Zhang Xin, cosmopolitan billionaire from the mainland &CEO of SOHO China, one of the largest real estate developers in Beijing
There’s little doubt that the next generation of Chinese moguls will look back at the 2010’s as the decade that kick-started a long and lingering era of dizzying growth and staggering profits – particularly those in the luxury sector. Who could dispute such a prediction when the China luxury ‘story’ is so full of superlatives and hyperbole at every page we turn?
By virtually anyone’s account, there is only one way for most of China’s wealthy citizens to go and that is up, up and up. Just this week, China Daily reminded us of their buoyancy by citing a report which estimates that luxury goods sales in the country will eclipse Japan’s, reaching $14.6 billion next year – and that’s not even including the money spent on private jets, yachts or luxury cars.
Part of the attraction to the mostly foreign luxury brands dominating the market is, of course, an increasingly international and mobile Chinese luxury consumer. It’s happening both on the macro and the micro level. Chinese private equity funds and investment vehicles have begun to snap up Western luxury brands while affluent individuals invest more and more in a cosmopolitan lifestyle.
“ What is driving this forward is a sense among the wealthy in China that they are now truly ‘global citizens’ with prospects and aspirations beyond their borders. ”
The motivational factors behind this cosmopolitan streak in consumption are not merely about the perceived superiority of foreign goods or the prestige factor of international labels.
Neither are they simply a manifestation of pragmatic matters like buying deluxe second homes in London and Manhattan or educating children at Swiss boarding schools and American Ivy League colleges. And despite their love of a bargain, the fact that Chinese shoppers now spend 400% more on luxury goods overseas than they do at home is more than just a way of avoiding hefty duties and taxes levied by the Beijing government.
On the contrary, what is driving this forward further and faster is a sense among the wealthy in China – like everywhere else – that they are truly ‘global citizens’ with prospects and aspirations beyond their borders.
When Jing Daily picked up the 400% statistic from the World Luxury Association’s annual report, its authors suggested that “if the gap between domestic and overseas luxury spending continues along this path, we’ll see increasingly serious consumer outflows going forward.”
While international luxury brands may not care in the short term whether sales are made in Paris or Shanghai, the implication is that this so-called “wallet drain” could become a hazardous side effect on what is effectively a very young domestic luxury market at a crucial stage in its development.
The ribbon-cutting ceremony for MCM’s new Beijing flagship store at Shin Kong Place earlier this year
It is also part of a much broader question that has social scientists as well as economists embroiled in a heated debate. In a fascinating and rather plucky piece published by China’s financial daily, the Economic Observer (which was then translated for Time magazine last week), columnist Xin Haiguang suggested that China of the future may be a place where “the poor grumble while the rich flee.”
“Is China facing a “Wealth Drain”?” he asked. “Do too many of the best and brightest — and above all, richest — Chinese dream of packing up their accumulated capital, and going to live abroad? According to a new study, a majority of Chinese who have more than 10 million Yuan ($1.53 million) worth of individual assets find the idea of real-estate investment a lot less tempting than so — called “investment emigration.””
Haiguang’s concluding thoughts probably resonate loudest in policy-making circles but they have also begun to make more than a few luxury goods analysts prick up their ears.
“The truth is that, unless they emigrate, the wealthy have to suffer from the same causes of unhappiness as the poor. Take food safety. Last year, when a Chinese woman living in Canada was asked by the International Herald Tribunewhy she had left her country, she said it was because of the Sanlu (toxic baby milk) case, and also because of the “hatred against the rich.” Her answer highlights the fact that, as the gap between the rich and the poor is getting wider, and the poor are complaining more and more, the rich are also getting more nervous.”