Luxury purchasing power: a reflection of China's GDP growth?

(Ecns.cn) – During the Spring Festival holiday season, the spending of China's rich on luxury products in foreign countries reached US$7.2 billion, a 28.57 percent increase from the same period last year, according to a report released by the World Luxury Association (WLA) on Wednesday.

The figure is 15 percent higher than the WLA's prediction of US$5.7 billion made before the Chinese Lunar New Year, which ranks China the top consumer of luxury goods and services on vacations abroad.

Europe top spot for holiday shopping

The report said 46 percent of the $7.2 billion was spent in Europe, 19 percent in North America, and 35 percent in Hong Kong, Macao and Taiwan.

According to Beijing News, the WLA's report was based on statistics collected from January 1 to February 1, which showed that Chinese buying took up 62 percent of the European luxury market, 28 percent of the North American market and 69 percent of the luxury consumption in Hong Kong, Macao and Taiwan, citing the tax-free policy and abundant goods as the primary reasons.

In Europe, the hottest consumption countries were France, Italy, the U.K. and Switzerland. In the U.S., Chinese consumers were mainly concentrated in New York, Los Angeles, San Francisco, Boston, Hawaii, Chicago and Washington. Products most favored by the Chinese consumers included top-class watches, leather goods, brand-name clothes, cosmetics, jewelry and wine.

The report also showed the total amount of luxury consumption in the Chinese mainland reached US$1.75 billion during this period, with Beijing and Shanghai listed as major consumption areas.

According to the statistics, 72 percent of the sampled Chinese said that luxury goods overseas are cheaper than at home, 69 percent liked the wider variety of luxury items and 45 percent noted the better service overseas.

GDP growth an important drive?

As more Chinese shoppers line up to buy luxury products, Western countries are more than happy to see the rising spending power boost local sales.

Five years have passed since the Great Financial Crisis, but there is still no sign of a full recovery. Yet China, an emerging economy that has grown rapidly in recent years, is bringing about many opportunities for countries in financial difficulty.

In 2011, China's GDP grew at a robust 9.2 percent to 47.16 trillion yuan (US$7.48 trillion), according to the National Bureau of Statistics (NBS) last month. Later, as provincial governments released their GDP growth data for 2011, figures showed that the GDP of some provinces had nearly reached that of wealthy countries.

According to the annual economic reports of local governments, more than 20 provinces reported GDP figures in excess of 1 trillion yuan (US$158.7 billion).

For example, the GDP of east China's Jiangsu Province grew 9.2 percent to 4.8 trillion yuan (US$761.8 billion) in 2011; Shandong's GDP came in at 4.5 trillion yuan (US$714.1 billion); while Zhejiang Province reported a GDP increase of 9 percent to 3.2 trillion yuan (US$507.8 billion).

Moreover, the per capita GDP of Shanghai, Beijing and Hangzhou surpassed 80,000 yuan (US$12,700), which implies that the cities have approached the level of wealthy countries according to standards set by the World Bank in 2010.

Mei Xinyu, from the International Trade and Economic Cooperation Research affiliated with the Ministry of Commerce, said this will be a general trend in China, and that cities such as Guangzhou and Shenzhen will eventually join the wealthy.

Under such circumstances, leading brokerage and investment group CLSA has forecast that China will become the world's largest market for high-end goods in five years, given rising incomes and supportive social factors.

Rational view needed

Per capita GDP is only a series of headline numbers, however, which cannot reflect the genuine incomes of residents. Last year, the per capita disposable income of Beijing was 32,900 yuan, only one-third of the city's GDP per capita. With inflation taken into consideration, Beijing is still a long way from the standard of cities in wealthy countries.

In addition, per capita GDP is mostly determined by permanent residents. In south China's Guangdong Province, for example, the GDP increased by 49.8 percent in the past four years, reaching over 5 trillion yuan (US$793.5 billion), but the growth of the population of its permanent residents was only 8.8 percent in the same period. If we calculated the conditions of migrant workers, the GDP per capita would not reflect the situation in Guangdong accurately.

Economic development should return real benefits to all residents in China, and the government should try to turn GDP into average wealth for normal people. In December 2011, at the annual three-day Central Economic Work Conference (CEWC) held in Beijing, it was announced that the country will focus on increasing the incomes of people in the low and middle brackets and boost domestic spending.