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Luxury sales aid world economy

By  Yang Ning and Zhu Jin  (China Daily)

09:23, January 17, 2012

BEIJING - What provides some relief in today's chilly global economic climate is not just the continuous growth of emerging countries as the world's economic engines, but also the strong performance of luxury goods, especially in China.

It is predicted that the value of luxury goods bought on the Chinese mainland will reach 100 billion yuan ($16 billion) in 2011 for the first time ever, with an annual growth rate of 25 to 30 percent, which means China is likely to surpass Japan as the world's largest purchaser of luxury goods in 2012, according to the latest report from Bain Capital.

Consultancy firm McKinsey & Co also expects China to be the largest luxury goods market in the world by 2015, accounting for more than 20 percent of global sales.

"At this pace, Chinese consumers will, in the medium to long term, make up 70 percent of the global luxury market's growth," said Bernard Malek, a partner at Roland Berger.

Financial results support their confidence, as the luxury brands, especially top-end manufacturers, have indeed benefited from soaring sales in China. Richemont, one of the world largest luxury groups, for example, has seen its share price triple from 2009 lows and now trades at 17 times 2011 forecast earnings, with 2.6 billion euros ($3.4 billion) net in cash. Burberry and Prada appear stretched on multiples of more than 20 times.

However, many high-end brands are finding the luxury market in China is different from the one they are used to in Japan.

Although the affluent population in Japan is much larger, in China the people who buy luxury goods are willing to spend a much bigger share of their income on them - 10 to 15 percent in China compared with only 4 percent in Japan, according to the latest McKinsey survey "Insight: China-luxury goods".

Also Chinese buyers of luxury goods are generally much younger, 15 to 20 years younger on average. Young consumers in Japan have been moving away from luxury goods due to the weak Japanese economy in recent years. Even working women who still live with their parents, once famous for their consumption of luxury goods, are not such prominent high-end spenders as they used to be. In China gift-giving is also a significant factor in the sales of luxury items.

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