As the Central Economic Work Conference convenes this week to debate financial policy, Matthew Lubin of Jing Daily argues that western luxury brands working in China could face a difficult 2019.
CHINA. The S&P 500, the stock market index of the largest 500 companies in America, has given up all its gains from earlier in the year and there’s little to convince business the market will bounce back soon, writes Matthew Lubin.
Underwhelming retail sales and industrial production data from China have sent the Dow Jones Industrial Average into a sell-off, dropping it to below 24,000 from a high of almost 27,000 as recently as October.
Despite this, retail sales in China grew +8.1% year-on-year in November, boosted by heavy Singles’ Day sales on 11 November. That growth rate, however, marked the slowest pace since May 2003.
Does this mean that the era of unprecedented growth in China is coming to an end? It’s hard to say, but these economic figures will be a major discussion topic when the Chinese government convenes its Economic Work Conference in Beijing this week to set policy for 2019.
The heavily depreciating Yuan that has inhibited the Chinese appetite for imported luxury goods will be another topic, as will US President Donald Trump’s ongoing trade war, which has damaged confidence that high-end western products would remain popular in China as economic growth slowed.
HSBC Holdings Plc Co-Head of Asian Economics Research Frederic Neumann told Bloomberg that consumers are cutting back as “softening domestic demand continues to weigh on growth”.
And more recently, Chinese authorities began cracking down on daigou – personal shoppers who repatriate luxury goods from abroad and skirt tax laws – in a move that some saw as an effort to increase domestic spending. While daigou business may be a small part of the overall economy, this may be only the first of further policy changes to encourage Chinese people to spend more at home.
Luxury brands including Tiffany & Co have blamed lower-than-expected sales in the previous quarter on fewer Chinese shoppers in their overseas stores. Tiffany did note, however, that it saw strong sales in China in the third quarter.
RBC Capital Markets analyst Rogerio Fujimori wrote in an equity-research report this week that new e-commerce laws affecting daigou businesses will hurt luxury businesses only in the short term as they turn their attention to shoppers in the mainland. He added that continued weakness in the Yuan could be a drag on luxury brands as fewer Chinese travellers make purchases abroad.
Despite the short-term headwinds facing the Chinese economy as a whole, the outlook for luxury sales in the country remains fairly stable. Fujimori writes that millennials account for a large proportion of Hermès and Louis Vuitton customers worldwide, a proportion higher in China. Unless these shopping habits drastically change, luxury sales in China are unlikely to change significantly next year.
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*This article was originally published by the much-respected JING DAILY, a Moodie Davitt Report content partner.
