Luxury Market in China

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Alicia Cabrera Larkin
GBE 790 – Doing Business in China
Final Paper
February 2011

“China’s Luxury Market, 30 years in the making:
How Chinese political policy and tradition over the last 30 years created China’s insatiable appetite for luxury goods”

China is positioned to become the world’s largest luxury market in five years and a study by Datamonitor reported China’s luxury goods market was worth $9.4billion by the end of 2009, which accounted for 27.5% of the world’s luxury goods market.[1] They also predict that by 2015, China’s market will be valued at $14.6billion. The main driver of this growth in the luxury gods market is the extreme wealth creation that China has experiences in the past ten years as its GDP has grown 10% annually on average, which is three times more than the global GDP. Investment Week quotes a recent World Wealth Report by Merrill Lynch Cap Gemini stating that there are 477,000 Chinese millionaires and China is also leading the world with the number of billionaires (Investment week.[2]) The combination of the staggering growth of the Chinese economy creating such great private wealth and the political and social evolution China has gone through over the last 30 years has created a tidal wave of opportunity for luxury retailers.

Politically, China has gone through many changes over the last thirty years that has primed the economy and citizens for a surge in individualism and the pride in the ability to afford and purchase luxury goods. In 1976 Mao Zedong passed away and in 1979 the One Child Policy was introduced and applied by China’s new leader, Deng Xiaoping. China’s population was growing at an alarming rate and in order to curb this growth rate, Chinese were limited to having one child per household. Fast-forward thirty years and these only children, who have been raised by 6 parents, has created a “little emperor” mentality where their every desire it met, and is recently being satiated by Western goods. They now have buying power and they are spending it on high priced goods. The choices and options available today are a stark contrast to the limitations their parents experienced thirty years prior in a vastly different political time.

Socially, China has always been a country deeply embedded in traditions such as gift giving, saving face and the respect for the hierarchal society. These traditions all stem from “guanxi,” the all-important notion of relationships, which is what drives business and social status. The culture of relationships is paramount for being successful in China so the combination of mass wealth and the traditions all surrounding Guanxi has attributed to the exponential growth of the luxury market in China. Although the Chinese have been known to be a culture of saving, the tides have shifted and the 20-30 something’s have created a society of excessive spending due to extravagant purchases to support their new tastes as well as these traditions. The new breed of buyers are young and are embracing their freedom to purchase in their capitalistic society, which is a far cry from their parents socialist upbringing. Therefore both social and political changes have created this perfect storm of excess, which is fueling the luxury good market in China and for many years to come.

Mao Zedong, the leader of China from 1949 until his death in 1976 is still regarded as a controversial figure but his rule and communist policies molded the beliefs of many parents and grandparents living in China today. Under Mao’s rule there was no individualism and consumption was controlled. Mao is regarded as a great leader in China as he is thought to have laid the groundwork for China becoming the great power that it is today as a result of his leadership of the Great Leap Forward and Cultural Revolution. While he did create the building blocks for present day China, he has been compared to communist leaders like Hitler and Stalin. He urged citizens to...
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