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Why has a Chinese luxury watch company sold only two $273,000 watches in three years?

Talk about lost opportunity. China has one of the fastest growing luxury markets in the world, but upscale Chinese brands can’t seem to get a foothold. Tianjin-based watchmaker Seagull, for example, has sold only two of its ¥1.7 million (about $273,000) watches (link in Chinese) in the past three years.

Chinese consumers account for half of all luxury purchases in Asia and almost one third in Europe, according to consultancy firm Bain. One in four personal luxury good purchases worldwide is made by a Chinese person, the firm calculates. In the next five years China could become the biggest consumer market for luxury goods.

Still, there is no premium Chinese brand that can compete with European rivals like Louis Vuitton, Hermès, and Chanel—some of the staples for upper-crust mainlanders. Chinese research group Hurun’s list of the best luxury brands in 2012 listed only two domestic companies, Moutai and Wuliangyu—both high-end baijiu (grain liquor) brands. The majority of Chinese even say they would pay more for products made in the US.

The Chinese government doesn’t want foreign companies to dominate high-end consumer goods and is keeping tariffs on foreign luxury items. But that hasn’t helped the local brands compete. Rich Chinese simply shop abroad, where the same items often cost half as much.

The basic problem is that, except on a uniquely Chinese product like baijiu, nothing signals quality and—above all—status like a foreign label. Still, there might be some chance for local luxe goods players. As we’ve written before, younger Chinese shoppers are starting to care less about prestige and more about having things that are unique and express something about themselves. Consulting firm A.T. Kearney writes, “The turning point… will be the influence of a new Chinese generation—those born in the 1980s and later who have more exposure to better-quality Chinese products and will prove more confident about purchasing them.”

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