Controversial Luxury Market in China: Increasing Buying Power and Restricted Market Powers

From the beginning of the year of goat, luxury brands launched their products featuring design based on Chinese zodiac for Chinese New Year in order to attract more Chinese customers.

On a general assumption, since the lunar New Year is the most important festival day for Chinese people, the salesmen from the luxury brands would expect to see an increase in sale. Also, because of the steady income rise of Chinese middle and upper class, more purchasing power is going to the luxury market. Marketing departments in those companies see and respond to this trend by offering limited editions and products designed based on Chinese cultural symbol.

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However, the market of luxury in China this year suggests a major counter-evidence to this assumption. The first reason that the assumption is broken is the changing political atmosphere. Hong Kong, a major place for mainland Chinese middle class to shop luxury products, endures political disorder due to protests. Also, the antagonism of local Hong Kong residents against mainlanders is also growing fast and impedes buyers from mainland, who, if wanting to buy luxury products within borders, have to pay a skyrocketing tax. In addition to that, Chinese government, in order to change its image, conducts several political actions fighting corruption. Though the effectiveness of those actions is still in question, Chinese government has unquestionably reduced the sale and profits of luxury companies in the market of China.

       Though those events seem to be accidental, they do reveal some essential aspects about Chinese luxury market. Chinese middle and upper class have the purchasing power but do not have easy ways to buy luxury products. A new business comes out of the difficulty faced by Chinese buyers who can and want to buy luxury products but cannot due to taxes or political environment. This business is called “Daigou” in mandarin, which basically means “asking somebody else to buy the product overseas and carries or ships back to China as luggage or package to avoid taxes and tariffs.” Admittedly, some people might argue that this business makes use of loopholes of current laws but it certainly improves the availability of luxuries. Buyers get their products at much lower price and sellers earn money by using their convenience. According to the investigation in 2013, there are 93% online buyers having experience of Daigou and 44% using Daigou more than 3 times a year. Also in 2014, the market size of this industry reached 12 billions US dollars. This trend, though not quite the same, reflects a similar situation to smuggle which happens when external force steps into a market to impede transactions but market forces, both from the demand and supply sides nevertheless bring the market back to its equilibrium in whatever possible and profitable ways.

Work Cited:

http://www.scmp.com/business/economy/article/1722011/chinese-new-year-unlikely-lift-luxury-brands

http://www.cnnic.cn/hlwfzyj/hlwxzbg/201409/P020140901332431510284.pdf

http://jingdaily.com/celebrate-chinese-new-year-in-style-jing-dailys-year-of-the-sheep-luxury-gift-guide/

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2 thoughts on “Controversial Luxury Market in China: Increasing Buying Power and Restricted Market Powers

  1. taylorqjohnson says:

    It is interesting how purchasing luxury products in China is somewhat difficult/inaccessible to the Chinese middle and upper classes. I wonder if many of the luxury goods that Chinese people purchase abroad are from the U.S. Also, it would be interesting to find out how “Daigou” affects the market for luxury goods in the U.S.

    Like

    • Qingyang Shu says:

      I mean… it’s not about accessibility for Chinese people to buy luxuries in China, and luxury brands have entered many other Chinese cities not only Beijing and Shanghai. However, people still want to get cheaper luxury goods, so that’s why Daigou is so popular. Also, many Chinese people prefer to buy handbags like Chanel, Louis Vuitton and so on in Europe, because the price there is cheaper than in the U.S. and there are tax rebate policies in European countries. And in short, Daigou stimulates the luxury market in the U.S..There’s an interesting thing when Iphone 6/6Plus was sold at the first day, hundreds of Chinese people waited for about 10 hours outside Apple store on Fifth Ave New York to buy Iphones and then sent them back to China and sold at much higher price, because some Chinese people wanted to get the newest Iphone as soon as possible and they didn’t care about how high the price was. If not, they had to wait for months when iphone 6 began to sell in China.

      Like

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