China: The Sleeping Giant Comes to Life

With annual luxury goods sales of billions of dollars and forecasts it will become one of the world’s top markets for jewelry, watches, designer clothes and other luxury products within a decade, global brands are pumping up their investment in China.

Who would have believed that the world’s major Communist power, while still a putative believer in Marxist-Leninist ideology, would be snapping up the capitalist arch-enemy’s major luxury products - Armani, Louis Vuitton and Cartier, to name but a few?

Although Chairman Mao is still revered and the diminutive Deng Xiaoping still regarded as a hero of the revolution, luxury goods firms are involved in a serious fight for China’s disposable income and many Chinese are more than happy to buy the products.

Regarded as a commercial backwater even a decade and half ago where only the strongest of global corporate giants, such as Coca-Cola, Volkswagen and Unilever, fought for a part of a massive but stagnant market, today luxury brands that offer the promise of beauty, wealth and power are all the rage.

Brands regarded as proving one’s wealth have flooded into China’s major cities and those firms have invested millions of dollars in the expectation that if it's expensive it will sell - and have been proven largely right.

The major investment banks estimate the Chinese luxury goods market is already turning over several billions of dollars annually and within a decade will be a major global player.

Chinese industry watchers say the main age group for luxury goods buyers is 30-40 and that around 175 million people, or 13 percent of the population, can afford to purchase a range of goods, including expensive watches and jewelry.

Earning up to 240,000 yuan ($30,000) a year and with 300,000-500,000 yuan in savings, their numbers are expected to increase to 250 million by 2010, allowing the luxury goods market to grow by about 20 percent annually in the coming five years.

Those are the kind of figures that have persuaded Cartier, for example, to expand to 10 stores throughout China. And now that the majority of the largest international brands have entered the Chinese market, analysts believe the second and third level brands will gain the confidence to come in and expand the market further.