China’s ‘Common Prosperity’ initiative casts a shadow on luxury brands’ growth

China’s president Xi Jinping has launched a national campaign aimed at pursuing “common prosperity” through the redistribution of the country’s wealth. The initiative has set the alarms within the luxury goods industry, which has in China one of its main markets.

“In the past three months, the [luxury] sector has underperformed the European market … on the back of renewed China concerns,” including the wealth redistribution campaign, a flare-up in coronavirus cases and regulation, Citi analysts wrote in an October report.

Experts from Bain agree with this analysis, highlighting that shoppers in mainland China are vital to luxury brands, from LVMH, to Hermes and Gucci. Last year, as the coronavirus pandemic gave the country a respite while the rest of the world was under lockdown, China’s share of the global luxury market roughly doubled, according to Bain. The consultancy firm predicts that China will become the world’s biggest market by 2025, overtaking Europe and the US.

The latest government initiative — which coincides with a regulatory crackdown on other industries - has raised concerns.