President Xi Jinping’s push to redistribute wealth in China through a “common prosperity” campaign has unsettled some luxury market investors.
It has cast a shadow over an industry that counts the country as one of its biggest markets – luxury goods, reported CNN.
The sector still bears scars from a sweeping government crackdown on corruption several years ago and is now relying on Chinese consumers more than ever.
The campaign, rolled out by Xi in 2012, had a dramatic impact on the sector. In 2013, mainland China’s luxury market grew just 2 percent, compared to 7 percent the previous year, according to Bain.
Some fashion brands were eschewed as shoppers looked for less conspicuous logos or designs. People “don’t want to just walk around with big LVs anymore,” Patricia Pao, CEO of the Pao Principle, a consultant for luxury brands in China, told CNN at the time.
Premium liquor brands, such as baijiu maker Kweichow Moutai, also saw sales drop off significantly. The company later said that the campaign led to “unprecedented pressure” on the alcohol industry.
The sector is still facing regulatory concerns and was recently hit by a sell-off in shares.
According to LookLook, a consumer research firm that works with luxury brands, 1 in 10 respondents to a recent survey of 100 luxury buyers in China cited the government crackdown on excessive shows of wealth as a reason they were not spending as much these days.
One participant of the study, which was released in September, cited a desire to not “attract unwanted attention,” according to LookLook CEO Malinda Sanna.
“We’ve never heard that before,” she said. “I think the demand is definitely still there, but they’re being cautious.”
The latest government initiative — which coincides with a regulatory crackdown on industries from technology and education to gaming and entertainment — has raised concerns, reported CNN.
Experts ruled out the possibility of the government clamping down on signs of perceived extravagance or raising taxes on the rich could darken the outlook for makers of high-end handbags, shoes and jewellery.
Some players have already taken a hit. Shares of LVMH slid 7.9 percent from August to September, while Kering, the owner of Gucci, fell 19.4 percent over the same period, reported CNN.
Beijing has been tightening the screws on private enterprises over the past year. But the ante was upped in August when Xi told top leaders from the ruling Chinese Communist Party that the government should establish a system to redistribute wealth in the interest of “social fairness”.
Some companies have taken the hint from Beijing. In recent months, several of China’s biggest tech firms have pledged to donate billions of dollars to the cause, including Alibaba (BABA) and Tencent (TCEHY). One company, Pinduoduo (PDD), even promised to hand over its entire profit for the second quarter, reported CNN.
It doesn’t help that businesses ranging from the booming tech sector to private education in China have lately been targeted with another crackdown, which has spilled over into the entertainment and live-stream shopping industries, reported CNN. (ANI)