Beware Chinese luxury market risks
- Source: Global Times
- [03:02 September 21 2009]
- Comments
It will be good news if China overtakes the US as the world's top consumer market. But when it comes to China passing the US as the world's second-largest luxury market, there are mixed reactions.
The latest statistics indicate that world-famous luxury brands have seen a steady growth in sales in the Chinese market, while other parts of the world have suffered a major slump.
For instance, in the first seven months of this year, BMW has seen a 19 percent plunge in its worldwide sales, but a 26 percent increase in China. China has become the world's second biggest consumer of luxury goods, and will likely be No. 1 in 2015.
Luxury is a double-edged sword.
As German economist and sociologist Wemer Sombart wrote in his classic Luxury and Capitalism, luxury is "any expenditure in excess of the necessary."
He stated that luxury drives the economy and generates urbanization, and at the same time, serves as one of the inherent limits behind the haunting economic crisis cycles of capitalist societies.
While the two sides of the luxury coin remain to be seen in China, the world's fastest-growing luxury market has started to demonstrate its own dichotomy.
On the one hand, strong demand for luxury goods, showing the presence of accumulated social wealth, will help propel the economy out of its slump.
But on the other hand, two Chinese-style luxury market risks have posed severe tests for the emerging luxury industry: corruption and a social trend to chase luxury.
Admittedly, China's rich list continues to grow, with 106 people boasting assets totaling at least $1 billion in 2007, second only to the US. Additionally, China's middle class population is rapidly growing.
But another is that China's per capita GDP ranks only 106th in the world, and its population below the World Bank poverty line totals more than 100 million people.
In this sense, it is far too early to label China as a new "luxury kingdom."If luxury goods were not closely tied to corruption and bizarre consumption habits, the sector's apparent success in China would hardly have been achieved.
In China, it's not unusual for buyers of luxury goods not to be the end users. Luxury goods are often gifts paid for with government funds, though this is prohibited by law.
In a corruption case exposed this January, 200 pairs of luxury shoes, 100 luxury suits and one luxury car were confiscated from the home of an official in Chongqing.
That's not the only danger lurking in the Chinese luxury market.
Saying farewell to the era of "the poorer, the more glorious,"many Chinese people have gone to the other extreme of worshiping money as the new god. A white-collar worker who earns only 3,000 yuan ($439) a month is often seen wearing a Cartier watch, or a Gucci bag.
The poor are often disdained as losers of competition, and the display of wealth to mark success has become a lifestyle many people aim for.
But the showing-off of their luxury goods has brought the rich not only enjoyment, but also mounting discontented voices from the majority of the public. Anger over economic disparity could harm social stability.
Sombart stated that modern capitalism requires a social "personality"to ultimately solve the dichotomy of luxury. This is true of China's growing luxury market.
Though it is hard to find one cure, a social "personality"stressing social responsibility and traditional virtues, and strong measures against corruption as well, may be a good way to manage the risks of China's luxury goods market.
