China to account for 25% of global luxury goods market by 2025

02 March 2023 Consultancy.asia 3 min. read
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China’s luxury goods market is back to booming times, according to a new report by PwC. Set to hit 816 billion yuan ($112 billion) by 2025, China will by then account for a staggering quarter of the global industry.

While President Xi Jinping’s administrative push to redistribute wealth in the world’s second-largest economy may have unsettled luxury market investors for a while, the market has clearly rebounded.

Following a period of lacklustre growth (and even a spell of contraction during Covid-19), PwC’s report found that Asia Pacific is driving growth in the global luxury goods market, with China at the forefront and poised to fully realise its potential.

Market Potential - CAGR will be 16 percent from 2022E-2025E

Currently valued at around 617 billion yuan, the market is predicted to add another 200 billion yuan to its total by the end of 2025, on the back of a compound annual growth rate (CAGR) of some 16%. As a result, China will see its share of the global market jump from 22% today to 25% in 2025, displacing Europe and the United States to hold the crown of world leader.

“China’s luxury market is rapidly recovering from the pandemic with greater strength, resilience and flexibility,” stated Steven Zhong, a partner at PwC in China.

The rich going luxury

According to the Big Four firm, China’s growing luxury goods market will be fueled primarily by the segment’s top audience: rich individuals with a high appetite to purchase luxury goods, also known as high net worth individuals (HNWIs) – people with financial assets of more than $1 million.

Global Luxury Market Size

Data sourced from the 2021 Wealth Report by Knight Frank reveals why: the number of HNWIs in China is forecasted to double between 2021 and 2026. This will see China surpass the United States to become the country with the largest number of HNWIs worldwide. Closer to home, China will also overtake Japan as the country with the largest number of HNWIs in Asia.

PwC’s report suggests that the growth of luxury spending in China will further be driven by factors such as the country’s expanding economy, urbanisation, increasing models of wealth creation, as well as higher interest in luxury goods among younger generations and expanding luxury penetration in so-called tier 5 cities (opening up the market for new audiences).

The significant increase in duty-free shopping, which incentivises consumers to purchase at a (perceived) ‘discount’, is another driver. In the southern province of Hainan, one such example is flourishing. In 2021, offshore duty-free shopping in Hainan contributed 49.5 billion yuan and accounted for 13% of total Chinese consumer spending on luxury goods. Between 2023 and 2026, PwC’s researchers estimate that the Hainan duty-free market will grow at a CAGR of 33%.

Luxury Market Share by Region

Revisiting previous forecasts

Despite PwC’s optimistic outlook going forward, the growth of the Chinese market however seems slower than previously anticipated, with the pandemic and geo-political tensions having introduced unanticipated pressures on the sector’s development.

In 2019, a report from Bain & Company forecasted that China would account for around 45% of the global luxury goods market by 2025. However, the projection by the global strategy consultancy could not have accounted for the impact of the Covid-19 pandemic and other black swan events that downgraded growth.