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Will teenage debt cripple the Chinese luxury market?

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What happened: Over the past decade, household debt has exploded in China. And Generation Z, famous for their love of luxury, is getting into debt faster than any previous generation.

According to the South China Morning Post, Generation Z would buy 15% of all luxury goods sold in China. Additionally, Gen Z Chinese spend around 13% of their total household income on luxury, compared to 3% in the UK and 4% in the US, according to a survey conducted by OC&C.

The survey also underlines that China ranks last among the countries surveyed for “having savings” (72% against 89% in France), which proves that the consumption habits of Chinese generation Z are different from those of their international peers.

At the same time, a 2019 HSBC survey found that the debt-to-income ratio of Chinese consumers born in the 1990s had reached 1,850 percent.

The Jing socket: Household debt has risen to 62.2% of Chinese GDP in 2020, according to the National Finance and Development Institution. But we predict that the COVID-19 pandemic will further increase that debt. Additionally, social stratification, a tough real estate market for young buyers, and the downturn in the job market have impacted Gen Z’s financial future.

Last month, the Chinese government began to tackle the debt problem by taking a more active role by curbing easy credit over fears that FinTech companies and microlenders will engage in predatory practices and put young consumers at risk.

“Some micro-lenders have targeted college campuses and conducted inductive marketing in cooperation with technology companies,” declared a joint statement published by five government agencies, including the China Banking and Insurance Regulatory Commission (CBIRC), the People’s Bank of China, and the Ministry of Public Security. “These practices have encouraged students to overconsume on Internet platforms and have made some students fall into the debt trap.”

The COVID-19 pandemic has made the luxury industry more dependent on chinese teens. But in due course, the industry could have a rude awakening.

Relying excessively on the most indebted Chinese generation is a recipe for disaster – not only because luxury brands have been forced to satisfy the whims of young consumers, but also because consumption patterns of these young people could change radically. These teenage luxury consumers still depend on their families for economic support, so their disposable income is uncertain and could be drastically reduced.

The Jing socket reports on major news and presents our editorial team’s analysis of key implications for the luxury industry. In the recurring column, we analyze everything from product drops and mergers to heated debates arising on Chinese social media.


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