzhen and Guangzhou, to purchase wealth management products from Hong Kong and Macao-based providers.
Private jet class#
The private jet symbolizes productivity, mobility, and efficiency for the global elite, and China still lags behind other geographies in this arena. But according to data from WingX Advance GmbH, reported in the Financial Times, the domestic use of private jets in China increased by 87 percent over the first three months of 2021, compared to the same period just two years earlier.
Of course, the pandemic is a contributing factor behind China's increased private jet use, where the wealthy have a sense of security about navigating both business and leisure travel. Private jet use should become an increasingly accepted mode of transport in China, but fractional ownership can help take the sting out of ostentatious displays of private jet ownership.
Not coincidentally, NetJets, the world’s largest private jet operator, recently re-entered China through a partnership with Shenzhen-based Amber Aviation. Clearly, private flying has the potential to redefine mobility for China’s time-starved wealthy.
China's growing number of High Net Wealth Individuals (HNWIs) coupled with its growing demand for bespoke products and services is sure to open a multitude of new growth opportunities in the country.
Monaco of China#
China’s rich have also been less inclined to be associated with luxury yachts than their global peers. The reasons for China’s reluctance include the absence of a strong yachting culture and weak harboring infrastructures. But China's wealthy are also reluctant to attract government scrutiny via overly conspicuous consumption.
Despite these market inhibitions, there are indicators that the yachting industry could enter a new stage of market development. A new market study published by Global Industry Analysts Inc. predicts that China's yacht industry market should reach a size of 1.2 billion by 2026, representing a Compound Annual Growth Rate (CAGR) of 7.5 percent. This market forecast can partly be attributed to a stronger preference for leisure or recreational activities.
And currents seem to be shifting. There is even support from China’s government to create a new boating haven. A zero-tariff policy on imported yachts to Hainan, an element of the island province’s free trade zone (FTZ), could turn the area into the “Monaco of China,” as described by a senior sales Broker from the yacht provider Camper & Nicholsons.
China's growing number of High Net Wealth Individuals (HNWIs) coupled with its growing demand for bespoke products and services is sure to open a multitude of new growth opportunities in the country. Of course, China’s common prosperity drive to redistribute wealth will impact the magnitude of future opulent displays. Nevertheless, the affluent are taking steps to align their wealth with the Chinese government’s long-term goals. In fact, a boom in Chinese philanthropy has helped to justify future wealth creation that is consistent with national interests.
Today, luxury players targeting HNWIs face a new reality in China — one offering a thin line between success and failure.
Glyn Atwal is an associate professor at Burgundy School of Business (France). He is co-author of Luxury Brands in China and India (Palgrave Macmillan).