Luxury Takes Center Stage in China's Efforts to Boost Consumption

In China, the Communist party wants desperately to encourage the purchase of luxury goods at home, instead of traveling abroad. Moreover, Chinese consumers’ conspicuous consumption is still on the rise. For luxury brands, a push for domestic luxury purchases and continued growth in demand is good news. In October in the report of the 19th National Party Congress, Chinese President Xi Jinping said that the ongoing economic development of China presents a fundamental contradiction: “the people’s ever-growing needs for a better life and unbalanced and inadequate development.” One way to promote better quality of life, which Xi did not express explicitly, is through mid-to-high-end purchases or the higher quality and more individualistic consumption mentioned in the same report. In other words, the Party is giving a tacit nod to luxury consumption, as the country is looking for new ways to encourage economic development outside of the labor export model and debt-fueled investment that have fueled China's rapid rise for the the past thirty years. Meanwhile, Chinese consumers are demonstrating their desire for better lives through shopping. During the Singles’ Day online sales bonanza, Alibaba reported that its one-day sales reached 25.35 billion (168.3 billion yuan), up 39 percent from last year. JD.com reported 19.14 billion (127.1 billion yuan) in sales for November 1–11, up 50 percent from a year ago. Chinese consumers’ shopping sprees are not only about buying more, but also about buying better. According to the luxury e-commerce website Secoo, Secoo’s gross merchandise value is expected to reach between 207.4 million to 208.9 million by the end of the third quarter this year, representing a 65 percent increase compared to the same period last year. Chinese consumers’ longing for more and better goods is a result of government efforts to make such goods more accessible. In turn, such eagerness is also driving the government to take even more action in this regard. Earlier this month, Vice Minister of Commerce Wang Bingnan said at a conference that the Ministry of Commerce will lower customs duties on certain consumer products in order to increase imports. Zhao Ping, a research director at the China Council for the Promotion of International Trade, said that customs duties on clothing and shoes currently range between 10 and 15 percent and that it would be reasonable to lower it to 10 percent across the board. China does not have a specific customs duty pertaining to luxury clothing and accessories, and such a move would by default include these kinds of luxury goods. The Chinese government has already lowered custom duties on clothing and shoes twice since 2015. According to the Beijing Commercial Daily, each time China has cut import duties on consumer products such as clothes, shoes, and skincare products on average by about 50 percent. Last January, the Ministry of Finance lowered customs duties on suits, leather goods, and fur clothing again. Naturally, it's good news for brands that the Chinese government is encouraging luxury consumption. One concern however, is whether brands can maintain a feeling of exclusivity associated with their goods. Will Chinese consumers still desire a valuable bag or watch in order to have others recognize, appreciate, and admire them? By all accounts, this attitude towards luxury purchases is holding. Aside from the social status luxury brands might imbue consumers with, showing off personal tastes to differentiate themselves from others is another prominent trend. A report on China’s luxury e-commerce shows that the average age of consumers at luxury e-commerce websites is 30, with the majority of them in the age group of 23–37. The report says that it is common to see these young consumers shopping for “face” or mianzi (面子). Face in this case is similar to the Western concept of face, but carries substantially more weight in the Chinese context and has the additional connotation of social prestige and reputation. Because people in this age demographic tend to buy luxury bags and jewelry for showing-off and to keep up with their peers, they don’t necessarily buy the most expensive items, but rather the most trendy and expressive. Another report on luxury consumers by Altagamma and the Boston Consulting Group notes that 22 percent of the Chinese luxury shoppers are “rich upcomers,” who are rich and are looking for ways to show off their wealth but have yet to gain much knowledge about luxury. This group of people is one of the main drivers of demand for luxury goods in China. With state encouragement and a large base of luxury consumers, China will surely continue to be the market luxury that brands need to invest in.

Luxury Takes Center Stage in China's Efforts to Boost Consumption

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Published November 22, 2017

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Luxury Takes Center Stage in China's Efforts to Boost Consumption