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Dec 11, 2011
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Luxury spending soars in China's smaller cities

Dec 11, 2011

CHENGDU - Flashing bright green contact lenses and fake eyelashes, Li Xingyi struts through a shopping centre in southwest China clutching a Louis Vuitton bag and wearing a red fur coat.

The 25-year-old entrepreneur is one of a growing number of Chinese living outside the booming metropolises of Beijing and Shanghai who can afford to splash out on expensive designer brands and luxury products.

"I liked it, I could afford it, so I just bought it," Li told AFP, pointing to her Louis Vuitton monogram handbag, which she bought in the southwestern city of Chengdu for 17,000 yuan (about $2,600).

China is forecast to be the world's top buyer of luxury goods such as handbags, watches, shoes and clothes by 2015, and analysts say those living in smaller cities such as Chengdu in Sichuan province are driving the growth.

While most of China's 1.34 billion-strong population live in rural areas, a growing number of people are moving to the cities where many have benefited financially from soaring property prices and rapid economic growth.

The world's second largest economy had a total of 146 US dollar billionaires this year -- up 14 percent from 2010, and second only to the United States, which has 413, Forbes magazine said in September.

Li, who is married and has a son, said she spends about 20,000 yuan a month -- about a fifth of her monthly income -- on luxury brands in a country where the average disposable income for urban dwellers is 1,592 yuan.

"I got to know many brands when I was studying abroad," Li said, adding that her favourite label Miu Miu of the Italian fashion house Prada had not yet opened in Chengdu -- a city better known for its pandas and spicy cuisine than top designers.

"The best is what suits me."

Chinese shoppers are expected to spend $15.6 billion on luxury products this year, up 20 percent from last year, said Shaun Rein, managing director of China Market Research Group in Shanghai.

But only 40 percent of the purchases are made in China.

Many shoppers in Beijing and Shanghai prefer to travel to Hong Kong or Europe for their top labels to avoid a mainland sales tax of up to 17 percent, consumption tax of as much as 56 percent as well as hefty import duties.

Rein said consumers in second and third-tier cities tended to travel abroad less often and so made their purchases in China.

"Purchasing power is moving from first-tier to second-tier cities," he told AFP, adding that the Chinese luxury market was expected to grow a further 20 percent in 2012.

"People don't know where to put their money so things are really going very high-end right now," he added, referring to government restrictions in some cities on car and property purchases, which are aimed at curbing chronic traffic congestion and inflation.

But the growing ranks of big spenders living in China's smaller cities are not just after fancy clothes, shoes and cosmetics.

Luxury carmaker Bentley Motors has 18 dealerships in China -- most in second-tier cities -- and plans to open another two by the end of 2011, said Bentley spokesman Robin Peel.

China is Bentley's biggest market after the United States, with sales in the the first nine months of 2011 hitting 1,103 units, up 83.5 percent from the 601 units sold in the same period last year.

"We see good growth opportunities in tier-two cities," Peel told AFP.

The Jaguar Land Rover outlet in Chengdu sold more than 1,100 vehicles in 2010, despite price tags as high as two million yuan.

"People are earning more and more and once they have more money they want to display their success," said Aaron Fischer, regional head of consumer research for CLSA Asia-Pacific Markets in Hong Kong.

While luxury companies were eager to open outlets in smaller cities to cash in on this ballooning wealth, their expansion plans were hampered by the lack of real estate befitting their brand, Fischer told AFP.

"They can't open anywhere because there needs to be a reasonably good shopping centre," he said.

"These European brands can't go from 10 stores in China to 150 stores in a year. They spend a lot of time identifying the right location."

Protecting their labels from counterfeiters is another challenge facing luxury companies operating in a country where piracy is rampant and laws blatantly ignored.

Inside an upmarket hotel in Chengdu, a clothing store called "Amornini" uses a bird logo closely resembling that of Italian fashion house Giorgio Armani.

At a nearby shopping mall populated by real designer brands such as Prada, Louis Vuitton, Ermenegildo Zegna, Dior and Burberry, a woman surnamed Luo told AFP she preferred luxury labels because they were made to last.

"The top brands are really good in terms of the quality, the material and the style," Luo, 33, told AFP.

"And they will not go out of fashion," she added, showing off a silver Versace handbag costing more than 10,000 yuan and furry lace-up boots worth "several thousand yuan".

by Allison Jackson

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