Why Beijing's Anti-Luxury Advertising Campaign Won't Help The Wealth Gap

    Whether Beijing's newest policy to combat the wealth gap by banning certain types of outdoor advertising will succeed is highly unlikely. Here's why.
    Jing DailyAuthor
      Published   in Finance

    Luxury Tax, Advertising Decrees Aimed At Deep Economic Divide#

    Since Beijing's new plan involves wording, brands like Gucci, which rely more on imagery, should be unaffected

    Recently, the Chinese government announced a new law that, when put in effect next month, will prohibit outdoor advertisements that "promote hedonistic or high-end lifestyles" in Beijing -- essentially code for luxury brand ads. This, as the AP notes, is Beijing's latest scheme to "ease public concerns about the country's widening wealth gap." However, it's not the only one.

    As Jing Daily has previously pointed out, in an attempt to curtail the country's overseas shopping binge, Beijing has stepped up enforcement of its customs "Rule 54," which imposes stiff retroactive taxes on luxury purchases, and has stood firm in its support of a high luxury tax, despite entreaties from high-profile individuals to drop it.

    From the AP's coverage of the new anti-advertising plan:

    The Beijing Administration for Industry and Commerce said in a recent statement that businesses were given an April 15 deadline to rectify such ads, along with any that excessively promote "foreign" things.

    It gave no details on which "foreign" things were deemed objectionable.

    Such promotions help create a politically "unhealthy" climate, it said.

    Violators could face fines of up to 30,000 yuan ($4,600), the state-run China Daily said Monday.

    Newly forbidden words include "supreme", "royal", "luxury" or "high class", which are widely used in Chinese promotions for houses, vehicles and wines, it said.

    Whether this new policy will do anything to narrow the wealth gap in Beijing is highly unlikely. As Chinese shoppers have shown, outdoor advertising is only one way they learn about high-end brands, with the majority of sales driven by word-of-mouth and print media. According to Ruder-Finn's 2009 Luxury Luxury Forecast, only 16.6 percent of consumers considered outdoor print ads a key source for brand education, compared to 74.9 percent for print media articles and 65.9 percent for advertorials.

    And this is increasingly true for online media as well -- the domain of the younger Chinese consumers who are making up an increasing percentage of the luxury shopper base. As L2 founder Scott Galloway, remarking on the findings of last year's L2 Luxury Lab Digital IQ Index, said,

    China has 384 million internet users, more than the U.S. and Japan combined, and 80 percent of Chinese luxury consumers are under 45. In addition, in 3 years the number of internet users in China will explode to over 800 million.

    Tapping into the enormous online market in China could define success or failure in the prestige industry over the next decade.

    So, considering outdoor advertising is low on the totem pole in terms of driving consumer buying habits, and younger Chinese are too busy looking at online ads and reading online articles to care what's being advertised on the nearest bus stop, Beijing's latest measures seem to be little more than lip service. Much like the country's luxury tax, which has done nothing to slow the rate of luxury consumption</>, this prohibition on outdoor advertising is unlikely to achieve its stated goal.

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