As its economy grows, China is experiencing a large shift in behaviour. More jobs and money means that the middle classes are rapidly expanding. With more money comes a desire for higher status, and one of the ways of showcasing wealth is with expensive purchases from the luxury market. The Chinese use luxury goods in China to demonstrate their success to others – they would much rather an expensive car or fine clothes that are seen by all than a lavishly decorated, luxurious home, which would be seen by very few.

But two thirds of luxury goods bought by Chinese consumers are purchased overseas. Why are Chinese shoppers choosing to spend their money abroad instead of at home?

Greater disposable income makes travel more accessible

With larger amounts of disposable income, the Chinese people have access to travel and holidays that they wouldn’t have had a few years ago. In fact, the number of international trips made by Chinese travellers has grown from 10million in 2000 to 83million by 2012 (source: CNN). Just as people in the West like to treat themselves whilst abroad, so do Chinese consumers. With greater disposable income comes a greater desire to spend, and the affluent Chinese middle classes can now afford to indulge themselves in the luxury market.

Heavy import duties and taxes on Luxury goods in China

The strongest motivating factor for Chinese consumers to shop abroad for luxury goods is their country’s excessive tax regime on imported goods. Combined with taxes, these regulations can increase the price of luxury goods in China by up to 50%. The price of a Louis Vuitton handbag is 30% higher in a China than in Paris (source: The Economist). So from a Western point of view it may seem that Chinese spending abroad is very high, from a consumer’s point of view they are actually saving themselves a lot of money – a win-win situation for Chinese consumers and the UK luxury market.

Quality assurance

As in the West, the ‘made in China’ label is often associated with low quality amongst Chinese consumers. Goods produced in other countries, with the label to prove it, are therefore highly valued amongst Chinese shoppers. It also serves as proof of their trip, showing others that the shopper has been abroad, helping them gain social status and demonstrate their success. Chinese consumers also expect a high level of service when buying from the luxury market, with 92% of customers being unhappy with the service in Mainland Chinese stores (source: Bloomberg).

Impressive gifts

Another part of ‘gaining face’ (a key social concept in China) is being able to give lavish gifts. Foreign luxury goods in China are held in high regard, and many Chinese people want to be able to present their family or friends with impressive gifts from their holiday. Luxury goods in China help them gain social status, demonstrate their wealth and generosity, and allows them to brag about their trip abroad – all important for the newly rich middle class Chinese shopper.

(Image source: Image created by renjith krishnan| www.freedigitalphotos.net)