A number of recent articles have focused on China’s increasingly formidable appetite for imported luxury goods. The Economist gives an overview:
Sales of luxury goods are exploding, despite a hefty tax on importing them. A new report by CLSA, a broker, forecasts that overall consumption in China (including boring everyday items) will rise by 11% annually over the next five years. That is very fast. But sales of luxury goods will grow more than twice as quickly, reckons CLSA: by 25% a year. No other category comes close. Even spending on education, a Chinese obsession, is projected to grow by “only” 16% annually.
China is already the largest market for Louis Vuitton, a maker of surprisingly expensive handbags, accounting for 15% of its global sales. Within three years, reckons Aaron Fischer, the report’s author, China’s domestic market for bling will be bigger than Japan’s. By 2020 it will account for 19% of global demand for luxuries (see chart). And that is only half the story ….
If you include the baubles Chinese people buy outside China, the nation’s share of the global luxury market will triple, to 44%, by 2020, predicts CLSA. The wealth of China’s upper-middle class has reached an inflection point, reckons Mr Fischer. They have everything they need. Now they want a load of stuff they don’t need, too.
The article goes on to describe various similarities and differences between China’s luxury consumers and their counterparts elsewhere. Age is a striking difference: the average Chinese millionaire is 39, versus an average of 54 abroad, while Forbes reports that the average Ferrari buyer in China is 32, as opposed to 47 in North America.
Ferrari’s “prancing horses” are not the only ones being imported. From the Wall Street Journal:
According to the China Horse Industry Association, a government organization established to develop China’s equine sector, the country imported more than 1,300 horses in 2010, compared to about 300 five years ago. The total value of horses imported into China ran into the tens of millions of dollars last year, the association said. A handful of polo clubs have also cropped up around the country in recent years, including the Tang club in Beijing, the Nine Dragons Hill Polo Club an hour from Shanghai, and the Goldin Metropolitan club ….
[While] China’s fledgling equestrian sector has a long way to go to catch up with other countries, there’s plenty of confidence from some of those who are leading the charge. Li Ning, a former information technology industry executive, owns two riding facilities in Beijing, with annual membership fees of more than 44,000 yuan at both locations. Since he opened them in 2007, membership has been growing between 30% to 50% annually, he said. In 2010, 300 new riders joined the clubs, which collectively have 2,200 members, Mr. Li said.
Mr. Li declined to disclose whether his clubs are making money yet. Though he has never actually mounted a horse himself, Mr. Li has been to Spain and Hungary on horse-buying sprees and says he has spent 1.8 million yuan on non-Chinese breeds.
“When I started [five years ago,] some people really did not get it,” Mr. Li said while watching a dozen or so riders practice in the arena on a farm he owns in Shunyi, an affluent district in Beijing. “Now they call me a visionary or something.”
Naturally, one requires refreshment after a hard game of snow polo. Wine imports, too, are soaring. From Forbes:
Discerning drinkers around the globe, who either are looking for better taste or better value than they were used to. And, in several countries, more people being introduced to fine wine. The big example of all these trends is China, whose import thirst lights up the charts. Overall consumption rose by 25% 2002-2009. Meantime, China’s domestic production is flat (and, with some exceptions, undistinguished) owing to various limitations including water.
If you’re making wine for profit, you’d better know where you’re going to sell it. So far, the Chinese have opted for French at the high end and Australian and Chilean at more popular prices, with Argentina coming around the bend. The U.S. export there has doubled lately, although from a small base. For all those lovely California producers, it’s going to take more than a reasonable US$-Rmb exchange rate to change the fundamental picture.
And with the wine, perhaps, a Cuban cigar. From The Guardian:
Demand from China’s expanding economic elite has sparked optimism in an industry that risked being extinguished by recession and anti-smoking laws around the world ….
Marketing manager for Casa de Tobaco, which arranges cigar-related events, Wang added: “In China, the people who smoke cigars are the upper class, the elite, or people who have come back from overseas.
“After people [who smoke] get rich, they want something nicer, something more upscale, something different. A cigar becomes their best choice. And in China, the number of people who become very rich is getting bigger and bigger.”
China is left with a trade deficit in high-end alcohol, however, as its own luxury beverages struggle abroad. From the Financial Times:
The China Daily reports that a 375-mililiter bottle of 53-degree Flying Moutai (the brand’s best-selling product) sold at a Chinese supermarket in the US for $82.99 (550 yuan). In China, the price for the same amount reached 1,050 yuan, according to the newspaper.
The price difference is caused by an imbalance in market demand. Sales numbers of Moutai in foreign markets are not very impressive.
The FT’s Jamil Anderlini offers some indication of why foreigners aren’t so keen on the stuff:
Moutai, the fiery official liquor for state banquets since the Communist revolution, has been variously described by foreign dignitaries as “liquid razor blades” and “smelling like a barnyard and tasting like turpentine”.