In China, 'Demonstration of Success' Contributes to Luxury's Rise

Three factors: One is that the price differential of buying abroad vs. in China in certain categories is decreasing. It's not as much of a bargain as it was before to go abroad and shop. The second reason is that the anti-corruption fears, which stalled growth in 2015 and 2016, seem to have somewhat abated. So 2017 actually was a continuation of a trend, not an exception to one. The third and most fundamental reason is that, on a cultural level, luxury is fundamental to the aspirations of Chinese consumers.

Luxury, no matter what demographic cohort in China you're talking about—whether it's young consumers who have limited out-of-pocket funds or the man on top of the mountain—is used as a demonstration of the ability to get ahead in the game of life or maintain one's place. And this is largely driven by Confucian culture.

Confucian culture is a combination of rules and regimentation, and [the idea] that the individual does not exist independent of his obligations and responsibilities to others. Therefore, there is a need to obey certain standards; in this case, demonstration of success. But the other part of Confucian culture that people don't usually think of is that it's a meritocratic culture. Not by rebelling but by mastering the rules, you are able to climb up the hierarchy. Luxury goods and the type of positioning that luxury goods have reflect the aspirations of what people want to project about themselves in society. So luxury is not frivolous at all.

Correct, and this is fairly unique among Chinese and Asian societies, more so than in Western societies. Of course, incomes are very limited here and people do spend more than they earn in their pre-marriage and pre-family years. A lot of this spending is on luxury goods, as well as experiences that people can share on social media to earn social currency.

Yes, the growing wealth of the middle class and its emerging affluence continues to rise. There will not be a fundamental rejection of luxury as a means of expressing one's identity. As long as the Chinese economy keeps growing and creating wealth, things will stay on the same path.