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What China’s National Congress Means for Fashion

In this month’s China Edit, implications of the 19th National Congress on the fashion industry, Shanghai Fashion Week and Golden Week.
A souvenir stall at a Beijing night market selling Xi Jinping memorabilia | Source: Shutterstock
By
  • Gemma A. Williams

BEIJING, China — "China is set to regain its might and re-ascend to the top of the world," boasted Xinhua, China's state agency, at the closing of the much-anticipated 19th National Congress of the Communist Party. Held from October 18 to 24 and presided over by China's President Xi Jinping, this quinquennial event is the kind of elaborately choreographed affair that the Chinese state famously does well and marks a milestone in the national psyche.

Given China's increasingly powerful role in the global economy and how much effort the government puts into economic planning, the outcome of the congress is now being placed under a microscope by business leaders from around the world.  Fashion industry leaders are among those who listened intently to every word uttered by the president for clues as to how this colossal market might evolve.

President Xi’s marathon speech, which lasted well over three hours, offered important insights into China’s political and economic plans for the coming years. With a focus on the key areas of domestic policy, the economy and foreign policy, the so-called “new era” outlined by Xi is in fact mostly in line with the country’s 13th Five-Year Plan announced in 2016, indicating an overall sense of continuity.

Yet one striking difference at this congress is the growing strength of President Xi himself.  Xi became the first living leader mentioned in the party’s constitution with the inclusion of his name alongside the 14-point manifesto: “Xi Jinping Thought on Socialism with Chinese Characteristics for a New Era.” This not only consolidates his current position at the apex of power in the country, but it also indicates a reach well into the future, even if from behind the scenes.

Since taking office in 2012, Xi’s political views have promoted drives such as the anti-corruption campaign which he made a cornerstone of his leadership in 2013. At the congress, he vocalised a continued commitment to anti-corruption and piloted supervisory programmes have already been rolled out in cities including Beijing.

Some analysts predict that this renewed commitment may only have muted or limited impact on luxury spending.

Despite this, some analysts predict that this renewed commitment may only have muted or limited impact on luxury spending. “As was the case previously [the anti-corruption campaign launched in 2013], the segment most at risk from any crackdown over a short-term period is the premium alcoholic drinks segment, as gift-giving and lavish hospitality by officials tends to receive the greatest focus.

However, we expect other luxury segments, such as fashion and personal care, to be less exposed, given the strong consumer demand for these products,” explains Nainika Singh, consumer analyst at emerging market intelligence firm BMI Research.

This comes on the back of the rising number of upper-income households and the Chinese government's efforts to promote domestic consumer spending, including cutting duties on luxury goods imported via official channels, creating duty-free zones for domestic tourists and cracking down on daigou (personal shopping agents buying luxury goods from overseas to avoid high taxes).

This is already evidenced in the ongoing and hard-fought battles for the luxury sector from two of its biggest players, Alibaba and JD.com, who are pushing the high-end delivery of goods via a range of strategically-timed apps and services.

The congress underlined that consumer upgrades will be an increasingly important point for domestic economic growth and set the goal of reaching a “moderately prosperous society” by 2020. With an expanding middle class, China will see the increase of incomes and spending power in the medium which will in fact fuel luxury spending. BMI told BoF it estimates the upper-income segment — defined as households with a disposable income of $75,000 and above — will grow to beyond 2.9 million in 2021.

In his congress speech President Xi also outlined the promotion of healthy lifestyles and the development of health-related industries, which in turn could have positive implications for the wellness sector as well as the outerwear and athleisure industries. Greater China is already reportedly the second largest market for sportswear giants Nike and Adidas.

With the focus on physical fitness coming from both the government and the consumer, the congress message bodes well both for domestic sportswear companies such as Anta, who reported profits in 2016 of $347 million, alongside other so-called “in China for China” businesses. This would also seem to indicate that we might well see an increase in the cosying up of sportswear and luxury brands as well as with personalities and KOLs as the sector continues to tap Gen-Z consumers.

With a growing number of luxury and apparel companies working with Chinese partners to enter the market, this seems to indicate that overall, stable law-based governance is likely to be positive for the business environment.

In the macro picture, the congress indicated that policymakers were moving away from what BMI calls “hard hitting economic growth” toward “quality growth” and are now more open to lower economic growth and target ranges which are not achieved at the cost of the environment and social inequality. Nevertheless, the firm forecasts economic growth averaging as high as 7 percent over the next decade.

Xi repeated his pledges to implement environment reforms, with a particular emphasis on restricting the coal, steel and automotive sectors in order to reduce air pollution. It is worth nothing too that stricter environmental and sustainability measures could have an impact on the textile and apparel manufacturing sector.

“With a renewed focus on reducing overcapacity and deepened reforms mentioned at the national congress, government officials could start shutting down active capacity from facilities that are inefficient or polluting,” says Sabrin Chowdhury, commodities analyst at BMI.

With the growing integration of Chinese citizens and mobile technology, Xi's speech also pointed to more control of the internet in China in what he called an attempt to "oppose and resist the whole range of erroneous viewpoints." Fashion and luxury media have already been directly hit by these restrictions through a range of recent social media clampdowns and those workers in the country have felt recent bans of VPNs which are used to bypass censored sites and the country's so-called "great firewall".

In terms of trade, Chua Han Teng, head of Asia country risk at BMI tells BoF, "We expect China will continue to broaden its sphere of influence to protect its growing international interests over the coming years," citing further progress on the Belt and Road initiative as one important pillar.

In Other News…

Shanghai Fashion Week continues to expand
Now in its 15th year, Shanghai Fashion Week continues to grow from strength to strength, attracting domestic and global talent to the city for the week-long event. Runway shows are still the predominant event with over 100 brands appearing on the catwalk. Showrooms continue to expand and this season over 1,200 brands were hosted. Official events included the BoF China Summit, Kering's Forum, a series of events from Prada and the Shanghai International Fashion Showcase which featured Ports and 3.1 Phillip Lim.

Alibaba increases in value
The e-commerce giant's second-quarter revenue on mobile platforms almost tripled, announced at $1.66 billion, a 32 percent rise. This also comes prior to China's upcoming Singles Day on November 11 which netted the company sales of over $9 billion last year. Alibaba also launched Home Times in Hangzhou, a new physical home décor space which uses technology to track user behaviour.

14-year-old Russian model Vlada Dzyuba dies in Shanghai
Esee Model Management, which employs about 30 foreign models, is denying claims that it overworked 14-year-old model Vlada Dzyuba. The model fell sick six days after walking in Shanghai fashion shows earlier this month and allegedly died later of multiple organ dysfunction. Zheng Yi, Esse's chief executive, is reported to have told China's Global Times that Dzyuba's workload was moderate compared with other models.

China's Golden Week
China's Golden Week, which celebrates the founding of the People's Republic of China, was extended this year, running from October 1 to 8, and saw large volumes in payments and tourism. Tmall gave out almost $150,500,000 virtual red packets during the holiday and the number of domestic tourists totalled 705 million, with reported 6 million more travelling overseas. Alipay reported an eight-fold increase in overseas transactions during the Golden Week holiday. The next 8-day super holiday is due in 2020.

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