The signs of recovery of China’s economy have yet to produce effects on its luxury market
Industrial production in China rose sharply November, signaling, after seven quarters of slowdown, the first report since the installation of China’s new leadership. With 10.1% increase year on year, production of Chinese industry has experienced double-digit growth for the first time since March, according to figures released Sunday by the National Bureau of Statistics (NBS). This indicator is recovering steadily since August, when it reached 8.9% to its lowest level in more than three years. An upturn in activity in November was already sketched a week ago with the first expansion of manufacturing activity recorded in 13 months by HSBC.
The increase in gross domestic product (GDP) of China fell to 7.4% in the third quarter, its lowest level since the first quarter of 2009. The current acceleration of growth is confirmed by other indicators published Sunday. Retail sales, gauge consumer spending, thus grew by 14.9% year on year in November, against 14.5% in October. “This set of figures is quite good, and supports the idea of a rebound in GDP growth”, also reacted Lu Ting, China economist at Bank of Amercia – Merrill Lynch, in a note analysis.
Although the new leadership stressed its number one priority will be to bring wealth to the the average Chinese, Oliver Petcu of CPP Luxury Industry Management Consultants Ltd, believes it is too early to evaluate a possible rebound of China’s luxury market. ”Even one of the new members of China’s leadership admitted publicly he had doubts over the accuracy of China macroeconomic statiscal reports, which many have blamed as being ”inflated” . Petcu added that, ”even if the buying power and appetite for luxury will recover, it is highly probable that this will be an impulse for the wealthy to travel and spend more abroad on luxury. Moreover, statistics show that even the nouveaux riches from the third and fourth tier cities, considered until now as being less educated than those in the major cities, they have all become more savvy as they travel more and more.”
It is not by coincidence that China’s rich list ranking, done annually by the Hurun Report, is considered to be ”the death list” for fear that authorities will go after these rich to account for their wealth. In many international emerging markets, the rhetoric of cutting down on corruption (which was also, for the very first time, echoed publicly by China’s new leader) has had an immediate effect on the wealthy to display less their wealth and even to avoid buying locally. It remains to be seen what the new Chinese leadership means by ”sharing wealth” which was among the priorities of the new Chinese leadership. Oliver Petcu wonders ”Will there be politically correct measures such as those implemented earlier this year to cool down the real estate market in China, or will this be a witch-hunt which is so common in Russia? Either way, such measures are highly unlikely to have a positive impact on China’s luxury market, which will probably never see again the huge growth rates of the past 5 years.”
”The only way to boost local consumption of luxury is to resore confidence in Made in China by encouraging innovation and creativity” said Oliver Petcu, adding ”For instance, there are so many local talented fashion designers who have built their success on creativity and quality, without copying Western designs or patterns, proving that not everything Chinese is of inferior quality, and this applies to all luxury sectors. It is no coincidence that the world’s third luxury group, PPR acquired last week Chinese jeweller, Qeelin, set up in 2004 by a Chinese and a Frenchman.”
“Some expect more measures to support the growth of the new direction, but it is unlikely,” said Ren Xianfang for its part, IHS Global Insight economist based in Beijing, noting that such measures would not work for longer sectors suffering from overcapacity, such as steel or the manufacturers of solar panels.