After 10 years at the helm of China's Communist Party, Hu Jintao is scheduled to step down this week as the party's general secretary and hand over China's control to his designated successor, Xi Jinping.
This ceremoniously change of China's guard officially began last week as China's 18th Party Congress convened in Beijing and respectfully bid adieu to their revered leader. This meeting of Communist minds, which occurs every five years, was closely watched by 1.3 billion Chinese - and, of course, the rest of the world.
Perhaps nobody is keener on the broader implications of Hu's party message than China's growing high net worth individuals (HNWI). And the suppliers of luxury goods and services that caters to this explosive new affluent marketplace.
Last Thursday, in the course of a voluminous100-minute address to his fellow partygoers, Hu gave himself a glowing eulogy that also served as a blueprint for Xi's term in office. This formal document acknowledged almost every manner of change sweeping China from economic to social issues, as well as political and environmental concerns. Hu even hinted at the possibility of limiting China's state control in the economy.
But Hu made one thing clear: he has little interest in bold changes to the status quo. In other words, China's growing democratization of wealth will likely be less boldly embraced and the growing number of Chinese millionaires and billionaires best remain low profile in the near future, to say the least.
To be sure, China's new leadership has its hands full. Not only must Xi's regime govern a dramatically richer country, but one that is hugely more complex.
Fueled by three decades of economic growth that has hovered around ten percent per year, China's populous enjoys a much more developed nation, greater overall household income and less poverty.
Yet, the social divide between rich and poor today is staggering. Under Hu's leadership, the gap indeed narrowed an estimated13 percent, but some 135 million Chinese, or 10 percent of the country, still struggle in poverty -- living on little more than $1 per day, according to the World Bank.
Meanwhile, China has minted new millionaires by, well, the millions. At last count, there were 1.02 million local Chinese millionaires (those with assets exceeding Yuan Renminbi 10 million or $1.6 million), an increase of 6 percent compared to the previous year, according to recent Hurun Report statistics. And the latest Hurun China Rich List cited another 1,000 local Chinese billionaires (equivalent to $150 million).
As for true billionaires, China saw this elite group of individuals actually decline 2 percent last year from 150 to 147, according to a recent study by Singapore-based consultants Wealth-X. The number of U.S. billionaires, on the other hand, managed to solidify their global No. 1 ranking by climbing 5.5 percent to 480 from 455 a year ago.
Not surprisingly, as many of China's richest saw their wealth portfolios suffer amid slowing growth and weakening property markets, their insatiable taste for luxury goods has waned. For instance, after becoming the world's second-largest diamond consumer last year, buying 10% of the world's production (second to the U.S. at 38%), diamond juggernaut De Beers recently said China's annual rate of diamond consumption will drop to 10% this year after growing 20% in 2011.
Meanwhile, Daimler AG warned last week that its Mercedes-Benz division would miss its profit target this year and predicted demand will weaken next year for the company's Porsche division.
Weakening economies notwithstanding, China's 11,245 UHNWIs (those with minimum net worth of $30 million in assets, according to Wealth-X) have clearly adopted a more conspicuous approach to consumption, if for anything, due to the Communist Party's looming changing of the guard.
As any privileged Chinese knows, China's sphere of influence can swing one way or the other in an instant, and if one is not careful, you might end up on the wrong side of the equation (see Gang of Four's demise in the late 1970s and, most recently, disgraced ex-Communist party leader Bo Xilai).
So what does the future hold for suppliers of luxury brands and service providers? In the eyes of Wealth-X, the future of China's luxury retail sector should remain positive.
In fact, Wealth-X points out that despite signs of slowing, "China is expected to register double digit luxury retail sales growth compared to single digit growth figures for Europe and North America."
That explains why luxury purveyors are extending their commercial reach by expanding into second- and third-tier cities like Chengdu, Hangzhou, Tianjin, Nanjing and Wuhan in order to increase sales and combat growing brand fatigue among mature luxury consumers in tier one cities.
Also, Chinese UHNW consumers are less price-sensitive than their European counterparts, Wealth-X adds, and Chinese UHNW individuals are increasingly travelling to European cities such as Paris and London, and purchasing luxury items for up to a 40% discount while using an appreciating Chinese Yuan to their advantage.
Wealth-X notes the luxury tourism phenomenon was aided by the easing of visa requirements for Chinese tourists. Plus, the social cachet of luxury tourism further enhanced its popularity among Chinese UHNWIs. This trend may lead retailers to increase the prices of luxury products sold in Europe in order to make their luxury products more competitive in Mainland China.
These are just a couple of the findings from a recent Wealth-X special report titled, "The Global Chinese Luxury Consumer."
Overall, Chinese UHNWIs are expected to spend nearly $6 billion on luxury goods this year (excluding real estate and services), and long-term prospects for Chinese UHNW population and wealth growth remain strong.
According to the Wealth-X World Ultra Wealth Report 2012 - 2013, Asian UHNW wealth is expected to grow an average of 7.9% annually during the next five years - with China expected to contribute the bulk of this growth.
As China's urbanization push continues and its middle-class grows, Wealth-X says, its economy is expected to complete its transformation from an investment driven model to a consumption lead model. This transformation is expected to accelerate and amplify the growth in its UHNW population and luxury spending.
Of course, Xi and his new fellow Communist Chinese leaders will have a say in that matter. Especially now that China's outgoing leader, Hu, invoked the name of Communist China's founder three times in his farewell address to the Party.
Hu said the Party "must resolutely not follow Western political systems," referencing a phrase translated as "Mao Zedong Thought, a phrase not mentioned at the last party congress five years ago. According to Qian Gang, who works with the China Media Project at the University of Hong Kong, these terms shouldn't be taken lightly.
"When they mention it," Qian told the New York Times, "it matters."
It will only be a matter of time before the luxury retail sector - and China's super rich - find out what it means to them.Top 10 Chinese Cities By UHNW Population