Luxury Loses As China Slowdown Reinforces Regime Change

China has a unique relationship between its politics and certain high-end industries. Bloomberg reporters Vinicy Chan and Crystal Chui suggest that anti-graft measures have dampened the luxury market to some extent:

[Mainland customers’] pullback shows how the slowest economic expansion in three years and an effort to curb corruption are starting to ripple through China’s 22-billion euro ($27 billion) luxury market, where CLSA Ltd. estimates that almost a fifth of spending is on corporate gifts. That will likely hurt makers of pricey brands such as Cartier seller Cie. Financiere Richemont SA (CFR), Swatch Group AG (UHR) and Hong Kong jewelerLuk Fook Holdings International Ltd. (590)

“Lower earnings resulting from China’s economic slowdown may lead to companies spending less on business gifts,” said Luk Fook Chief Financial Officer Paul Law. “Corporate gifting helps foster business relationships: You can cut the red tape and speed up approval processes when you have good relations.”

These gifts include cigarettes, Maotai liquor, Rolex and Longines watches, Louis Vuitton wallets, and gold bars carved with lucky characters. Some disagree over the factors that caused the decrease in China’s appetite for luxury goods:

Gifting is important in Chinese personal and professional life and is centered around the idea of reciprocity. Even though companies and government officials may be under public scrutiny there will still be demand for gifts because “corporate gifting is so prevalent in China’s business practices,” said Law, who sees economic pressures as a bigger threat than the anti-graft measures, which can be hard to enforce.

In what could be perceived as an attempt to win back the China market, Louis Vuitton today took the unprecedented move of running a full-page ad on the front cover of the official China Daily newspaper.

In response to reports of an industry slowdown, several luxury brands announced today that their sales in China are still robust and not experiencing a downturn.

See Also: Officials’ Luxury Watches Set Off Alarms and China Targets Corruption With Expense Crackdown via China Digital Times.

July 19, 2012 4:05 PM
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Categories: Economy, Politics