China's 'grey economy' may help handbag sales, but it reveals dizzyingly high levels of inequality
One of the world's most famous handbags is heading east. Prada, a brand more counterfeited than sold in China, is contemplating a listing on the Hong Kong stock exchange to take advantage of the world's fastest-growing market of upwardly mobile, status seeking, brand conscious consumers.
In the declining west, large transfers of wealth towards the already rich over the last two decades have ensured that such companies still have plenty of customers in the developed economies; but for sheer numbers and future potential, Asia is impossible to beat. Earlier this year the Chinese Academy of Social Science's business blue book declared that China had passed the US to become the world's second largest market for luxury goods. China's luxury spending had reached $9.7bn, more than 27% of the global market; and on current trends, the report predicted, China will be number one within five years.
Small wonder that in April, Louis Vuitton opened two stores in Shanghai on the same day; that sales of Bentleys are booming in China; that Audi and other upmarket car companies attribute their buoyant results to growth in Asia; and that French couture houses, private jet manufacturers, peddlers of luxury yachts and other big ticket items are eyeing an Asian future. The average Asian person (and certainly the average Chinese person) may be a great deal poorer than his or her European counterpart, but the rich are very rich and there are more of them in Asia than anywhere else: their numbers are up 26% on last year to 3 million, with China alone accounting for 477,000 acknowledged millionaires. The true figure may well be much higher.
The fuzziness that surrounds economic data in China was highlighted by another recent, startling report. In his second examination of China's "grey economy" – the undeclared wealth squirrelled away by China's luckier citizens – Professor Wang Xiaolu, deputy director of the China Reform Foundation, concluded that in 2008 China's hidden cash amounted to 10 trillion yuan, equivalent to 30% of China's GDP. If he is right, it means that the disposable income of China's consumers is some 90% higher than official estimates.
That is good news for the retailers of handbags, but whether it is good news for China is a matter for debate. The publication of the business blue book triggered a series of anguished responses in the Chinese press, questioning whether this was a sign of healthy development or, more likely, of the dramatic increase in inequality that has been a striking feature of China's economic rise.
The People's Republic has gone from being one of the world's most equal to one of the world's most unequal societies, with a Gini coefficient of 0.46, well above the internationally recognised warning line of 0.4. Professor Wang's work, which might have served to correct the impression of extreme inequality, in fact did the opposite. The bulk of the grey income, he confirmed, was in the hands of the already affluent.
This matters, not only to the individuals and households affected, but also to China's leaders. They are worried about increasing social tensions as a result of inequality and corruption. They are also, since the global crisis, urgently trying to rebalance China's economy away from the export-led growth of the last 30 years, and towards increased domestic consumption.
But the Chinese consumer has proved slow to spend, partly because most Chinese people, perfectly reasonably, worry about putting their slim surpluses aside to meet educational, health and pension expenses, and partly because they do not have enough to begin with. It is not for Prada and other purveyors of luxury items to worry about that, but it is certainly causing headaches in Beijing.
Copyright Speakers Corner 2016