Luxe life in China

Mao is probably spinning in his mausoleum right now at the very idea of a "Millionaire Fair" being held in Shanghai.

Nevertheless, after Asian celebs and supermodels flocked to last spring's fledgling event, the Dutch publishing firm that sponsors these shindigs returned in June for a second three-day fair, featuring "a cornucopia of all the most beautiful and luxurious things the world has to offer." Video: 'Very bling-bling'

With every year that passes, more Chinese can afford not only the $40 daily admission price, but also the goods on display there, from swimming pools and boats to handmade shoes and pedigreed pets.

As of last year, when the fair featured a $25 million necklace and a $30 million mansion for sale, Merrill Lynch calculated that China was home to some 300,000 citizens with a net worth of more than $1 million. Last year's Forbes 400 list of the country's wealthiest citizens counted 15 billionaires, with Wong Kwong Yu, founder of Gome Appliances, at the top of the heap. Graphic: China's wealthiest

Shanghai's "Millionaire Fair" is nominally aimed at the wealthiest of Chinese citizens, already poised to turn the country into the second-largest luxury-goods market in the world (today China ranks third, behind

Japan and the U.S., and constitutes about 12% of the $50 billion market for luxury goods, according to a researcher at Goldman Sachs). But the fair's appeal is broader.

According to its promotional literature, the fair reaches out not only to the "bons vivants" and those who "actively celebrate their wealth," but also to aspiring Chinese millionaires and "anyone else who wants to be inspired by the 'Luxury Lifestyle.'" Slide show: Millionaire fair

And even with average annual income for a household in Shanghai at just $3,500, there are plenty of people who want to be inspired. Map: Disposable income by region

"A large percentage of consumption decisions here are driven by the wish to display your status or your family's status to your peers," says David Tang, a partner at law firm K&L Gates who divides his time between China and Seattle. "People pay attention to what is new, stylish, in demand, and seek to replicate it as best they can to demonstrate that they are in the know."

That may explain why Starbucks, a coffee retailer,

is succeeding on a grand scale in a country known for preferring tea to coffee. In China, Starbucks has become a desirable destination -- so being seen at Starbucks signals one's sophistication to fellow urban residents.

"The golden rule of marketing in China is you have to dramatize public display or public consumption," says Tom Doctoroff, head of greater China for the ad agency JWT. "The explosion of luxury products relative to income in China is due largely to status." Video: Luxury home décor

Starbucks, Häagen-Dazs and even soap and detergent can be positioned as status products, Doctoroff argues. He sees that potential in "any product that helps someone move up within a social hierarchy."

"In China, egos and ambitions are huge, and many people are willing to invest a lot of money in 'badge value,' " Doctoroff says.

So consumers may never spend lavishly on designer bed linens, for instance, but they replace their cell phones at a rate that seems almost irrational to Fang Xiaoguang, part of Gallup China's research team.

China's young consumers tend to upgrade their cell

every three to six months, he says, seeking the latest functionality, colors and ring tones.

"If you look at the price tag, you'd say, this is expensive, spending perhaps 5,000 renminbi (yuan)" -- roughly $650 -- "to replace a phone when they earn maybe 10,000 a month," he says. Video: Cell-phone fashion statements

But with family size limited by China's one-child policy, Fang explains, these only children often have few financial obligations. In order to maintain their status, "they just go to the best." Chart: Cell phone ownership growth

The younger they are, the greater their willingness to spend lavishly on such visible items, he says. They may not be able to afford a new apartment, "but when they spend on luxury goods, they behave as if they were millionaires. Many of the girls, if they can't afford a fur coat, they certainly can afford a 10,000 yuan French bag, and they will buy it."

The emphasis on status has produced an explosion of fancy country clubs. Tony Zhang, head of the Asia-America Chamber of Commerce and a Boston banker, returned to visit his brother in Beijing last summer and played golf with him several times at the brother's new club.

"Each player is assigned not one, but two caddies, both young women of 21 or so," Zhang recalls in amazement. "One would go and find the ball if you hit it into the trees; the other would give you instruction on the shape of the golf course. The owner was using this two-caddy feature as a way to distinguish his club from all the others -- and to give his members extra status."

Status consciousness pervades Chinese society. It has created demand for many products new to China, from vitamins to designer shampoo to vintage wines.

"You show the girl in a French chateau, with long hair," says Hung Huang, a media mogul and publisher of iLook, one of China's top-tier fashion magazines. "Then she washes her hair, dries it, kind of swivels her head around to show it off and the (fireworks) happen and her foreign boyfriend shows up. That's why we're all gong to buy this shampoo, according to the creative advertising agencies."

"Anything that tells someone they are going to be envied and admired by their peers is going to have an appeal," Doctoroff says. Video: What are the must-haves?

Pet dogs are among the new high-status "accessories." Some 530,000 are now registered in

Beijing alone -- leading stores like Wal-Mart to double or triple the amount of shelf space they devote to pet food.

"Having a dog is a sign that you can afford luxury goods," says Shawn Gray, vice president of operations at Wal-Mart China.

One of the latest trends to hit China is consumption wine -- grape wine, that is, rather than the traditional sweet rice wine produced locally for centuries. SH, a Shanghai lifestyle magazine, reported last December on one of the city's first tastings of vintages from Chinese vineyards. Video: Tasting Chinese chardonnay

"The industry still has a long way to go before restaurants can have a Chinese section on their wine lists," an SH columnist concluded. But the consumption of grape wine is growing at about 7% annually in China, while global demand remains relatively flat.

"It suddenly got a lot of interest in the mid-1990s when there was publicity about the health benefits of drinking wine, especially red wine," says JC Liu, manager of Dynasty Fine Wines, whose vineyards in Tianjin and elsewhere in central China produce about 100,000 bottles of wine a year. "Now it has also become a very trendy thing, particularly among the

very young. It looks very sophisticated, and shows you have adopted the best part of a Western lifestyle." Chart: Chinese stocks to watch

Produced by Anh Ly
Graphics by Joe Farro and Hakan Isik

Published June 29, 2007