Chinese Ministry Of Commerce: China Will Resolve Luxury Price Discrepancy

Chen Deming Discusses Luxury Pricing At Opening Of China Development Forum

The 12th

The 12th China Development Forum (Image: News.cn)

Held annually each spring, this week the 12th China Development Forum (2011) took place in Beijing, following on the heels of the recently concluded National People’s Congress and Chinese People’s Political Consultative Conference (CPPCC). Founded by the State Council’s Development Research Center in 2000, the forum is meant to bring business and academic leaders together to interact with China’s top political and economic decision makers.

During the opening ceremony, Minister of Commerce Chen Deming said that China will solve the issue of pricing on luxury goods, roundly criticized due to prices for some high-end goods in China exceeding prices for the same items overseas. Discussing tax reform, Minister of Finance Xie Xuren told attendees that China will work to improve its consumption tax system. Products prone to pollute the environment and consume a large amount of resources, Xie said, as well as some luxury goods will see new consumption taxes levied. The unspoken focus, ostensibly, being private jets, yachts, and sports cars.

In terms of consumer behavior, Chen Deming said that the high savings rate common among most Chinese consumers is currently due to the country’s lack of a social safety net, which necessitates “insurance” saving for medical, retirement, and educational expenses. However, as Chen pointed out, high savings rates are commonly seen in Asian cultures, with rates in Japan and South Korea exceeding North America and Europe.

Discussing the imported luxury brand “fever” seen in China’s wealthier cities, Chen admitted that this partially boils down to China’s lack of established premium brands, and a failure among national upstarts to meet the increasing material demands of consumers. Chen added that the country’s “post-80s” and post-90s generations are becoming a far more brand-name oriented consumer base than their predecessors. Chen went on to discuss China’s stiff luxury tariffs, which do not exist in most other countries or territories, most notably duty-free Hong Kong, which has become a shopping Mecca for mainland Chinese shoppers.

Outbound Chinese tourist spend lavishly on luxury goods

Outbound Chinese tourists are known for spending lavishly on luxury goods (Image: modobi.com)

To help prices for imported luxury goods settle to normal levels, Chen said that the country first needs to foster competition in the overall market, which includes nurturing the development of more home-grown brands. Second, China should further develop its distribution system to reduce transaction costs; Third, China’s retail model should be revamped to increase the number of domestic sales agents and foreign product lines; Finally, the country must create a fair and orderly competitive market environment and strengthen the fight against IPR infringement and counterfeiting.

Jing Daily has previously reported on the frenzied spending on luxury goods by China’s growing number of outbound tourists. However, if price disparities can be effectively narrowed, we may not see as many affluent Chinese consumers spending their “Peking Pounds” abroad and toting huge bags of luxury goods home like trophies. The luxury brands spending millions on their mainland China expansion efforts are confident that wealthy Chinese consumers are more than willing to buy luxury goods at home, given the speed and convenience of local shopping, if the price gap is narrowed. Now we’ll have to wait and see whether the spoken intentions of Chen Deming and others at the China Development Forum actually translate to savings for Chinese consumers at the checkout counter. (And a better return on investment for international luxury houses in China.)

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