Interview: Can China’s Luxury Brands Compete At Home And Abroad?

NPR Interview With Nicholas Lardy Of The Peterson Institute for International Economics Discusses How To Make “‘Made In China’ Mean Luxury”

High-end fashion brands like Shanghai Tang are part of the first wave of Chinese luxury brands from the mainland and Hong Kong

High-end fashion brands like Shanghai Tang are part of the first wave of Chinese luxury brands from the mainland and Hong Kong

We’ve written before about domestic Chinese luxury brands, and the way these brands are working to appeal to luxury consumers in that country by resonating on a cultural level rather than simply promoting their exclusive price-points. In the next few years, as Western luxury brands lose a little of their initial luster in top-tier markets (while maintaining their draw in second- and third-tier markets), many analysts think there will be a great opportunity for Chinese luxury brands to squeeze into the luxury market.

In an interview with NPR today, Nicholas Lardy, “a senior fellow at the Peterson Institute for International Economics, a non-profit, non-partisan group based in Washington, D.C,” discusses how China’s burgeoning middle class (which, at more than 200 million potential customers and growing, has the potential to revolutionize buying trends) — rather than the small proportion of “ultra-rich” — will be the customers who will lead to the ascendance of Chinese luxury brands.

SIMON: Now, some of us remember when the term made in Japan was synonymous with inexpensive, dare I say, cheap goods. And of course in our lifetime that’s changed entirely. Made in Japan now means quality, particularly in the car industry. Is China trying to expand in the manufacture of high-quality items itself?

Mr. LARDY: It’s not only trying, I think it’s succeeding and it’s succeeding much earlier than Japan did for the simple reason that they’ve allowed foreign firms to play a much bigger role. We buy computers that say Dell or Toshiba and so forth – they’re all made in China. They’re made by foreign companies operating in China, assembling all the parts and components there.

So the goods are exported from China, but the vast majority of these consumer electronic products are absolutely world class, and the quality is extremely high. So by allowing foreigners to play a very large role in the production, China has moved up the quality ladder, I would say, much faster than Japan did in the 1960s.

A little over half of all of Chinese exports are produced by foreign companies operating in China.

SIMON: So as the expansion of the Chinese middle class continues, at the same time will they in a few years be more interested in buying Chinese goods?

Mr. LARDY: I think Chinese consumers will buy the best quality for the best price they can get. In some cases they’ll be foreign goods. Foreign manufacturers in automobiles, for example, have a very large share of the market. These cars are being produced in China by Volkswagen and General Motors, for example – are the two biggest foreign brands.

SIMON: They just have the foreign tag on them.

Mr. LARDY: Yes. They have the foreign tag, they’re made to the standards specified by the German and American companies, respectively. Much of the content of those vehicles is actually sourced locally, made in factories that, again, frequently are foreign owned. So the parts companies have also migrated to China in order to serve the demand that has emerged there over the last decade, particularly over the last year or two when China has become the world’s largest market for automobiles.

Click here to hear the NPR podcast.