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TOKYO — Chinese President Xi Jinping’s renewed call for “common prosperity” has sent shudders through such luxury brand houses as Hermes and Louis Vuitton as they fear becoming a new target of Beijing regulators.
The fear was palpable on the stock market last week. Shares of Paris-listed Kering, owner of the Gucci brand, slumped 17%. Switzerland’s Richemont, the company behind such names as Cartier and Piaget, sank 14%. LVMH Moet Hennessy Louis Vuitton and Hermes slid 13% and 8%. Makers of high-end cars were hit as well, with Porsche down 10% and Ferrari 6%.
The catalyst was Xi’s call “common prosperity” as part of “high-quality economic development” that week at a meeting of the Chinese Communist Party’s Central Committee for Financial and Economic Affairs.
The committee called for adjusting “excessive incomes” and redistributing wealth that has become overly concentrated in the hands of a small number of people.
This has set off speculation that luxury brands are now in in the crosshairs of Chinese authorities after clampdowns on the technology and education industries. If the sector becomes a target, the rich may no longer be able to spend as freely on such indulgences.
This concern reverberated in the European stock markets where the makers of these products are listed.
“If redistributing wealth under the mantle of common prosperity results in a large middle class, that would be a positive for the Chinese economy in the medium to long term,” said Naoto Saito, chief researcher at the Daiwa Research Institute and an expert on the Chinese economy.
Still, “recent efforts by Chinese authorities to bolster regulations have put socialist policies front and center, like an increased focus on state-owned enterprises,” Saito said. China in recent months has been cracking down on lucrative tech companies and on tutoring services, which have led to a surge in education costs in the country.
Demand for luxury goods also took a hit at the height of Xi’s anti-corruption campaign. The idea of common prosperity would likely squeeze the wealth held by China’s top echelons, as would a greater push for social and economic equality.
“It’s still unclear whether this redistribution of wealth will happen at once or in stages,” an asset management company said.
Increased pressure on China’s wealthy could impact Japanese companies as well. Toyota Motor sold roughly 710,000 vehicles under its luxury Lexus brand globally in 2020, down 6% on the year. The Chinese market was critical to easing the blow, with sales there jumping 11% to 225,000 and partly offsetting the drop in North America, Europe and Japan.
Japanese department stores also relied heavily on luxury-brand items sold to tourists from mainland China before the coronavirus spread worldwide. Such spending is unlikely to fully recover even after the pandemic is brought under control.