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China’s luxury goods market is booming

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I recently retired as UK senior partner of BDO after 23 years as a partner with the firm. Last year, I took up a position as visiting professor at Xiamen University, China. My wife is Chinese and I decided to spend three months exploring business opportunities in the region and trying to learn some Mandarin.

I’m blogging about my experiences in China for Real Business – catch up on my journey so far. 

Some 20 per cent of the earth’s population is in China; and by 2015, it is forecast that more than 20 per cent of the global market for luxury goods will be Chinese. China’s luxury market is expected to grow by 18 per cent annually over the next five years, but a key question is whether the spending will take place in China or overseas. 

With luxury tax being so high in China, the World Luxury Association found prices to be 72 per cent higher in mainland China than, for example, France. Chinese shoppers spent US$50bn in Europe last year (four times more than was spent in China). 

Some Chinese economists are calling for the tax to be reduced, to ensure some of the retail margin is earnt and taxed in China; others urge the continued protectionism of burgeoning Chinese brands in the home market. 

Last month, the UK Institute of Practitioners in Advertising (IPA) launched a research and development service for Chinese brand owners wishing to go global. 

However, I suspect that most Chinese consumer brands will concentrate on their huge and fast-growing home market. According to McKinsey, 45 per cent of China’s luxury retail market is represented by 18-34 year olds, which contrasts with just 28 per cent in UK. 

Several Chinese online retailers, backed by private equity, are seeking to develop their business model as a channel to younger consumers for upmarket goods. Whether people will trust an online retailer to supply authentic goods, in a land where fakes are so prevelant, remains to be seen. 

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