Xi Jinping’s Anti-corruption Campaign and Its Effect on the Chinese Luxury Goods Market

August 6th, 2014
in econ_news, syndication

Written by , GEI Associate

A culture identified by a newfound taste for extravagance coupled with a middle class on the rise and a flourishing number of millionaires has made the Chinese market into somewhat of a perfect storm for the consumption of luxury goods. Moreover, the average luxury goods consumer in China is under the age of 45 - much younger than luxury goods consumers in other parts of the world.

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Such a young market segment practically guarantees market growth, only adding to the promise of the Chinese luxury goods market. These facts alone make it no surprise that China is expected to rise in the rankings of top luxury goods markets from number two to number one in a relatively short time . However, the Chinese market's steady growth has run into some considerable obstacles recently.

Unfortunately for luxury brands like Louis Vuitton and Dior, Chinese consumers' thirst for opulence has slowly been deteriorating. The numbers are in, and they are showing a decline in sales - especially for the purpose of gift giving. For instance, companies are spending less on corporate gift giving and entertaining clients. This recent decline is in part due to Xi Jinping's Anti-Corruption Campaign which imposes bans that aim to prohibit the use of luxury goods for bribery purposes. With banned products ranging from high-end automobiles to MoonPies, the Chinese market has been thrown into a serious adjustment period that has reduced consumption of luxury goods - at least for the time being.

The effects of the Anti-Corruption Campaign don't stop there. The influence of the campaign has also impacted Chinese culture. Television and radio advertisements for luxury products have been banned because the Anti-Corruption Campaign argues they promote improper values. Furthermore, people are being scrutinized for possessing luxury items that were once considered status symbols. Some companies have taken active measures to adapt to these reformed cultural values by redefining their brand image. For example, Louis Vuitton has gone for a more understated look in its new collection by releasing a new line of products with fewer of the famous LV logos, if any. However, it's hard to tell how effective these strategies will be as Chinese consumers are now finding it more convenient to travel to other countries like France and Italy to buy their banned, overpriced and/or scrutinized items.

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