Independent review

	THE GUARDIAN

China's new consumers get a taste for luxury goods

A sales boom is attracting foreign manufacturers to a market expected to grow to $3.7 trillion in 10 years

Jonathan Watts in the Salon de Chocolat in Beijing
Saturday June 18, 2005

Guardian

Yang Jing, a pastry chef with a sweet tooth, grins as he pops into his mouth one of his most sumptuous creations: a ball of luxury French chocolate, mixed with cream, vodka and ginger and decorated with flakes of real gold.

The 32-year-old could hardly have imagined such luxury while he was growing up in a Beijing of ration coupons and food kiosks. Yang had to wait until he was eight - just after China opened up its economy - to get his first taste of chocolate.

Now his corpulent figure is hard to equate with the scrawny boy he once was, a transformation that embodies the remarkable consumption habits of the world's most populous nation.

From luxury confectionery and designer clothes to imported beers and expensive cars, Chinese shoppers are buying as they have never bought before.

Sales at restaurants and retail outlets are growing even faster than the spectacular 9% annual expansion of the economy. In the past six years, 400 giant shopping centres, many more than double the size of anything in Britain, have opened throughout the country.

China has overtaken the US in sales of televisions and mobile phones. In the next few years, it will become the biggest market for computers. And a double digit rise in urban incomes has drawn Cartier, Prada and Armani to expand here faster than anywhere else in the world.

The rise in consumption has alarmed dieticians, who say that obesity rates have doubled in 10 years, and environmentalists, who say the planet will be doomed if China's 1.3bn population starts to eat and shop like Americans or Europeans.

But foreign retailers are queueing up to influence the tastes of a still embryonic market. The latest group of proselytisers was a party of luxury chocolate makers from France, Switzerland and Russia, who participated alongside Yang at China's first international chocolate fair.

In the resplendent setting of Beijing's Hyatt hotel, they sought to grab the attention of consumers with a chocolate fashion show, featuring models draped in confectionery, and a row of stalls offering free samples of delicacies that normally sell for £30 to £60 a kilo.

"China is the future of civilisation," said Sylvie Douce, producer of the Salon de Chocolat, which has held annual events in France, the US and Japan since it started 11 years ago.

"In Japan, when we first arrived, they didn't eat much chocolate, but now everyone does. It will be the same here. I want to be here right at the start."

The task of persuading China that it should be sweeter as well as richer has just started. The average consumer eats a kilo (2.2lbs) of confectionery a year - a tenth of the average for developed countries. China's $4.3bn sweet market is dominated by cheap products made by domestic manufacturers such as White Rabbit Creamy Candy Factory and foreign giants such as Mars.

But with sales of chocolate forecast to triple between 1998 and 2008, foreign firms are keen to be the first to control lucrative niches.

Two months ago, Jeff de Bruges, a French luxury chocolate retailer that has 250 outlets worldwide, made its first venture into Asia by opening a shop in Shanghai with a local partner. The manager, Philippe Jamba, said it was a test venture in a market that is still more about potential than current sales.

"We have to tell people what chocolate is about. It is a huge education process."

There is no shortage of willing foreign teachers. Last November, almost 70% of the exhibitors at China's first sweet fair were from foreign companies.

Executives from the world's best known clothing and accessory companies are acutely aware of the potential. "China is certainly the most prominent and most important market we have in front of us," Paolo Fontanelli, chief financial officer for Giorgio Armani, told delegates at a luxury brand conference in Shanghai.

By 2008, his company will more than double its number of outlets in China to 30. Prada expects to have 20 by the end of this year. Cartier has opened seven in the past six months.

Poverty gap

With hundreds of millions of peasants still below the poverty line, China is an unbalanced market. But analysts believe the only way is up. Merrill Lynch estimates that only 30 million people - 2% of the population - can afford luxury goods, but by 2009, China will account for 20% of the world market in such high-end products.

Credit Suisse First Boston forecasts that spending by Chinese consumers will quintuple in the next 10 years to $3.7 trillion (£2.03 trillion) - an increase of 18% a year - compared with 1-3% in mature markets like Japan, the US and Europe.

By 2015, the bank predicts, "Chinese consumers will likely have displaced US consumers as the primary engine of global economic growth."

The government seems keen to encourage the trend, which will help to offset China's huge and politically sensitive trade surplus. After the announcement of a 13% rise in retail sales and a 20% rise in restaurant revenues last month, the central bank governor, Zhou Xiaochuan, said he was happy that Chinese people are spending more because their savings rate - currently 38% of incomes - was "pretty high". It is actually among the highest in the world, far above the US, which has near zero rates of saving.

At the Salon de Chocolat, there were plenty of volunteers willing to splash out.

Liu Ying, 26, a trading company employee, said her income had risen more than 50% in the past few years to 15,000 renminbi (about £1,000) a month. She has used the extra cash to buy a £170 Gucci watch, a £200 Coach bag from Hong Kong, and a £120 necklace from Folli Follie.

Her consumption of international brands is a long way from the values that her parents' generation grew up with during the cultural revolution. But she said they had accepted the change as easily as she had.

"My parents' lives were quite tough, but they are very open-minded," said Liu as she nibbled on a wafer-thin chocolate slice. "As long as I can afford to pay, they don't mind what I buy."