China’s wealthiest consumers will continue to splurge on luxury items like designer bags and watches as the economy reopens, even as middle-class shoppers refrain from buying big-ticket items, unnerved by worries about their job prospects and wages, according to Bain & Company. The global consultancy said in its latest report on China’s luxury market that the top 2 per cent of mainland Chinese spenders, who account for more than 40 per cent of spending on luxury items, will be a key driver of market growth in 2023 after Covid-19 restrictions ended a five-year winning streak last year. “There’s no reason why the VIC [very important customers] should stop buying [luxury items] in 2023, because even during the downturn in 2022 they were spending,” said Bruno Lannes, a Shanghai-based senior partner with Bain. “We will see more spending by them in 2023.” Lockdown measures and standstill orders to guard against the spread of Covid-19 across the mainland in 2022 prevented millions of consumers from buying long-coveted personal care products or leather shoes. As shopping malls grappled with a decline in foot traffic, sales skewed toward very wealthy customers , with some high-end brands achieving VIC sales higher than 40 per cent, Bain said. Spending on luxury goods in the mainland last year is estimated to have hit 425 billion yuan (US$62.65 billion), down 9.6 per cent from 2021 owing to the more stringent pandemic curbs, according to data compiled by Bain. Bain forecasts that the consumption of luxury items this year will re-enter positive territory now that Beijing has shifted from its stifling zero-Covid strategy to an approach that involves living with the virus. The report did not give a projected growth rate, but predicted sales will return to the levels seen in 2021 sometime between the first and second half of the year. “ Luxury consumption will recover as Covid subsides, mall traffic improves, and consumer sentiment rebounds,” said Xing Weiwei, another Bain partner. “While optimism abounds, there are also risks. Brands need to resolve pricing gaps between China and Europe before international travel resumes.” Lannes said so-called revenge spending would be another growth driver as consumers who were prevented from buying luxury items during lockdown finally get to splash out this year. Unlike their wealthier compatriots, China’s middle-class consumers are increasingly wary of spending on expensive items like cars. The reopening of the economy has not yet proved enough to allay their fears about lower incomes and job security. In the electric vehicle market, premium cars priced above 300,000 yuan have seen sales drop dramatically since late 2022, as more young motorists drifted down market towards cheaper models priced below 200,000 yuan. Mizuho Securities Asia said in a research report on Tuesday that the strength of revenge spending may not meet analysts’ expectations because more people are investing their savings in financial assets such as wealth management products, rather than buying consumer goods. Lannes predicted that an annual growth rate of 5 to 6 per cent in luxury spending could be expected in 2024 because China’s economic fundamentals remain solid.