The costs of luxury spending are booming

Chinese shoppers caused a stir when they won their own gold in London during the Olympics, spending on average 203 pounds sterling ($255) per purchase and beating runners-up from the oil-rich United Arab Emirates by a whopping 10 percent.

This is not the first time Chinese consumers have earned such a dubious distinction abroad. The media frenzy over the Olympics simply thrust the big spenders into the spotlight. Slamming the raging luxury fever, sociologists and critics had pieced together the picture of a young, flaunty and huge luxury consumer class and an even larger fan base, which spans most groups in society.

One of the most startling revelations was that most Chinese luxury consumers are aged between 25 and 35 years, considerably younger than their US or European counterparts.

At first glance, their income of about 10,000 yuan ($1,570) a month does not look much. But they can spend a considerable portion of that on luxury products, because many receive family support or have subsidized housing or other benefits after they start working.

A recent study shows Chinese consumers spend about 40 percent of their yearly income on luxury goods, while those in the West spend an average of only 4 percent.

Chinese consumers tend to believe that with greater purchasing power comes higher social status, so the successful should buy socially visible products to indicate their higher social standing even if that means stretching their finances.

Most of the Chinese tourists in London probably belonged to this group, because they snapped up designer handbags, watches, clothes and other luxury products favored by consumers at the low to middle spectrum of luxury spending.

At the top are the country's rich, who have already become dollar millionaires at an average age of about 40. Though their number adds up to millions, they account for less than 20 percent of the total luxury consumers. Nevertheless, they are responsible for more than 80 percent of the luxury spending. The millionaires have grown accustomed to wealth, and are known for developing more expensive interests in acquiring high-end items such as private jets and yachts.

The size of the conspicuous consumer group will be much larger, if we count in people like public servants, whose positions fuel an expensive taste for the finer things in life.

A recent study of thousands of Beijing households, published in the academic journal, Economic Research, found that conspicuous spending is more closely associated with education, income and job. As expensive brands are considered necessary to show one's social status, families with college-educated members, professionals or employees in the public sector tend to spend more on luxury products, compared with those with retirees or unemployed members.

Until the London Olympics, lavish spending on luxury goods by Chinese had been largely viewed only as a rich man's folly or a matter of personal choice. Cathy Zhang, a young luxury goods fan in Beijing, said the design and texture of handbags, scarves and watches match her taste. "There's always something behind it that makes you happy, makes you think you are a happy person."

True, industrialists and economists have been more than happy at the prospect of the government lowering duties on luxury imports so that people can shop at home. But there are economic, moral and social costs to pay for the boom in luxury spending. For starters, it can be wasteful because prestige-seeking consumers might ignore the intrinsic utility of their purchases, and extravagance can widen the divide between the haves and have-nots.

In Western countries, intense competition for social status has historically led to higher housing prices, higher personal bankruptcy rates and a higher incidence of divorce, some studies show.

The current public scrutiny and soul-searching on how people should spend their money, triggered by the Olympic shopping champions, is a timely move to prevent excesses in luxury lifestyle from causing a damage beyond repair.

The author is editor-at-large of China Daily. E-mail: dr.baiping@chinadaily.com.cn

(China Daily 08/25/2012 page5)