Sanya is the quintessential Chinese boomtown. On the overcrowded streets of this southern island beach resort, tourists jostle with duty-free shoppers, investors and property speculators, while cranes and half-built apartment blocks crowd the waterfront roads.

This is the gilded edge of China’s real estate bubble. Sanya’s rate of new construction would give pause even in Shanghai or Dubai, and to see this once-sleepy provincial town in transformation reveals everything about its country’s ambitions.

The reaction amongst the burgeoning ranks of educated and English-fluent mainland Chinese: “T.I.C.” It’s a popular expression that sums up, while shrugging off, the cacophonous chaos of old and new, rich and poor. “T.I.C.,” they say. “This is China.”

On Sanya’s main tourist drag along Sanya and Dadonghai bays, this definitely is China: hot, busy, its crowds swathed in matching Louis Vuitton monograms. However, duck into one of the city’s upscale beach resorts, and the transformation is Technicolor.

At the east end of Dadonghai beach, find the Mandarin Oriental’s subtly elegant bungalows, understated restaurants and friendly staff trained in the international language of hospitality. It’s enough to cause one to puzzle, “This is China?”

The image persists of the Chinese nouveau riche as status-obsessed and brand-plastered, particularly in the smaller cities, but that stereotype is being slowly supplanted as wealthy Chinese develop sophistication, knowledge and a desire for experience beyond the bling.

There are 63,500 ultra-high net worth individuals in China with assets of more than 100 million Chinese yuan (US$15.8 million). Source: The Chinese Luxury Consumer White Paper 2012, jointly published by the Industrial Bank and Hurun Report

Beyond Beijing

China will be the world’s largest luxury market by 2015, with 20 percent of total consumption, according to global management and consulting firm McKinsey & Company. Last year China became the world’s largest art market and it drives global high-end growth in sectors from fashion to automobiles to wines.

Already common in the big, coastal first-tier cities, international brands are now expanding ambitiously into the scores of interior and provincial cities of China’s second through fifth tiers. Though smaller, these cities still boast populations in the millions, as well as plenty of millionaires and billionaires from the natural resources, manufacturing and property industries.

Sanya is one of those lower-tier cities on the make, and is unique in that its growth is driven overwhelmingly by tourist, rather than local, consumption. The city is China’s premier, if not only, resort destination, and its streets are a showcase of the provincial leisure classes from around the vast country.

The resort appeals to a certain group of Chinese for its weather and convenience in a way that international travel does not, according to Tungsten Zhang, director of communications at the Mandarin Oriental Sanya. “Government people have restrictions for applying for visas, such as police or army members, so it is easy for them to come to Sanya. It’s close and there is no communication barrier. For Chinese people going overseas, they worry about the visa and the language.”

Even so, Chinese are travelling, studying and moving abroad in record numbers, fuelling luxury sales from Phuket to Paris. The only thing faster than the growth of China’s luxury sector is its rate of change.

Status update

Mainland China has only been open to the world, and to economic opportunity, for about 30 years. In the initial decades after the implementation of Reform and Opening, only a few Western brands trickled in, and few of them luxury brands.

That all changed in the mid-2000s, which saw virtually every global brand shift focus to China and launch or expand their Chinese operations. Initially their primary customer was bigger on cash than class, one of the nouveaux riches known in Chinese as the bao fa hu.

“They’re the new rich, like coal mine owners, who have loads of cash but no idea how to spend it,” explains Jay Wong Shijie, group sales and marketing director of luxury-magazine publisher Blu Inc Media China. “They are image conscious. They compare and compete, they want to have the bigger or better boat.”

A second group is the so-called fu’erdai, or second-generation rich. “The rich are getting younger and younger, in their late 20s to early 30s,” he explains. “The fu’erdai is a bit more discerning, and more well-travelled.”

The emergence of the fu’erdai represents one of the main shifts in luxury consumption in China. “It was the 1980s when it started, and it has come of age in the past five to ten years,” Wong recalls.

“For general luxury, it is no longer like it was in the past, where they’d plaster luxury brands on, and didn’t care about style. When buying yachts before, they just cared about brand and size. Now buyers research the core and customize. Brands try to suit the tastes of customers, like outfitting yachts with mah-jongg and karaoke rooms.”

With the exception of silk and tea, the wealthy continue to prefer their luxury imported (perhaps best evidenced by the plethora of French brands at Hainan Rendez-Vous, from Chopard to Perrier-Jouët). “What you see more is foreign brands with Chinese characteristics, like with dragons,” says David Turchetti, Blu Inc’s managing director.

Trips to Europe to interact with brands’ legacies and design processes, as well as other experiential pursuits, have become the focus of consumption. “Country branding is very successful, such as Italy for leather and men’s tailoring, or France for women’s wear and perfume,” says Turchetti.

“There is a brand-origin consciousness, coming from their own or a friend’s trip. Consumption has evolved from pure status to experience and now to collecting.”

From status to sophistication

Whether they stay home or go abroad, the collecting bug has hit the Chinese upper class hard, partly due to a paucity of investment outlets in China – interest rates are kept low, the stock market lacks transparency, and property purchases are limited.

Art and antiquities are a popular acquisition and similarly reveal a shift towards sophistication, as passion starts to trump investment potential. “A lot of big collectors are seduced by the lifestyle of collecting, of going around the world to art fairs, to wine and dine, to party,” observes Mathieu Borysevicz, director of the prestigious Shanghai Gallery of Art at Three on the Bund. “It isn’t just what they buy, but how, the seduction of the scene.”

A similar transition is occurring in the consumption and collection of fine wines, according to George Chen, managing partner at Roosevelt Hospitality Group, which imports wines and operates several top restaurants in Shanghai. “The story goes that Chinese only buy labels, and that is true to an extent, at least it was a few years ago,” says Chen, especially due to the central roles of entertaining and gifting.

Affluent Chinese demand has caused prices for top French wines to soar, and even double – currently Château Lafite and Domaine de la Romanée-Conti are de rigueur – and has turned Hong Kong into the world’s largest wine-auction market. Other prestige spirits also sell well, and the Chinese white spirit Moutai may be the country’s most successful domestic luxury brand.

Even as China’s economic boom shows signs of slowing, the demand for luxury remains strong, and the cycle of the past decade continues to repeat: newly minted bao fa hu replicating the instincts of their predecessors, before their children grow up savvier, and every small town aspiring to achieve some big-city glamour of its own.

Meanwhile, the vanguard of the country’s luxury classes will continue to shift from international mimicry to the establishment of uniquely Chinese ways of being elite. They’ll get there – after all, this is China.

Illustrations by Rafael Macho. Special thanks to the Spafax Luxury Brands team for developing this piece.

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