China’s newly rich are flaunting it — and giving communist rulers a headache

August 20, 2011

China’s newly rich love luxury products — imported French handbags, Italian sports cars — and even more, they love to show off their bling.

That seems to be creating headaches for China’s communist rulers, who after three decades of exhorting their subjects to get rich are facing growing discontent over a widening income gap. Officials now talk about making sure wealth is more evenly distributed, and how to get the rich to tone it down.

As the global economy deteriorates, and China tries to accelerate its shift to a more consumer-led growth model, Beijing’s leaders see luxury items as a lucrative revenue source. Many Chinese buy luxury products in Hong Kong or abroad to avoid China’s high taxes, so officials are debating a move to slash tariffs to encourage consumers to shop at home.

But the government is loath to be seen as taking any new measures to support the sliver of the population that can afford that pricey new Hermes bag or latest Ferrari, and has delayed any decision on cutting tariffs, according to Chinese media reports and industry analysts.

“The government is facing a conflict,” said Michael Ouyang, representative of the World Luxury Association in China. “They don’t want to promote luxury because they are worried people who cannot afford it will see the advertisements. But they don’t want to limit luxury products because it’s good for the economy. So they’re facing a dilemma.”

It doesn’t help the government’s case when the rich keep showing off their bling.

Exhibit A might be a 20-year-old woman calling herself “Guo Meimei Baby.”

Guo — whose name “Meimei” means “Pretty, pretty” — became a recent Internet sensation in China, and prompted a national scandal, when she posted photos of herself on her microblog posing with her collection of imported Hermes handbags and showing off her white Maserati sports car, called “little horse,” and her (married) boyfriend’s orange Lambor­ghini, called “little bull.”

The initial outrage was over suspicion that she was linked to China’s largest, government-run charity. But many here said the “Guo Meimei scandal,” as the story became known, exposed a common, and unflattering, aspect of China’s headlong rush to get rich: a tendency among China’s new super-rich to show off how much money they have.

“People like showing off their wealth,” said Yang Xu, who runs a shop called Vogue 2 that specializes in secondhand designer handbags. “The consumption of luxury products has grown too fast. It’s beyond anybody’s imagination.”

In his shop, for example, Hermes bags have become more popular than the Louis Vuitton brands for a simple reason: They are more expensive.

China’s rise in the world market

At a time when Europe and the United States are still struggling with stagnant economies, China has emerged as the premier long-term market for luxury products. Chinese bought $12 billion in luxury goods last year, according to Ministry of Commerce statistics. China will account for 20 percent of all worldwide luxury sales by 2015, according to the McKinsey and Co. management consulting firm.

Bentley has sold more cars in China this year than in Britain, with China accounting for 25 percent of its sales. Mercedes-Benz in July opened a new design studio in Beijing.

According to the World Luxury Association, the market for luxury products in China grew 20 percent last year and shows no sign of slowing. “In China, purchasing power just keeps getting stronger,” Ouyang said. “We are the only country where luxury product consumption is growing year by year.”

Experts say the phenomenon of showing off wealth is a complex one, rooted in China’s long struggles with poverty and famine and a sense that expensive possessions confer a higher social status.

“Showing off wealth shows that China’s economic development has not been long, and Chinese society’s psychology of consumption is still not mature,” said Hu Xingdou, an economics professor at the Beijing Institute of Technology. “In China, wealth is the only criteria to measure social status. People hope to show they have a higher social status by wearing luxurious brands.”

Many of those who show off tend to be the newly rich, and they are often young — the children of wealthy parents, the “rich second generation,” or young women with wealthy boyfriends or suitors. “They want other people to look up to them,” Ouyang said of the Guo Meimei phenomenon. “They want people to know that other people love them and take care of them.”

“The deeper reason for this showing-off phenomenon in China is that luxury products help your personal confidence,” Ouyang said. “If you wear designer clothes, or carry a designer shopping bag, people will give you more respect. A bartender will give you excellent service. . . . If you go shopping or to have lunch, an Hermes bag is like your ID card — it’s a really important ID card.”

Wealth and vanity, taken too far

On popular microblogging sites, many in China are openly questioning whether the country’s new creed of amassing wealth has gone too far.

For example, a professor at the prestigious Peking University was widely criticized recently after he used his personal microblog to tell his former students not to come visit him if they had failed to make at least $6 million by the time they turned 40.

Also, a millionaire in Shanxi province caused a stir and became the subject of a video that went viral after a guard at a Qing Dynasty tomb site told him that the underground tombs were closed to the public. The millionaire began throwing cash at the guard’s feet, demanding to go inside and claiming he had enough money to buy the ancient tombs.

But not all luxury consumers here are into showing it off. Zhang Yan, a 30-year-old shop assistant at a shopping mall, has several designer bags and is a particular fan of Louis Vuitton. But when she goes to work, she carries a simple Coach bag, mainly because it is more low-key.

“Some of my workmates can’t afford it,” Zhang said, “so I don’t want to show my Louis Vuitton or something to them.”

Even Guo seems to have conceded that she perhaps went too far.

In her first television interview since causing the stir, Guo, seated with her mother, told a Chinese television host that when she came to Beijing to study acting at the film academy, she became afflicted by “vanity.”

A nervous-looking Guo also admitted that only two of her Hermes handbags were real.

Researcher Liu Liu in Beijing contributed to this report.

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