HONG KONG -- China's luxury spending jumped by a fifth in 2017 as rising incomes and the spread of convenient payment technologies pushed younger shoppers toward the high end.
Mainland shoppers shelled out an estimated 142 billion yuan ($22.5 billion) for luxury goods in 2017, according to American consultancy Bain & Co., for the highest growth rate since 2011.
While growth in luxury spending in Japan and elsewhere has been linked to the wealth effect that accompanies rising stock prices, this does not seem to be the driving factor in China. Rather, it was "Chinese millennials" aged 20 to 34 who "helped accelerate luxury spending here, particularly in the last year," according to Bruno Lannes, a partner in Bain's Shanghai office.
Products aimed at women performed best of all. Cosmetics, perfume and personal care products grew 28%, while jewelry rose 27%. High-end women's clothing increased 24%. The ubiquity of smartphones has apparently made millennials more attuned to the latest fashion trends around the world, and consumption of branded goods by this age group is on the rise, creating a new consumer class that goes beyond traditionally wealthy households.
Millennials' appetite for luxury seems even to extend to major purchases. Globally, the average age of people buying Porsches is 56, according to Dong Tao, a prominent economist with Credit Suisse. In China, the average buyer is just 36, he said.
Andy Lam Wai-hung of Hong Kong asset management firm Harris Fraser attributes growth in luxury spending less to higher stock prices than to a general rise in incomes. At the same time, the spread of simple smartphone-based payment systems, such as internet giant Tencent Holdings' WeChat Pay, has helped increase millennials' spending overall.
Companies are responding to these shifting trends. Well-known brands spent 40-50% of their Chinese marketing budgets on digital marketing in 2017, according to Bain, with 30-60% of digital marketing money going to WeChat. Many brands have created dedicated accounts on the chat service to keep consumers abreast of their latest offerings.
China's luxury market took a hit around 2013, after President Xi Jinping cracked down on corruption and luxury purchases by officials. But the government has taken steps to stoke domestic consumption of late as a means of stemming capital outflows. Lower tariffs, too, have narrowed the gap between prices of luxury goods in China and elsewhere, encouraging purchases at home rather than on trips abroad as in the past.
And relatively young Chinese seem less inclined to save than their elders, having grown up during a period of rapid economic development. Nearly 40% of those born in 1990 or later reported spending their entire paychecks in a survey taken last spring. This runs counter to high overall savings rates in China. The country's pool of cash, deposits and highly liquid securities grew 8.2% between December 2016 and December 2017.
Based on this measure, China's buying power roughly doubled between the end of 2011 and the end of 2016, Credit Suisse calculates, and expanded further last year. If this power is exercised, the nation's share of global luxury purchases could rise even higher, topping last year's 32%.