Morgan Stanley’s latest research note on luxury companies indicated that China’s globetrotters could spend up to $194 billion annually in Europe, the USA, Asia and other tourism destinations by 2015.
With China’s emerging middle class growing up, their purchasing power worldwide is increasing accordingly. According to data collected by the United Nations World Tourism Organization (UNWTO), Chinese tourists topped the list of World’s Top Tourism Spenders, with $102 billion spending on international tourism in 2012, accounting for 9.5 percent of the international tourism market share.
The total number of China’s urban middle class achieved 125 million in 2012, and is expected to reach 356 million by 2020, according to Discover China’s Emerging Middle Class survey released by ZenithOptimedia. “The Chinese middle class is not necessarily the richest, but they definitely promise more wealth with a bigger purchasing power in the near future,” said Steven Chang, CEO of ZenithOptimedia Greater China.
Since 2000, international tourism expenditure by Chinese tourists has increased almost eightfold, with the number of Chinese travelers growing from 10 million in 2000 to 83 million in 2012, according to UNWTO’ report. UNWTO also estimated that China will generate 100 million outbound travelers every year by 2020, due to the rise in disposable incomes, rapid urbanization, the growth of emerging second-tier cities, and relaxation of restrictions of foreign travel.
Based on analyzing the UNWTO data, Morgan Stanley predicted that total Chinese outbound spending will surpass total global luxury sales in two years, due to the notorious higher prices at home and government’s crackdown on conspicuous consumption. In China, luxury goods are priced much higher compared with major international luxury destinations like New York, London, Paris or Hong Kong. Import tariff and other taxes can account for as much as 60 percent to the prices of luxury goods sold in China. China’s recent anti-corruption campaign could also stimulate its affluent consumers to buy overseas, although the government vowed to boost domestic consumption this April .
Additionally, we think that unsatisfactory service quality at home could drive mainlanders to shop abroad. According to the recent 2014 China Luxury Forecast report jointly released by Ruder Finn and Ipsos Group, 92 percent of Chinese consumers indicated that they were dissatisfied with brands’ services quality at home. As Chinese consumers have become more sophisticated and more knowledgeable about luxury offerings, unprofessional sales staff and poor after-sales service could further motivate consumers to shop outside China besides the lower prices.
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