Entrepreneurship and Changing Consumption Patterns of the Young Wealthy in China
Research by our co-author Weihua Huang suggests that according to the Hurun Wealth Report 2010, in China there are at least 875,000 USD millionaires, 1900 RMB billionaires (with over EUR 110 million), and 140 Chinese have made over RMB 10 billion. Many of these are comparatively young – between 25 and 30 years of age. There is a great deal of hidden wealth in the Chinese economy, with a significant number of low-key billionaires keeping their heads below the parapet – and this includes some of the youngest.The average age of China’s most wealthy inhabitants is only 39 years of age. On average, they are 15 years younger than their counterparts outside of China, and their wealth is growing more rapidly.The male to female ratio is 7:3, which is also very different from many other countries. Beijing is home to more of China’s rich than anywhere else, with 151,000 millionaires. Guangdong occupies the second position, and Shanghai is third.They made their money primarily as entrepreneurs in private business from the service, property and manufacturing sectors (in that order) and they are confident about China’s economic outlook, despite the world economic downturn and soft-landing of China’s long economic growth-spurt. These young entrepreneurs represent a privileged class of young wealthy shopaholics. How do they spend their money? The consumption habits of China’s young wealthy have been evolving and changing in recent times. They enjoy collecting luxury items and being connoisseurs… Chinese classical art, cars and watches… on average they own three cars and 4.4 luxury watches each.Travel, golf and swimming are their leisure activities of choice, and they take an average of 16 days’ holiday a year.With regard to lifestyle, swimming is the preferred hobby of Tier 1 millionaires and tea tasting for Tier 2/3. In Tier 1 Chinese millionaires prefer collecting cars and watches while in Tier 2/3 the preference is for traditional Chinese paintings. The favoured fashion brands of Chinese millionaires in Tier 1 cities are Giorgio Armani, and Gucci and Boss in Tier 2/3. Chinese millionaires identify Cartier as the most preferred jewellery brand but among Tier 1 millionaires.Bulgari is also well liked and Montblanc is popular with Tier 2/3 city millionaires. A research report from UBS AG showed that by the end of 2015, China's domestic consumption is expected to account for 15.6 percent of the world's total spending, jumping from 5.4 percent in 2011, with the result that China is becoming the world's second largest consumer market following the US.China’s middle class (also exceptionally young compared with other countries) currently accounts for roughly 23% of the whole population, to reach 40% in 2020.According to Euro-monitor International, by 2020, China’s middle class will expand to 700 million (the middle class in China is defined as households with an annual income between RMB 60,000 and RMB 500,000, divisible by around 10 to create approximations in USD, GBP and Euros). Many of these middle-class consumers are young, and are accumulating their wealth now, in real time. This paper will also consider how Western businesses are cashing-in on these trends, looking at risks and opportunities in the China market, based on another co-author’s recently published book, The BRICS and Beyond. The third co-author has added her insights from her doctoral studies on the development of Chinese multinationals and Chinese brands. Primarily, the contribution of this paper is the provision of a literature review of recent articles – primarily from the Emerald database and supplemented with material published by audit and consulting firm KPMG, blue chip consultants McKinsey and the research-based Economist Intelligence Unit. This paper is basically a summary of the literature on young, wealthy Chinese entrepreneurs and the way they spend their wealth, and what others can learn from this.
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