BEIJING: Sales of high-end watches, jewellery and other similar goods are continuing to rise in China, which looks set to overtake Japan and become the world's second-largest luxury market this year.

HSBC, the financial services group, predicted China will overtake Japan in terms of the overall demand for premium brands this year, reflecting several trends observable in the world's most populous nation.

"Displaying wealth has become a trend in China, and we think this will continue to translate into growing purchases of luxury goods for oneself, or as gifts," HSBC said.

"With the liberalisation of the economy, a new class system was created where your place on the ladder may depend on how much money one earns, and owning luxury goods can help display the level of one's wealth.

"We think consumer habits may not necessarily always correspond to income levels due to the need to socially fit in and show off wealth."

Drawing on figures from the Hurun Report, a specialist title based in China, HSBC suggested there are 1,363 people in China with a net worth topping 1bn yuan, up by 36% year on year.

More specifically, it estimated that 189 people now qualify as billionaires in US dollar terms, an amount which can be expected to increase further as the Chinese economy expands.

In an example of the possible benefits for luxury brands this provides, China leapfrogged France to become the third-biggest international destination for Swiss watches in the first half of 2011, as demand rose by 49% on an annual basis.

Imports to Hong Kong also climbed by 28% during the same period, and revisions to the current tax rates on overseas goods entering the country might equally aid manufacturers like Swatch and Richemont.

Female shoppers constitute another key emerging demographic, as their growing financial muscle and taste for high-end products rises rapidly.

"There were almost 197m women between the ages of 30 and 49 in 2009, representing almost 17% of the total population," HSBC argued. "This target audience has huge potential as these women become more-engaged luxury consumers."

Luk Fook, which operates around 700 stores in China, Chow Sang Sang, with some 240 outlets, and Tiffany, the US chain, are among the retailers already seeking to meet the needs of affluent females, HSBC said.

Data sourced from Wall Street Journal/HSBC; additional content by Warc staff