China's consumption power is over-exaggerated?

With the continuous development of China's economy, the improvement of people's living standards and the appreciation of the RMB, the purchasing power of Chinese consumers is gradually increasing. According to Forbes, China's luxury goods consumption accounts for about 20% of the world's consumption, which is lower than 28% in the United States, but CLSA predicts that China's luxury goods consumption will account for 50% of the world's total.

With the continuous development of China's economy, the improvement of people's living standards and the appreciation of the RMB, the purchasing power of Chinese consumers is gradually increasing. According to Forbes, China's luxury goods consumption accounts for about 20% of the world's consumption, which is lower than 28% in the United States, but CLSA predicts that China's luxury goods consumption will account for 50% of the world's total. Various luxury brands have regarded China as a key market for development. Burberry's fourth-quarter data released earlier showed that sales rose by 11% driven by the two markets of mainland China and Hong Kong. Not only luxury consumption, Jamie Kramer, head of thematic investment at JPMorgan Chase Private Bank in New York, said that China's overall consumption has maintained a strong momentum, luxury consumption is only the tip of the iceberg, and living consumption also accounts for a large proportion.

Michael Silverstein of Boston Consulting Group believes that as the middle class continues to grow, The purchasing power of Chinese consumers is growing. "We went to China to do a survey," he said, "80% of respondents believe that China's economy will continue to develop, 80% of parents believe that their children will have a better life in the future, and 50% of Chinese people's savings account for 50% of their income. In the U.S., 51% of Americans believe their economic situation is precarious, and only 20% of American parents believe their children will have a better life in the future.”

Despite the recent decline in Chinese stock markets, Morgan Morgan’s year-to-date declines The Stanley International Capital China Index fell 6.58%. But Silverstein argues: "It doesn't matter what the market thinks." The Boston Consulting Group forecasts that the U.S. economy will grow by about 2.6 percent over the next eight years, while China's will grow by about 8 percent. Although China is still developing, China is growing rapidly, and its income level has also been greatly improved. Chinese consumers will gradually become the main force of consumption.

Silverstein believes: "Chinese consumers have become wealthier and have stable jobs. So they need material proof. So, for Chinese, luxury consumption is a manifestation of improved quality of life. This is luxury The reason it is especially popular in China."

And, China's increased purchasing power is now only the beginning. According to World Bank data, China's per capita GDP was US$7,518 in 2010, and it is predicted that it will rise to US$12,449 in 2015, with an annual growth rate of about 10.6%, surpassing India's 8.3% and Indonesia's 6.9%. In 2009, Chinese consumers accounted for only 4% of global middle-class consumption. The Brookings Institution predicts that figure will reach 13% by 2020, while the U.S. is expected to drop from 21% in 2009 to 12%. Chinese make up 30% of the world's wealthy people with an annual income of more than $30,000, and more than 190 million middle-class people emerge in China every year. In the United States, the growth rate of the middle class is about 9%, and it is only about 61,000 people.

Although many people are optimistic about the Chinese economy and the strong purchasing power of Chinese consumers, the recent slowdown in sales growth of many luxury brands has cast doubt on China's strong consumption power. From the fourth quarter of last year to the first quarter of this year, many international luxury brands indicated that their sales growth in China slowed down.

PPR Group, the parent company of the Gucci brand, recently said first-quarter sales missed expectations, and now the group is forecasting no improvement in China, the world's largest luxury market. Meanwhile, LVMH reported flat first-quarter sales in China for its fashion and leather divisions. Its CEO said that in the past nine to 10 months, Chinese demand has been flat, and most Chinese shopping malls have seen a drop in foot traffic.

Piaget said sales growth in the mainland market could be less than 10 percent this year, the slowest pace in eight years. According to the World Luxury Association, spending on luxury goods during China's most important Lunar New Year holiday, which runs from Jan. 20 to Feb. 20 this year, was $830 million, down 53 percent year-on-year. The biggest declines were in leather goods and watches, down 63% and 95%, respectively.

The market mainly blames the slowdown in China's economic growth as the reason for the decline in the consumption power of luxury goods in China. China announced that the growth rate in the first quarter was only about 7%. Some consumers said that due to the sluggish economic situation this year, their business was not doing well, and the consumption of luxury goods for personal use or gifts was relatively reduced. Second, the recent introduction of anti-corruption policies in China has also curbed luxury consumption to a certain extent. In 2010 and 2011, gift-giving consumption accounted for more than 30% of China's luxury goods consumption. In 2012, the data began to decline.

Nevertheless, many people believe that the slowdown in China's growth does not mean that China's economic development is hindered, but may instead be an opportunity for China's economic restructuring, and anti-corruption policies will not have a long-term negative impact on consumption. Moreover, according to the World Luxury Association, Chinese people's consumption of luxury goods abroad is already the world's first, and it is expected that China will soon surpass Japan to become the world's largest consumer of luxury goods. With the sharp increase in the number of China's middle class, China's overall consumption will continue to rise, leading the world.

However, often the phenomenon of market enthusiasm can lead to unexpected and opposite results, so will China's consumption continue to maintain its strong momentum?