Summary
An undisputed fact -despite the global economic developments – China will emerge (or still is) the fastest growing economy in the world, especially within the luxury goods sector. Retail sales in China have reached more than 6 trillion RMB and are expected to quintuple in the next 10 years to 30 trillion RMB. Since 1997, the per capita income of the Chinese population has doubled, and with it, the retail economy has slowly shifted in expenditure patterns from “basic needs” towards “personal luxury”. 200 million Chinese have meanwhile entered a new consumption society. China is currently the third largest consumer of luxury brands and is expected to surpass the United States within the next 10 years.
Analysis
The scale and pace of China’s urbanization continues at an unprecedented rate. If current trends hold, China’s urban population will hit the one billion mark by 2030. In 20 years, China’s cities will have added 350 million people more than the entire population of the United States today. By 2025, China will have 221 cities with one million–plus inhabitants—compared with 35 cities of this size in Europe today—and 23 cities with more than five million. For companies in China and around the world, the scale of China’s urbanization promises substantial new markets and investment opportunities. China will build between 4 and 5 million buildings between 2005 and 2025. Putting this into prospective, China will build 2.5 Chicago’s every year till 2025. (McKinsey 2009) Woodsome (2007) quotes surveys of mainland China’s wealth that show the country has at least 345,000 U.S. dollar millionaires and 108 known billionaires. The figure means that China now has more billionaires than any other country in the world except the United States, which has more than 300. At that, wealthy Chinese are looking at foreign brands in order to differentiate from the image of a budget product made in China. The country is now the third-largest consumer of luxury goods, accounting for 12 percent of sales worldwide, up from one percent just five years ago. Pocha (2006) refers to reports in which is stated that if the high living continues as expected, China will surpass Japan to become the world’s second-largest purchaser of luxury goods by 2015, when it could account for 29 percent of the world’s luxury sales. Increasing wealth and changing values, fueled by China’s transition to a market economy, substantially changed the former disregard for kitchen and bathroom space [Ikels 1996: 79]. Decorating and furnishing one’s home has become a national obsession: lighting fixtures, moulded ceilings, kitchen tiles, artificial wood floors, western-style bathrooms, doors and door grates, leather sofas, dining room sets, space allocation all evoke endless fascination as friends and neighbors exchange visits and the latest consumer information [Ikels 2004]. According to a Chinese friend and business associate who already imports and distributes luxury product from Europe and the US, China’s cabinet market is in its early development stages and “a maximum of 10 years old with no established rules such as designs or dimensions in the cabinet industry”. Due to cooking habits in China, which creates a lot of steam (and odor), kitchens are typically separated from other rooms of the house. However, a trend to western living standards with open kitchens is developing. Those that can afford this standard will aspire to have two kitchens – one enclosed and well ventilated and the other one for entertaining guests in an open floor plan combining living, dining and kitchen area. It remains to be seen how fast this culture will be changing but the overall trend to western manufactured product as status symbol can be expected to prevail as the economy rebounds and the wealth in China continues to increase. Overall this should present an excellent opportunity for European and US manufacturers to establish market presence in China. Sources:
Ikels, Charlotte (1996), “The Return of the God of Wealth: The Transition to a Market Economy in Urban China.” Stanford, CA: Stanford University Press, 1996.
Ikels, Charlotte (2004), “The Impact of Housing Policy on China’s Urban Elderly.” Urban Anthropology & Studies of Cultural Systems & World Economic Development 33.2-4 (2004): 321+
McKinsey& Company (2009), “Preparing for China’s Urban Billion”, McKinsey Global Institute
Pocha, Jehangir S., (2006), China’s hunger for luxury goods grows / Booming nation expected to be No. 2 buyer by 2015 http://bit.ly/eRTEF (last accessed May 26, 2009)
Woodsome, Kate (2007), “China’s New Wealth Underscores Inequalities”, Hong Kong http://bit.ly/11zq2X (last accessed May 26, 2009)
