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China’s Call for Wealth Redistribution to Hurt Luxury?

A long lines of customers outside the Gucci story on Chengdu International Finance Square, an internationally recognised urban complex in the Western Chinese city of Chengdu
Reshored spending by China's wealthiest consumers has been a key growth driver for the luxury industry. Getty Images. (Barcroft Media)

At a top level government conference on Tuesday, Chinese President Xi Jinping said he wishes to restrain “unreasonable incomes” and expand the country’s middle class, according to the official transcript of the meeting, as reported by Chinese state media.

“Common prosperity is an essential requirement of socialism and a key feature of Chinese-style modernisation,” Xi added, according to a Xinhua report.

In the wake of this news, major luxury firms, including LVMH, Kering and Burberry saw their share price sink, with LVMH losing 5.16 percent, Kering down 3.55 percent and Burberry losing 5.51 percent in the trading day that followed President Xi’s remarks.

Wealth inequality is a major issue facing China’s government, with a Credit Suisse report showing the wealthiest 1 percent of the country’s citizens now hold 31 percent of its total wealth, an increase of 21 percent from two decades ago.

The problem has been exacerbated since the beginning of the pandemic, with China’s wealthiest benefitting from extended stock market and property booms, while the working class has struggled to find its feet, with the country’s unemployment rate remaining higher than it was pre-pandemic.

The reshoring of luxury spending among China’s wealthiest consumers since the beginning of the pandemic has been a major contributor to the bottom line of global luxury businesses. A joint report released in January by Bain and Company and Tmall’s Luxury Division estimated 48 percent growth for mainland China’s luxury market in 2020, reaching 346 billion yuan ($53.26 billion).

This doubled the country’s overall share of the global luxury market, with further growth expected to 2025 - if a potential crackdown on wealth inequality doesn’t spoil the party.

Learn more:

Luxury’s China Report Card: Who’s Winning and Why

LVMH and Hermès saw sales surge in the first quarter of the year, buoyed by strong demand in China. What lessons can other brands learn from their strategies?

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