China's consumer revolution

As Tony Blair makes his first official visit to Peking, Iain Robertson reports on the country's new rich

SOPHIE LIN, director of the Tian Fang Gallery, stood outside her premises just off the aptly named Bar Street in Peking and watched two men break and enter.

"It's my landlord breaking in," she said. "He owns the Sanliton paint shop next door. I gave six months' rent (80,000 renminbi or pounds 5,500) but I did it through a middle man, and he's run off with half the money I gave him. So my landlord is repossessing my art gallery."

Several hundred miles away and a week earlier, a Singapore businessman and part-owner of a department store and restaurant in Shanghai, spoke of "triple win" conditions operating in China in which the third victor was a minor official. Through bitter experience (he estimates his losses have been pounds 1.8m since his arrival in China 10 years ago), he has learnt that signing a contract with a Chinese company is merely a prelude to negotiations.

The government is making efforts to stamp out corruption, but neither the repossessing incident nor the talk of 'triple win' conditions raises many eyebrows among foreign businessmen operating on the mainland. It is seen as part of the risk of doing business in what has been referred to as "the world's largest consumer market".

But how large is the market for luxury consumer goods in China?

At a glance, in three of the country's largest and most economically buoyant cities, Chongqing, Shanghai and Peking, life seems sweet. The expensively coiffured heads of women with time on their hands incline towards mobile telephones. Sharply dressed entrepreneurs bustle into BMWs and Mercs (their wives' cars are Japanese) and plump offspring sit beside their Prada-clad mothers in plush new hotel restaurants.

A friend of Ms Lin's lives in a modern high-rise in one of the more pleasant residential areas of Peking. The flat cost about pounds 75,000. The furniture is from Ikea. Unopened Scotch bottles glisten in glass-fronted cabinets. Impressionist prints and the odd Chinese contemporary oil painting line the walls, and expensive gifts are prominently displayed on shelves.

Ms Lin explains that a typical Chinese visitor to her gallery would spend up to Rmb10,000 on an original work of art, but would ask her to select it with an eye to the interior decor.

The guru of Chinese contemporary culture, Johnson Chang, and owner of an art gallery in Hong Kong, explained that in the wake of the cultural dislocation of 30 years ago, the Chinese have lost the ability to be discriminating consumers. Now that they have been reunited with commerce, they can only see the advertising hoardings and television commercials selling the American dream.

Good news for Western business, bad news for cultural well-being.

So how is the market gearing up to meet the needs of the new urban entrepreneur in China?

The goods on sale in the swish Huaihal Rd department stores in Shanghai are indistinguishable from those sold in any up-market store anywhere in the world.

Alfred Dunhill Pacific has been active in the China market since 1993, and Gu Xiang, its marketing manager for Northern China, revealed that the company now has 30 boutiques, often operating as franchises within department stores, in 10 cities on the mainland. She explained that the attraction of Dunhill to the upwardly mobile Chinese lay in the brand's ability to convey a comfortable and established lifestyle.

Branding is the key, according to ICI's export promoter, Penny Lynch: "Dunhill has done well because its brand has achieved high recognition. In order to get the brand image across, you need to spend time and money on advertising."

Marks and Spencer will be looking to promote its internationally recognised brand name in China quite soon. Tracey Nelson, its manager for international communications, said that if it did enter into a joint venture project with a Chinese partner, it would offer the same product and service that it does to customers worldwide. Ms Gu also confirmed that tailoring products to perceived Chinese tastes did not work, and Dunhill provided the Chinese market with a quality and style that was universally recognised.

Affluent Chinese are also beginning to spend their money on holidays abroad. A senior American company executive based in Shanghai recalled on a recent trip to Phuket in Thailand that most of his fellow holiday- makers were either Russian or Chinese.

"They've got to be spending $500 a day, including the cost of a room," he concluded.

Bars are another seemingly necessary expense for the economically liberated. In Shanghai, a Maoming Rd Becks beer might cost you Rmb40 (pounds 3), and Western rock music can be heard a block away until 4am.

So how many people are sustaining the consumer revolution in China? Ms Lynch, of ICI, reckons that 53 per cent of wealth is concentrated down the Eastern coast and that the gross domestic product of Shanghai is growing at 13 per cent annually.

The reality is perhaps a little less rosy. According to the Singapore businessman, out of the 13.5 million inhabitants of Shanghai only 0.75 per cent are really in a position to buy luxury consumer goods, and perhaps 300,000 residents on a regular basis.

He went on to say that although Shanghai had acres of shopping space, the purchasing power of potential shoppers was a fraction of that of consumers in London or in Singapore.

It is undoubtedly true that fashionable Shanghai stores such as Maison Mode attract the curious rather than buyers. It is also fact that the price of bowling in one of the cities estimated 10,000 clubs has dropped from Rmb40 to Rmb3 a game.

So is there a danger that supply has outstripped demand, and that the vision of the world's greatest consumer market is an illusion?

It is a common belief that the biggest and freest spenders in China are the female acquaintances of wealthy overseas Chinese and Western businessmen.

After the economic hit taken by Asia over the last year, that particular income flow is drying up. The proceeds of real estate deals also feed the luxury goods market, but again the really major players tend to be from the Tiger economies, most of whom are feeling the pinch.

Still, it is hard to be downbeat in China these days, because it is so clear that the standard of living is improving in cities. At art auctions in Peking, ostentatious bids are made for tens of thousands of dollars, and it is for sound economic reasons that Christie's has a permanent office in Shanghai.

Shi Jiang-bang of Christie's, Shanghai, spoke of a Pudong broker who spent Rmb10m over a five-year period on works of art acquired through Christie's auctions in Hong Kong. He believed there to be another 10 big league spenders in the city.

Brian Wallace, the Australian owner of the Red Gate Gallery in Peking, believes that even a devaluation of the renminbi would be irrelevant to some of his customers.

"To them," he said "the renminbi is like monopoly money. Anyway, we quote our prices in US dollars."

Iain Robertson is a lecturer in arts policy and management at City University.