China’s crackdown on corruption has negative impact on sales of luxury

Burberry flagship store Beijing

The government imposed a “frugal working style” rule on its civil servants, which goes into effect on October 1, barring them from spending public money on lavish banquets or fancy cars, and from accepting expensive gifts. Gifts are often offered in return for favours in China, where bribery is widespread. The culture of gift giving has been a source of demand for the world’s top luxury brands.

A string of high-profile incidents, including a high-speed Ferrari crash reportedly involving the son of a senior public official and a local government official photographed flaunting luxury watches beyond the reach of his salary, have enraged many Chinese who have taken to the blogosphere to vent their anger.

The local government official was fired for a “serious violation of discipline”, state media said at the weekend. Chinese police inspectors are now studying up on how to recognise luxury brands to help them expose corruption.

“Luxury products are highly expensive and civil servants, whose salaries are about 5,000 yuan (487 pounds) a month, cannot afford them,” China Daily reported on Friday. “So officials who possess luxury products should give convincing explanations on how they got them.”

Luxury brands were already struggling with a slowing economy and a bit of flashy fashion fatigue as Chinese shoppers shun flamboyance in favour of understated displays of wealth. Beijing’s crackdown suggests that even if economic growth starts to recover later this year, as many economists predict, luxury demand may lag.

“There is definitely a general moving away from the bling and the gold taps. This is a permanent shift,” said Rupert Hoogewerf, chairman of the Hurun Report, a Shanghai-based luxury publishing house which compiles China’s Rich List. Hoogewerf said while many Chinese consumers are pulling back on spending because of a weakening economy, there is also a heightened sensitivity surrounding luxury purchases.

adapted from Reuters