Prada and Poverty: What luxury brands tell us about China’s economy

Insights Asia, ESG

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About the Author: Soumia Arif is a student at King’s College London with a deep interest in development, social policy in the MENA region. Often consumed by wanderlust, Soumia is an avid traveller and immerses herself in different cultures.

In a luxury mall in Shanghai, leather goods are displayed like ornaments, shielded behind glass cabinets, as if their high quality and even higher price tags are being preserved. The Asia Pacific region represents Prada’s biggest global market, and with a population of 1 billion and 385 million in China alone, this should come as little surprise. However, with China’s booming industrial and economic growth, how much of China’s population are in receipt of a such an affluent lifestyle?

China’s economy constitutes 16.71% of the world’s GDP, with a sum of $10.36 trillion being recorded in 2014. The country is recognised as a hub of economic growth, excelling in the realms of production and manufacturing, which has seen steady increase in the past decade. Secondary industry in China employed 30.3% of the working population as of 2012, a rise of 10% when compared to ten years prior, a figure that continues to increase. However, the sheer demand for workers has meant that sufficient numbers often are not being met, forcing factories to make changes in order to continue to attract young workers: relocating to different regions where they can maintain low wages, or improving working conditions and raising wages in coastal provinces to entice migrant workers. Wages in the primary sector have increased by a considerable 50% between 2010-13; a show of the extent that employers are willing to go to in an effort to meet China’s ever-increasing labour demands.

However, the sphere of employment encompasses much more than just manufacturing, with China boasting an impressive financial and technological industry as well as strategic trading routes and a lucrative tourist industry.  China has catapulted itself into the limelight as a global player with immense potential for expansion; potential that saw Shanghai grow in importance during the 19th Century as promise of its ports gained recognition. Shanghai now has the world’s largest and busiest container port, dominating the trading market with an impressive maximum volume capacity of 33.62 TEU. Shanghai International Port Group owns the port facility and has annual average growth of 11.92%, once again bearing testimony to the fast pace of progression and development within the country.

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Nanjing Road East is a magnetic for enthusiastic shoppers.

However not all Chinese citizens have been able to keep up with this fast pace, meaning many are left behind in conditions that are just as extreme in poverty as the top percentile’s concentration of wealth. Peking University Institute of Social Science Survey published that China’s richest 1% are in possession of a third of the national wealth, whilst the poorest 25% own a mere 1%. For this 25%, or 346.25 million people, the high security plazas that house luxury emporiums are often unexplored territory. For the less privileged, China’s 37 Prada stores, 63 Gucci boutiques and 141 Armani chains amongst the many other Louis Vuitton, Channel, Hermes, Dior and Cartier, to name a few, offer no common ground. China’s luxury market instead serves as a reminder of the stark economic disparity within the country.

The Asian Development Bank estimated that 400 million people or 30% of China’s population currently live below the poverty line. It is hard to define the cause for China’s poverty, although there are some factors that have played an undeniable part. Rural-Urban migration is substantial, with China in 2012 being categorised as having an urbanized population. However, often those left behind, usually women, children and the elderly, are left to struggle against absolute scarcity without a breadwinner, whilst those who migrate are met with high living costs, meaning that their ability to send financial provisions back to their rural family is also jeopardized. The poverty gap is widened by inequality in education, both in regards to standards and accessibility. Where the one-child policy is enforced, this means that families with more than one child will only have one child eligible for education. Whilst even basic services, such as healthcare still experience an extreme disparity between urban and rural.

One of the consequences of China’s poverty is the high numbers of child abandonment. In recent years stories of newly born babies being rescued after being flushed down the toilet have made headlines. In 2014, Chinese authorities were forced to close a baby hatch in Guangzhou, where parents would abandon unwanted babies, after a dramatic increase in numbers meant the facility was no longer sustainable. Since it had opened in January 2014 it had received a shocking 262 unwanted babies. In another case, an orphanage in eastern China was refuge for 106 unwanted babies in its first 11 days since opening. UNICEF have published estimate statistics regarding the number of orphans in China, however it is assumed that the reality could be much greater when considering informal abandonment which is often unaccounted for.

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A more affordable range of (recycled) Prada

These social and human issues have meant that China now has an economy of two polar opposites. However, constant economic change in the country has impacted sales and profits of designer labels over the past year. Prada has seen a slumping of sales in their most important global market, with profits almost halving in the three-month period between March-May 2015. Away from Mainland China, Hong Kong sales of the luxury brand also fell to the lowest in 2014; all adding to Prada’s 28% fall in net profits during the last financial year. There has even been talk of developing lines at different budgets, with more bags to be priced between €1000-€1200, in an attempt to reignite sales for the brand.

What China’s economic profile and its citizen’s shopping habits really tell us is far more profound than simply what leather is most sought after or what brand is most popular. The ongoing emergence of China’s economy, which has adopted its many billion and millionaires as ‘poster girls’, in fact masks a disparity not only in wealth but also in education, employment, and accessibility to basic necessities; let alone luxury items. In conclusion, China is indeed becoming richer but also far more unequal.