The "secret" behind German and other luxury brands´ extraordinary export success in China?
The other side of the coinCommentary 1:
China’s consumption of luxury goods is on the rise, amounting to $10.7 billion or 25 percent of the global luxury market.
Wang Ning, a professor of sociology at Sun Yat-Sen University in Guangdong Province told Sound of Hope Radio that he sees China’s luxury consumption as part of a black market, because the sources of the income used for such purchases are not transparent and do not come from legal sources.
“In the Chinese power cycle, one’s authority is evaluated by the gifts one receives,” the sociologist Wang told Guangzhou Daily. “Louis Vuitton is the most recognizable luxury brand in China and thus becomes the symbol of authority.”
In China, if one wants to climb the corporate ladder, one must kowtow to one’s supervisor. If one wants to do business, one must have support from state officials. Businesses bribing state officials and businesses conspiring with officials have become very common.
East China Normal University law professor Dai Keting told Oriental Outlook magazine that corrupt officials are not only the end consumers but also the driving force of luxury goods consumption in China.
In recent years, many reports about corrupt officials have listed the luxury brands they have received as bribes. A reporter from Legal Evening News did a survey of 100 local bribery cases between 2005 and 2007 and found that small luxury goods, followed by cars and houses, are among the most popular bribes.
In 2008, the former Director of Fushun City’s Land Planning Bureau Jiang Runli was charged with corruption. It was discovered that 55-year-old Jiang owned six different pieces of real estate, 253 different luxury handbags, 1,246 items of designer clothing, over 600 pieces of jewelry, and 48 luxury watches.
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Rich Chinese buy cars for cash and want to have all the luxury goods that they can get. Therefore, China is now the third largest market for e.g. Daimler – a company which is included in more of Danske Invest’s European portfolios.
When the Chinese who can afford expensive cars are buying a new Mercedes, they to not hold back. They want the luxury version with the largest motor together with all the extra equipment that they can get – and when it comes to that, they are different from the more “modest” car buyers in Europe and the USA.
Within a very short period of time, China has become the third largest market for German car producers. And the most profitable market. This is so precisely because the cars are sold in the most expensive versions here.
“Both Mercedes and BMW are experiencing increasing sales in China. During the first half of 2011, the Chinese have bought approx. 50% more Mercedes cars than during the first half year 2010," says Asger Lund Nielsen from Danske Capital. He is providing investment advice for Danske Invest on European car stocks. In his view, China will become an even larger market for e.g. Daimler - who stands behind the Mercedes-brand - in step with the increasing number of wealthy Chinese.
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China´s luxury consumtion - "part of a black market, because the sources of the income used for such purchases are not transparent and do not come from legal sources" - seems to be a main driver of the German export "miracle". At the same time China is flooding the West with Christmas decorations, toys and other products made in slave labour camps.
Not a very pleasant development.