Placing China’s market for 'luxury' goods in context

Eric Stryson

From an outsider’s perspective, it would appear that the Chinese are getting suckered.

China’s new rich are pouring their money into the accounts of European companies and their shareholders instead of investing in the future of their country even while basic services remain severely underdeveloped.  

Some will argue that China’s growing domestic consumption is evidence that the country has arrived as a developed nation.  Yet in spite all the posturing about China’s new found place in the world, it is in many ways still subservient to Western tastes and ideas and at the same time falls short in critical areas. As was highlighted on the front page of the business section of the China Daily (“Sitting in the Lap of Luxury,” Mon, July 18), the Chinese consumer appetite for European luxury brands has become in recent months insatiable, in spite of conspicuous price increases.[i] 

In an almost perverse tone of delight, the China Daily describes how the retail price for a Chanel bag has risen more than 30 percent since April from RMB 31,500 to RMB 41,000.  According to the World Luxury Association (WLA) Chinese consumers spent some RMB 69.6 billion ($10.7 billion) last year on luxury products (excluding jets, yachts and limousines) and these figures are on the rise. 

Chinese consumers contributed four times as much to the European luxury market than Europeans themselves.  On the other hand, is there even one luxury brand from China which can be found at boutiques on the streets of London, New York or Rome?

Yet while Chinese demand for European status symbols in the form of cars, clothing, bags and accessories continues to grow, there are half a million migrant children just in Beijing without access to the most basic provisions of proper shelter, nutrition and education. Estimates place the number of such children throughout China at 25 million and growing, which is nearly 14% of all children in China.[ii]  These children are at once both the most vulnerable members of Chinese society and also China’s future. 

According to a PRC Central Government survey, the average school fees for a child of migrant workers was RMB 2,450 in 2006, a figure substantially higher than for those kids who have a ‘hukou’ or the right of abode, and therefore access to public education in cities.[iii]  Furthermore many schools are now threatened with closure as they lack the funding to build safe structures and this will only drive the numbers of unschooled kids even higher. 

 At current prices, one handbag is the equivalent of an entire year of education for fifteen migrant children in Beijing. Chinese state media should think twice before rejoicing in such gross contradictions on the front page of its English language editions.    

To add insult to injury, the parents of those children who will not have access to education because it is prohibitively expensive in the cities where they live may work in a factory manufacturing the handbag, typically produced at low cost by under-pricing labour and other inputs. The sad reality is that luxury goods designed and branded by European companies are being assembled by China’s migrant poor at low cost and sold back to China’s new rich at a premium, the profits from which do not remain in China.  Meanwhile the children of migrant workers are often denied the most essential provisions like education.  No doubt the luxury brands are fully aware of this and have PR strategies involving CSR to try and mask this fact. 

This is not a reality which the Chinese government nor the Chinese people should embrace.  It simply reflects the success of European marketers and a failure of China to assert its own identity which includes taking responsibility for its future. Furthermore, the relentless pursuit of status and exclusivity only serves to widen the gulf between the ultra-rich and the ultra-poor in Chinese society and undermine the social harmony which the government is so determined to protect.  It will only lead to tension.

China takes pride in its economic success and its growing influence in the world.  The Chinese government should now encourage its new rich to make intelligent choices and incentivize them to invest in ways which will support rather than inhibit the development of Chinese society.  It should work, through policies and media, to curb the irrational desire for a Western model of ‘luxury’ and instead create an environment where the Chinese elite are supported to improve their own society.  On the flip side there is indeed a case to be made for a tax on such luxury goods for social needs. 

China must give priority to providing its people with access to education and basic services rather than catering to foreign consumer brands which have no interest in the development of its society even if the conventional argument is that these brands create local jobs.