China is one of the most populated countries in the world with a population of more than one billion people. It is for this reason that a lot of investors have developed interest to invest in china. The purpose of establishing any business is for a goal of making profits and this can either be a long term goal or a short term goal depending with the type of business and the environment it is established in (Pan, 2008). Consumer behavior in china is determined by the social classes of that different potential consumers belong to.
A recent survey conducted in China indicated an increase in the gap between the rich and the poor. During the survey more than 900 wealthy Chinese with personal assets of more than $ 1.5 million, were interviewed. More than 80 percent of them responded that the gap between the poor and the rich was too wide in the country (Medeiros, 2007). Those interviewed defined upper class in various ways. There are those who thought that the upper class included the Chinese of the Yuppies group while others were for the point it includes those Chinese who have luxurious lifestyles.
China’s widening gap between the upper class and the lower class is considered one of the major social problems in the country. It is worth knowing that China has emerged to be among the word’s fastest growing economy (Pan, 2008). This has contributed greatly in the widening of the gap between the wealthy and the poor Chinese. Disparity in incomes is evident in the rich families where the income is more than 18 times higher than in the poorest families.
By the end of 2007, China had around 500,000 wealthy people and this was a 20.5 increase from the previous year. The average wealth of the rich in China is around $5 million. According to Li, the upper class in China is not all about being wealthy, but wealth is jus one of the requirements among others. For one to be considered to belong to upper class there must be a combination of social status, wealth, and power (Medeiros, 2007). Most of the upper class people are business tycoons who have been able to achieve their status through heavy investment in business. The social differentiation in China is inevitable as long as the rise in economic development continues to exist. If the economic growth is taken positively it can be a stimulus for social development so long as everyone is given equal chances for accessing wealth.
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Many Chinese are so much interested in buying of assets because they consider it the only valuable way of storing the Yuan. This has been demonstrated due to the rising numbers of Chinese who are willing to invest even in the overseas markets. When a United States online real estate brokerage firm organized an auction, it received so many online investors from China until it had to turn away more than 500 Chinese who were interested (Chan, 2007). In Shanghai, the mega- rich Chinese companies are investing in the high-yield bonds that are issued by American companies at a time when most investors around the world are avoiding investing in bonds due to the risks involved. Some of the money that companies are earning from such international businesses is finding its way into the Chinese economy and especially money from exports.
Consumer behaviors are determined by the level of income as well as the social status of individuals. In Hong for instance, wealthy people are showing up in jewelry shops seeking to purchase diamonds. According to the marketing manager of King Fook jewelry chain store, more people are buying the five- carat diamond rings and six- carats diamond earrings. These trends represent a tremendous shift in consumer behavior with even more Chinese citizens sending money outside the country and hence slowing down the rates of new investments in the country. Foreign investors are also pulling some of their money due to the slowing down of the investment rate in China.
The movement of money outside China has been a major concern because they could be doing so due to fear of instability. More than 20 million migrant workers lost their jobs and this could contribute greatly in the creation of a class of unemployed people (Chan, 2007). The cause of the rampant employment is the slowdown in economic investments. What results from unemployment is consumer behavior that is characterized by minimum spending that is only directed to the basic needs.
The Chinese government has seen the need to prevent China’s currency, the Yuan from rising and losing value. This has being done through the purchase of all the dollars that are getting into the country and then accumulating them in the foreign exchange reserves. Currently China is believed to have more foreign exchange reserves than Russia, Saudi Arabia and Japan combined. To pay for the dollars more Yuan have been printed and the dollars are invested in the American securities such as bonds.
One reason that jewelries in Hong Kong are popular with consumers is because the stores there do not charge the high luxury taxes that are charged in the mainland. The Honk Kong stores have also built their reputation because they are not known to sell counterfeits. The Hong government however, reported a 9.7% decrease in the retail sales of jewelry and watches in December 2007. This could be an indication of a decrease in demand caused by the slow down of the Hong Kong economy. Hong Kong residents have also been reducing the rates of buying gold bars while many mainlanders have not been willing to flout the gold importation regulations by buying gold bars.
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Chinese consumers have also been investing their money in outside markets with the hope that there could be better bargains due to the financial constraints that Western countries are facing. The drop in the real estate prices in United States has attracted many Chinese people to rush there for investments.
China is considered to be second country in the world with the highest number of billionaires behind United States. The number of Chinese tycoons with more than billion dollars in assets was 147 in 2007 compared to 87 in the previous year. According to latest statistics, there are more than 19, 000 people in China with personal wealth of more than 15 million US dollars each. Out of the total population in China, 3.5% are millionaires (Medeiros, 2007). All this is attributed to the high interest china has in the real estate industry both inside and outside China.
Beijing is boasts of having the highest number of wealthiest individuals in China, even ahead of Shanghai. Latest studies also indicate that Beijing is the most expensive city for expatriates to stay in. The richest individuals continue being richer with Zong Qinghou considered to be the richest individual with a personal wealth of US$ 12 billion. With this trend the consumer spending patterns will continue changing and this might attract even more investors into the Chinese market since there is assurance of their products being consumed.
China’s growth in the luxury market is around 32% annually making it the highest in the world. According to the World Luxury Association, China’s expenses in luxury such as jewelry, clothes, leather products and perfumes was around US$8.1 billion dollars in 2007. This cost did not include private jets and yacht. In luxury expenses dresses take up to 33% of the total cost, cosmetics and perfumes 22%, jewelry and watches 21%, accessories and ornaments 18%, households 6% (Medeiros, 2007). The statistics provided by the General Administration of Customs in China, the top six most popular international clothing brands as per their sales revenue in the Chinese market are Gucci, Dior, Versace, Prada, Fendi, and LV.