Luxury industry lost $ 70 billion after China said it would adjust its excessive revenues
China, long believed to be the world’s largest consumer of luxury goods, may ultimately have a different future. The country, which last year saw luxury goods sales rise 48% to around $ 54 billion, has said it wants to adjust excess income and see its national wealth distributed more equitably. China currently has one of the world’s largest gaps between rich and poor, which its government is determined not to widen.
The news came ahead of the 20th National Party Congress, where President Xi Jinping added “common prosperity” to his agenda. The news sent the luxury stock market plunging, with LVMH seeing its stock drop nearly 10%. This simultaneously propelled LVMH investor and CEO Bernard Arnault to third place on Forbes’ global rich list.
Other brands have also suffered. Kering stock fell 9.47%, with Richemont and Burberry posting similar losses of 6.6% and 5.51% respectively.
Jing Daily analysis indicates that the long-term effects of eradicating poverty will boost Chinese consumption and promote economic growth. how they will be taxed.
Jing Daily offered a comparison: “In 1991, the United States tried a similar approach when President George HW Bush added luxury taxes on expensive goods like yachts, private jets, jewelry and cars. cars to reduce the country’s budget deficit. But the policy remained tainted due to the disastrous impact on various industries, ”including job losses and profit adjustments.
Throughout the pandemic, Chinese customers have continued to buy European luxury brands, hence the reason investors are on red alert. China’s growing middle classes have fueled much of the growth in luxury, with “the demand for luxury more likely to correlate with the psychology of wealthy consumers than just financial means,” HSBC said in response to the agenda. from China.
Referring to income inequality, “the demand for luxury does not come just from bubbles here and there, but from Gini coefficient type disparities,” HSBC said. “A good example of this has been the K shape [pandemic] recovery in the United States, where wealthy people took advantage of the stock market, secondary home markets and staycationing and had more money to spend and did just that. “
60 billion euros wiped out on the value of European luxury goods
Eradicating poverty should be a goal of every government, but taxing the redistribution of wealth is potentially bad news for the luxury industry, the Wall Street Journal said. “A small group of very wealthy individuals – numbering only 110,000, according to Jefferies’ estimates – generate about a quarter of all luxury goods sales to the Chinese, who are now the industry’s biggest buyers. by nationality. The risk of tax hikes and party disapproval could curb these big spenders. “
Chinese tech giants are feeling similar repercussions, losing $ 50 billion in collective value with the newly proposed anti-competitive behavior.
Data from Bain and Altagamma show that China is on track to become the world’s largest luxury market by 2025. But, as Luca Solca, senior research analyst for luxury goods at Bernstein, said, at Jing Daily. “If the Chinese sneeze, the luxury goods industry gets pneumonia. “