What Lets the Millennials of China Make Such Expensive Purchases?
Chinese millennials are known to be big spenders, and will not hesitate to make big purchases without blinking. Compared to their Western counterparts, millennials in China don’t have as much of a financial burden to bear, thanks to a more family oriented culture, whereby wealth from one generation would be passed to another. In the West, this is contrasted by the global financial crisis, mountains of student debt and rising income inequality. Without the burden of student loans and mortgages, Chinese millennials ultimately have more disposable income to spend on luxury products.
- According to Forbes, 90% of families in China own their homes, with 80% being owned outright without mortgages or other loans, placing China at the very top in the world in regards to home ownership. This impacts their ability to provide large sums of wealth to their next-of-kin.
- In a study of 318 million Chinese millennials by Chinaskinny, it was shown that two-thirds belonged to the “high income bracket”. Taking into consideration that this research included youths aged as low as 15 up to the age of 29, makes this finding astounding as it immediately puts into perspective how huge of an affluent demographic, that businesses are able to target.
- In the same study, to enforce the idea of a more family oriented culture, the study found that 90% of the 318 million believe tht family tradition is still important, and 88% being openly proud of national traditions and cultures.
What Can Businesses Take Away From This:
With little to no mortgages and other loans, parents in China are more capable of providing large sums of wealth to their children. This is further replicated in the next generation and so on, as students will likewise be free from student loans and mortgages until they move out, which by then, they will have not only their parents wealth but also their own personal earned money to pay off debts such as mortgages immediately.
Rich Chinese vs Rich Americans, how their spending is different
There are over 6 million ‘High Net Worth Individuals’ (HNWI, people with over a million USD in assets) spread across China and America, with China catching up to America’s 5 million+, now with over a million of their own. How they spend their wealth however, differs quite a lot. The Chinese are less reserved about their luxury spending compared to Americans, and are gradually becoming more globalised. Unlike American HNWIs, the Chinese are far more likely to prefer purchasing luxury products online and are more likely to buy luxury items from the grey market. In terms of domestic spending however, American HNWIs have a far higher level of contribution to their country’s personal luxury goods consumption.
- Chinese HNWIs contributed 12% of sales for domestic Chinese personal luxury goods consumption, while American HNWIs contributed to 24% of domestic sales.
- The Chinese are spending more and becoming more globalised in their spending choices, following the political and cultural opening of the PRC economy, contributing 32% to global personal luxury goods sales in 2017 — a figure risen from a small 3% in 2007. Though Americans contributed 34% in 2007, they only accounted for 25% last year.
- There is a gaping 41% difference between Chinese HNWIs (86%), and American HNWIs (45%), in terms of future aspiration to buying luxury items, which showcases the extent of the differences between the appetite of consumers in these two markets.
- At this rate, it will be a likely fact that China will take the number 1 spot in the global economy in terms of Purchasing Power Parity by 2030, with the US which will move down to the number 2 spot.
What Can Businesses Take Away From This:
Chinese HNWIs are a vastly more suitable target for brands to target as they are both more willing and capable of shelling out large amounts of money for purchases. A majority of American HNWIs have no future aspiration for luxury purchases, meaning that targeting this segment of the HNWI market will be significantly more inferior than targeting the Chinese, of which 86% of them are more interested in future luxury purchases.