International vendors in lap of China luxury
By Olivia Chung

HONG KONG - International luxury goods makers and service providers have taken notice of the growing population of wealthy and newly rich people in China, their numbers increasing at a slick pace amid a booming economy.

David Zhong, founder and chief executive of ''The Fair'', an annual luxury products and lifestyle exhibition in Shanghai, said most rich people in China were first-generation entrepreneurs. Even so, they are fast learners are are becoming smarter in their attitudes towards spending, he said.

The Chinese economy, which is heading for a fifth consecutive year of double-digit expansion after growing 11.5% in the third quarter, is driving up the population of Chinese millionaires and billionaires. Mainland China has about 300,000 to 400,000 ''rich'' people, Zhong said, taking a cut-off point of net assets worth a minimum of 500 million euros (US$719 million).

''These top wealthy people in China are making money easier these days and their wealth has doubled and even tripled in the last one to two years,'' he said, citing the opening of the economy as an opportunity to make the first bucks, which were then multiplied by gains through the rising property and stock markets.

The benchmark Shanghai Composite Index has surged more than 80% this year after jumping about 130% in 2006, while investment in the mainland real-estate market rose 31.4% in the first 10 months of this year from 2006, to 1.92 trillion yuan (US$260 billion), helping to drive up house prices by around 10.5% year-on-year in November.

As wealth increased and consolidated, so did the willingness to spend on luxury goods and services, Zhong said. China's wealthy are no longer merely ''nouveau riche'' with an obsession for consumption.

''Wealthy people nowadays are well-educated and prudent spenders,'' said Zhong. ``They know clearly what they want and what they like. Luxury goods and services are not only about branding, but also a means of doing business for them.'' The taste of the mainland’s rich has gone beyond luxury goods, he said. ''They have shown greater interest in sports, wealth management and fine art.”

To cater for the changing taste, golf, wealth management services and fine art will be highlighted in Shanghai next October, when Zhang's company will hold its third event in the country.

''Golf courses for many wealthy people are venues for business, rather than relaxation, while the need for money management, financial advice and investment services is also expanding,'' he said.

Wealth management is going to boom on the mainland, according to research by London-based lender Standard Chartered, even with the eligibility threshold for private banking standing at about US$1 million. The mainland private banking market has seen 23% annual growth in the past five years and is forecast to expand by 12.5% annually over the next five, the bank said.

China's own banks are benefiting from this demand. Eddie Wang, president of the personal wealth management arm at China Minsheng Bank, the nation's first privately owned lender, said business had grown 40-fold since 2000.

Strong growth looks set to continue, with the number of US-dollar-millionaire households (that is excluding the value of businesses and residential homes) likely to more than double to 609,000 in 2011 from 310,000 last year, according to Boston Consulting Group (BCG). The country ranked fifth by this measure in 2006 after the United States, Japan, Britain and Germany, a BCG report said.

Luxury cars are a growing feature of China's auto market, where US$2 billion in sales were made last year, according to Ernst & Young.

''I have never seen such strong spending power in my more-than-30-years of selling luxury cars,'' said a senior official of Bentley China, which sells the British-made limousine. Bentley, now owned by Germany's Volkswagen, has received orders for 400 cars on the mainland this year.

Germany-based Porsche and Italy-based Fiat's Maserati and Ferrari divisions have also seen their China sales rise significantly over the past few years. Market leader Porsche aims to sell 4,000 units in China this year, compared with 2,305 units in 2006. Ferrari has a sales target of 160 cars, up 33% from last year.

High-spending customers in China "know what they want,'' said the Bentley official. ``Wealthy Chinese now prefer top-end models, which cost at least 5 million yuan. They come to look and buy the cars almost immediately as they have a full understanding of the car by surfing on the Internet before coming to the showroom.''

Plenty more customers will be lining up to place their orders for years to come, according to Ernst & Young, which forecasts the mainland luxury car market will grow 20% next year then 10% annually until 2015 when sales may exceed US$11.5 billion.

Behind existing customers are other potential buyers climbing the ladder of affluence. As the effects of China’s economic boom increasingly filter through to the broader population, those with assets of between $100,000 and $1 million will increase at compound annual growth rate of 20%, to reach 6.4 million households in 2011, BCG said.

That is a market luxury-goods makers cannot afford to miss.

Olivia Chung is a senior Asia Times Online reporter.