Why the Future of Luxury Is Bright in China

on May 21 2015 | in Trends | by | with No Comments

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Despite the current spending slowdown in China, the rising wealth of China’s urban population means luxury sales could see exponential growth in the coming decades.

New research by ANZ greater China economists Li-Gang Liu and Louis Lam project that hundreds of millions of Chinese are likely to join China’s middle-class, which will propel huge gains in consumption, reports Business Insider.

“Our projections show that by 2030, China’s middle class by broad definition will reach about 93% of the urban population. Considering both income growth and urbanisation, 326m new middle class will emerge in China’s urban areas from 2014 to 2030. The total middle class population will reach 854m in China’s urban areas. In particular, the household income level of the affluent middle class population will likely reach Taiwan’s current median household income level. The rise of China’s middle class will help lift consumption share in GDP to around 50% by 2030 from 36% in 2014.”

Projection of China's urban income by groupThe researchers singled out several categories that will see the most growth, noting that consumption “in discretionary goods and services will see fast growth” and “sectors like automobiles, telecommunications, real estate, education, recreation, and medicines and medical services will likely witness exponential growth.”

As indicators of the China’s rising middle-class, Liu and Lam point to the double-digit sales growth year-on-year for this year’s Singles Day, as well as the 28 percent increase in overseas tourism spending to $164.8 from 2013 to 2014.

The increase in name-brand, high-quality imports is another strong indicator of the health of the middle-class:

“China has already become the largest market for some global luxury brands. For example, premium carmaker BMW AG’s China sales surged 16.6% to 456,732 units in 2014, making China its largest market. Daimler, the German carmaker for Mercedes, also recorded sales of 281,588 units in China during 2014, making China its second largest market behind the US. Aside from luxury cars, sales of other luxury goods, such as cosmetics, watches, high-end fashion, are also rising rapidly. Reportedly, China has already become the world’s largest luxury consumer market”.

By 2030, Liu and Lam project that disposable income for Chinese in urban areas will reach US$30,000 in spending power, up from US$10,000 at present.

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image credit: simonq

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