Freshly reelected for a third term, the Secretary General of the Communist Party finds himself facing a more challenging economic environment. The current economic situation in China is marked by a significant slowdown. In the first three quarters of 2022, GDP grew by only 3%, falling short of the annual target of 5.5%. To a large extent, this can be attributed to Xi Jinping’s zero-Covid policy, which has heavily restricted economic activity. Additionally, the real estate sector is facing difficulties, with a series of developer bankruptcies.
In light of Xi Jinping’s reelection, the markets have not reacted significantly. One reason for this is that China’s share in the MSCI Emerging Markets Index has decreased from 41% to 31% in just two years. This indicates a slowdown in the country’s economy and a diminishing weight in the global economy. Moreover, other countries such as South Korea and the United States are rapidly rising in the global luxury market. While China still accounts for 21% of global luxury market sales, the explosion of e-commerce in the country has led to a shift in consumer behavior. Chinese consumers have adapted to the zero-Covid policy and repeated store closures by increasingly turning to digital channels. E-commerce now represents 28% of luxury sector sales in China, with major luxury houses like Hermès, LVMH, Chanel, and Richemont establishing a presence on platforms like Alibaba’s TMall Luxury Pavilion.
The luxury clientele in China primarily consists of middle and upper-class consumers, with the millennial generation representing 67% of buyers. This generation, born between 1980 and 1995, is comfortable interacting with luxury brands on digital platforms and making online purchases. Luxury has become a sign of identification in China, as well as in Europe, making it a relatively crisis-resistant product.
Despite the challenging economic context and the slowdown in China, the luxury industry is actually performing remarkably well. Figures such as +32% for Hermès, +14% for Kering, and +19% for LVMH demonstrate the industry’s confidence and positive growth. This trend is expected to continue in the coming months.
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