Good news for luxury brands as Chinese travel abroad

Includes: CTRP, LONG
by: Ezra Marbach

Many companies are enjoying the fruits of increased Chinese travel. Boeing (ticker: BA), Airbus, Ctrip (ticker: CTRP) and eLong (ticker: LONG) - just to name a few. But with so many western luxury brands available in China, why did a recent survey indicate that Chinese spend at least twice as much on luxury commodities when touring overseas than they do at home?

Here are three reasons:

  • Prices of luxury commodities can be at least 20-30% higher in the Chinese mainland than in Hong Kong or Europe as a result of high import tariffs and consumption taxes.
  • In business circles, buying expensive gifts abroad is a common and accepted practice and is seen as a way to show respect for others. These gifts tend to be representative of the countries they
    have visited - often branded products not available in China.
  • Many luxury products are still unavailable in China.

So if more foreign countries become approved tourist destinations, the Chinese continue to enjoy greater disposable income, and The Economist Intelligence Unit's expectations are correct (the number of Chinese travelers abroad will increase from 20 million in 2003 to 49 million by 2008, 60 million by 2010 and 100 million by 2015), luxury brand companies may enjoy the fruits of Chinese travel.