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China's rising middle class to keep global luxury goods growing at 10%

Source:   Time:

BEIJING, May 9 (Xinhuanet) -- Millions of consumers entering the middle class in China will help to hold the pace of growth in global luxury goods at 10% annually for the next four years despite a slowing economy, a well-regarded industry report said yesterday.

After an "incredible" 2011 during which the global luxury goods market grew 14%, the boom in emerging markets may boost the value of the market to 261 billion euros (US$340 billion) by 2014, CLSA said in Dipped in Gold, its annual report on the industry.

Jewelry companies enjoyed the strongest sales growth last year, with Hong Kong's Chow Tai Fook seeing an exuberant 79% rise in sales between April and September, compared with the previous year, driven by consumers on China's mainland, the report found.

Despite recent signs of a slowdown in luxury goods companies' first quarter results, the global market will expand by 10% this year to 216 billion euros, CLSA found. Across China as a whole demand will rise by 24% this year, a slowdown from 39% last year.

The power of the middle class in emerging markets means that by 2020 these countries may account for 73% of all luxury goods purchases, CLSA said. By 2015 the BRIC nations - Brazil, Russia, India and China - will be home to 1 billion middle class consumers, a rise of 378 million people in five years. China's middle class will account for 45% of its population by 2015, up from 27% in 2010.

"We can see that luxury goods market growth has become more correlated to emerging-market growth," author Aaron Fischer wrote in the report. "Consumers in these countries today account for around half of global luxury-goods sales."

Despite the rapid pace of growth, vast swathes of China remain untapped by the luxury brands.

In the mainland market 15 billion euros was spent on luxury goods last year, representing only at 4.6% of total consumer expenditure on clothing, cosmetics, jewelry and travel goods. This compares with more developed economies such as Singapore and Hong Kong, where luxury spending made up 27% and 22% of consumers' spending respectively.

In a country where luxury goods import taxes already mean prices are between 30% and 70% higher than elsewhere, companies raise the cost of goods by an estimated 5% to 10% year on year, CLSA found.

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