Predictions For 2010: The Chinese Luxury Buyer

    Vivian Wai-yin Kwok of Forbes suggests that 2010 will be the a year of continued spending on so-called "practical" luxury items in China (contemporary art, luxury cars, and high-end real estate), rather than big-ticket items like yachts or private jets. We would go one step further.

    Forbes' Vivian Wai-yin Kwok Confident In Continued Spending By Wealthy Consumers In Growing Second- And Third-Tier Cities#

    As the year winds down, many outlets are running their predictions for 2010. On the Forbes prediction list, Vivian Wai-yin Kwok suggests that 2010 will be the a year of continued spending on so-called "practical" luxury items -- objects whose value won't depreciate as fast as the US dollar, like contemporary art, luxury cars, and high-end real estate -- rather than big-ticket items like yachts or private jets (much to the chagrin of Embraer and others).

    As Kwok writes, despite the government's push for more people to invest in fuel-efficient, small vehicles, China's high rollers will likely take a page from the U.S. in the noughties and think "bigger is better," choosing the now-Chinese Hummer or European SUVs over Chinese-made hybrids. In addition, conspicuous consumption will likely increase, as wealthy individuals put a premium on one-upping their friends and colleagues.

    Kwok, like many observers, expects that the Chinese luxury consumer will get ever more flashy in the next year -- a point which Kwok notes could cause friction between China and other countries:

    [In 2010, m]ainland Chinese will continue to spend jaw-dropping figures on luxury goods. Art collectors at international auctions will bid up prices for antique watches, rare jewelry and paintings from Chinese contemporary artists like Zhang Xiaogang, Zeng Fanzhi and Yue Minjun. China's nouveau riche like to show off their wealth, and for them the "must buy" list includes: a $150,000 golf club membership in Shenzhen, China, a Hong Kong luxury apartment at $3 million for two-bedroom home, a Porsche Cayenne SUV and piles of gold bars from Shanghai Gold Exchange at $44/gram, or $4,400 a bar.


    The Bold Prediction

    Even if Beijing really tightens up its monetary policy and controls Chinese bank lending in 2010, Chinese buyers will still be able to afford a few more football clubs in Europe, dozens of limited edition Ferraris (See "A Ferrari Like Porcelain"), thousands of luxury apartments overseas. This may trigger further political tension between China and the West.

    Kwok is right in predicting that inflation hedges will be a popular investment destination for more wealthy Chinese. As a result of the global economic crisis which still dogs most major economies and the declining US dollar, this group is huge into diversification -- practical diversification, as Kwok notes.

    Jing Daily Predictions#

    Look for continued growth in the Chinese luxury market, driven mainly by new buyers in second-tier cities and -- as Kwok also predicts -- China's small pockets of wealth (Hangzhou, coal areas of Shanxi and Inner Mongolia, some parts of Yunnan). However, e-commerce should continue to bite into luxury brands' revenues within China, and we can expect Hong Kong (and, to a greater extent, Macau) to remain popular luxury shopping destinations. Look for intensive marketing efforts, and a potentially significant decrease in China's luxury tariffs, as the luxury industry fights to convince mainlanders to buy at retail outlets. Also, look for home-grown Chinese luxury brands to try to elevate their image.

    In the next year, keep an eye out for what wealthy mainland Chinese are buying at auction, since they're crazy about portable and pragmatic investments: jewelry (look for more jade and diamond buying), antiquities (virtually always Chinese), Chinese contemporary art (particularly by the elite group of high-volume collectors like Wang Wei and Liu Yiqian, who are looking to open their museum soon), to a smaller extent gold, and -- to possibly a greater extent -- fine wines. We project Hong Kong auction revenues to rise over 2009, and for Asian auction houses -- particularly Ravenel and Guardian -- to take a bigger piece of the pie next year.

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