Thu, May 15, 2014 - Page 9 News List

Western companies want to tap wealth of Chinese middle class

Attitudes are changing in China, but the hopes of Western exporters are pinned on a burgeoning middle class spending big on Western brands

By Angela Monaghan and Jonathan Kaiman  /  The Observer

Illustration: Mountain People

China’s looming coronation as the world’s largest economy, years ahead of schedule, is probably not particularly surprising in one sleepy corner of Oxfordshire, southern England. About half of the international visitors who flock to Bicester retail village are Chinese nationals — making the one-hour train trip from London, or using the fleet of special coaches that head there each day — to stock up on luxury goods.

A World Bank-backed report has declared that the yuan will go further than previously thought in the hands of the Chinese consumer and that this supercharged purchasing power will push the world’s second-largest economy ahead of the US this year.

This could be the century of the Chinese consumer, now a figure of central importance for luxury goods companies, including some of the biggest retail names in Britain.

Gareth Leather, Asia economist at Capital Economics, says the UK stands to benefit substantially from the spending power of the Chinese.

“China is a huge market for luxury goods, and there are high taxes on luxury goods in China, so there is a tendency to travel abroad. The UK has missed out on this to an extent, because visa issues have meant it is not as open to Chinese tourists as other countries, but the government is looking to change that,” Leather said.

In October last year, British Chancellor of the Exchequer George Osborne announced plans to simplify visa applications for Chinese tourists visiting the UK. According to a report by Barclays, the easing of restrictions will encourage shopaholic Chinese tourists to spend £1 billion (US$1.7 billion) a year in the UK by 2017 — an 84 percent increase from last year.

Chinese buyers are brand junkies and the Bicester outlets of their favorite labels are heaving. A sprawling two-floor Burberry store is packed with Chinese visitors poring over the brand’s trademark trench coats and accessories, while the Prada branch nearby is thronged with customers too. This is not just window shopping. To judge by the masses of shopping bags bearing luxury names such as Ralph Lauren and Gucci, as well as Burberry and Prada, some serious cash is being spent.

The popularity of this outlet village among Chinese visitors has spurred owner Value Retail to open an outlet center in China itself. Suzhou Village, near Shanghai, is scheduled to open today, targeting China’s swelling middle class. The center’s 100 shops, restaurants and cafes will be within an hour’s drive of 40 million people.

For the long-term health of the Chinese economy — and of the global financial system — it is a necessary development. If Western economies such as the UK’s are to tilt back toward export-driven growth, China’s status as the world’s factory floor has to change. The West needs China to open up as a market that consumes goods rather than just makes them.

China needs to lessen its dependence on an economic model that fuels manufacturing and infrastructure growth with artificially low interest rates, as this punishes savers and has seen households take on a teetering edifice of debt.

Rob Wood, an economist at German bank Berenberg, says: “So far China’s growth has been based on strong investment growth, and you would expect that with a developing country. But China has bought a lot of machines now, and it needs domestic demand for the goods it is producing. It is going to be hard because it has relied on investment for so long, but that is the way countries move from being low-income to high- income and it is potentially important for the UK.”

This story has been viewed 2650 times.

Comments will be moderated. Keep comments relevant to the article. Remarks containing abusive and obscene language, personal attacks of any kind or promotion will be removed and the user banned. Final decision will be at the discretion of the Taipei Times.

TOP top