Luxury to Boom in China

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China, one of the world?s budding superpowers has considered lowering tariffs on some luxury goods as reported by an official.

A move like this could result in large amounts of imports flooding into China.

The Chinese government is facing some stiff political resistance and dissatisfaction from a society that is concerned with its widening wealth gap between the rich and poor.

Rumors of the planned cut on duties were further confirmed on Tuesday by the state-owned?China Daily newspaper that quoted a representative for China’s Ministry of Commerce, Yao Jian, as saying that his and other key ministries plan to propose cuts in tariffs on imported luxury goods to China’s cabinet.

The reductions are just “a matter of time,” the paper quoted Mr. Yao as saying, without adding details. His comments reminded many, of the remarks he had made at a news conference earlier this month

However, reports on lowering the tariffs cannot be fully confirmed as agencies, including, the influential and powerful Ministry of Finance have not yet released word on the planned cuts. Ministry of Finance, including The Commerce Ministry refused to reply to requests for comment on Tuesday.

Luxury Market

According to the investment research group CLSA Asia Pacific Markets, China is the world?s fastest-growing luxury market and is set to become the world?s largest by 2020.

Examining the statistics, it is clear that a reduction in tariffs on imports of luxury goods could mean a bright future for luxury good companies.

Although it is unclear, as to which products will be affected by the change and by how much these tariffs will be cut.

The rumoured decision to cut tariffs on imports of luxury goods could be because more than 50% of luxury purchases made by Chinese shoppers in 2010 were made overseas, according to consulting firm Bain & Co. So, in order to encourage domestic consumption rather than risk its people buying from places like Hong Kong, China may try to lower import tariffs on luxury products to boost their demand domestically.

Widening Gap

However, many parties may disapprove of the new proposed move; as this would contribute to China?s fast widening wealth gap.

Reducing tarrifs on luxury goods would be an unwise political decision as many government officials, particularly at the Finance Ministry would likely oppose such a move, given concerns about already growing fiscal constraints.

In addition, these tariff cuts would benefit only a handful of wealthy consumers who can actually afford to buy these luxury goods and would contradict Chinese leadership?s emphasis in recent years on trying to bridge a widening wealth gap.

According to a report posted on in 2010, researchers told the China Daily they felt the wealth gap would keep growing. “I am afraid the income gap will continue to expand as the country focuses its efforts on urban sprawl, rather than rural development,” said Song Hongyuan, the director of the Research Centre for the Rural Economy in the Ministry of Agriculture.

This belief, could further be confirmed by, Wen Jiabao, the Chinese prime minister, who was quoted saying that it was “unfair if a society’s wealth is only in the hands of a few people.” He added, “In that case, the society is doomed to instability.”

The future of tariff cuts remains vague; it is not fit to say what actions may be taken in response to potential reports. The effect of a? cut in duties on luxury goods can be beneficial for the wealthier part of society, but can only widen the wealth gap between the rich and poor, to say the very least.



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