Amid economic jitters, China's wealthy individuals are avoiding flaunting their wealth and instead experiencing "luxury shame."

The luxury market in China is facing pressure due to the growing caution of the country's wealthy individuals, who are becoming more careful about displaying their wealth as the economy faces challenges.

A report by Bain and Company in June revealed that there are indications of "luxury shame" in China, as a result of the challenging economic climate, slow GDP growth, and weak consumer confidence, which has negatively impacted consumption among the middle class.

Derek Deng, a senior partner at Bain & Company, stated on "Squawk Box Asia" last month that while some top players continue to show strong performance in China, people are becoming more cautious about aspirational consumption, which will likely continue.

Claudia D'Arpizio, partner and global head of fashion and luxury at Bain & Company, stated in a separate interview with CNBC that wealthy customers are concerned about appearing ostentatious or showy.

To be clear, the term is not new.

""Luxury shame is a phenomenon that occurred in the U.S. in 2008-2009, and even those who can afford expensive products are less willing to buy or wear them to avoid being seen as flaunting their wealth," D'Arpizio explained."

Chinese consumers are increasingly opting for "quiet luxury" style, investment pieces, and luxury goods that are "more understated" and "less conspicuous," she stated.

The world's second-largest economy is China, which is also home to over 98,000 of the world's ultra-high-net-worth individuals, those with a net worth of more than $30 million, surpassed only by the United States.

Despite the challenges posed by the pandemic, the economy has been under strain, with predictions of sluggish growth and weak consumer spending.

Amid economic uncertainty, some Chinese shoppers are turning away from ostentation and towards more practical purchases.

Despite the global personal luxury goods sector projected to expand slightly, up to 4% or $420 billion, China's luxury market is facing challenges and is expected to decline overall, according to Bain's report.

Crackdown on 'wealth flaunting'

The political stance of China has contributed to the "luxury shame" experienced by Chinese consumers.

"Kenneth Chow, principal at Oliver Wyman, stated to CNBC that people tend to be more subtle in their behavior, as the government promotes common prosperity and discourages money worship."

The Chinese government reintroduced the concept of common prosperity, first proposed by Mao Zedong in the 1950s, to promote moderate wealth for all in 2021.

In May, China launched a campaign against "wealth flaunting" and banned several social media influencers known for their extravagant lifestyles.

D'Arpizio stated that the government's posture is linked to the country's common prosperity campaign, which has created a psychological impact on the Chinese. As a result, some wealthy individuals have started to move money out of the country.

During uncertain economic times, historically, the richer and more affluent population have been more hesitant to flaunt their wealth in front of the public, as stated by Chow.

"Chinese consumers have become more rational, as a result, and they carefully consider the correlation between price and value before making a purchase, according to Imke Wouters, a partner at consulting firm Oliver Wyman."

Deng from Bain stated that the Chinese consumer is becoming more "savvy." While they were previously willing to pay a premium for foreign brands, now many of them make purchases based on a product's quality or the value proposition a brand offers.