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Chinese Give Luxury Goods a Pass, Go on Holiday Instead

Deirdre Wang Morris|Producer and Reporter, CNBC Asia Pacific
Thursday, 16 Aug 2012 | 10:37 PM ET

While recent retail sales numbers point towards a slowdown in Chinese consumer spending, market watchers tell CNBC that's only half the story.

Chinese tourists visit the British Museum
Bruno Vincent | Getty Images
Chinese tourists visit the British Museum

Chinese are still spending, but on different things.

They may be cutting back on splurging on designer bags, high-end smartphones and haute couture, but are still going on holidays and watching movies.

For example, 25-year-old graphic designer Yewdy Wu, who lives in Shanghai, says she is holding back on buying a Louis Vuitton bag, but has just gone for two holidays with her friends. She also catches a movie in the theater once a week.

"I think it's better when you pay money for relaxation. The feeling is different. I'd rather go out and have fun," she said.

Yewdy is part of a growing class of Chinese consumers whose spending patterns and tastes are changing. They are not interested in buying products that flaunt their wealth, like designer bags and watches, but are looking to buy experiences, say experts.

Jackson Wong, Vice President at Tanrich Securities has witnessed the shift in Chinese consumption patterns in Hong Kong, a shopping hub for mainland Chinese. He says luxury brands are falling out of favor with mainland shoppers.

"Luxury brands, especially jewelry and watch brands, were growing at 20 to 30 percent for several years. Late last year, that suddenly dropped off," he said.

Wong adds that Chinese consumers are now looking for a different "happiness factor" when they shop. "When people came out of the [2008-2009] financial tsunami, they realized their money is hard-earned, not just for show. They want to enjoy it and not just spend it," he said.

Retail sales growth in China slowed to 13.1 percent year on year in July from the previous month's 13.7 percent. But a breakdown of that data reveals that one category actually saw the pace of growth increase.

Sales of recreational goods more than doubled, growing 9.5 percent from the previous month's 4.2 percent.

"Fears of retail sales slowing are far over exaggerated. Consumers are confident. Wages are still rising and they're spending more on movies and other experiences or buying overseas - and that's not factored into retail sales," Shaun Rein, Managing Director of China Market Research Group, said.

Chinese consumers are spending more on items like sports equipment and fishing gear, for example, say experts.

They are also watching more movies. China's total box office income in the first half of the year surged 42 percent year on year. It's expected to overtake Japan this year as the world's second-largest movie market as screens pop up faster in China than anywhere else, according to EntGroup, an entertainment industry consultancy in Beijing.

The travel statistics are even more impressive. The number of Chinese outbound travelers rose nearly 70 percent year on year in the first six months of the year, Xinhua reported quoting Beijing Municipal Tourism Development Committee data.

The World Tourism Organization estimates 78 million Chinese are expected to travel abroad this year, which would make China the world's biggest exporter of tourists for the first time.

According to market research firm Nielsen, consumer optimism in China's biggest cities rose to its highest level in nearly three years in the second quarter of this year. And the rural population is still the most optimistic group of shoppers in the country. They have the highest confidence level on employment prospects.

But Patrick Chovanec, Associate Professor at Tsinghua University in Beijing, says that optimism is delicate. He warns that if China's economy suffers a severe slowdown, the psychology of the Chinese consumer could change for the worse.

"The shock effect of a drop off in GDP may make people willing to spend less. It doesn't mean they can't afford to spend, but it could mean that people who are unsure of the future may not spend as much," Chovanec told CNBC.

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