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China’s graft crackdown takes shine off luxury boom

Luxury brands banking on a China rebound to boost sales may be in for an unpleasant surprise: Weak demand in the world’s second largest luxury market may last longer than the economic slowdown as Beijing cracks down on conspicuous consumption.

Written by Reuters | Hong Kong | Published: September 25, 2012 8:56:44 pm

Luxury brands banking on a China rebound to boost sales may be in for an unpleasant surprise: Weak demand in the world’s second largest luxury market may last longer than the economic slowdown as Beijing cracks down on conspicuous consumption.

China is sensitive to anything that raises suspicions of corruption,especially after the scandal involving Bo Xilai and his emerald-wearing wife Gu Kailai marred this year’s once-a-decade leadership transition.

The government imposed a “frugal working style” rule on its civil servants,which goes into effect on October 1,barring them from spending public money on lavish banquets or fancy cars,and from accepting expensive gifts. Gift giving is considered a sign of respect in Chinese culture,and has been a reliable source of demand for the world’s top luxury brands.

A string of high-profile incidents,including a high-speed Ferrari crash reportedly involving the son of a senior public official and a local government official photographed flaunting luxury watches beyond the reach of his salary,have enraged many Chinese who have taken to the blogosphere to vent their anger.

Chinese police inspectors are now studying up on how to recognise luxury brands to help them expose corruption,according to local media.

“Luxury products are highly expensive and civil servants,whose salaries are about 5,000 yuan a month,cannot afford them,” China Daily reported on Friday. “So officials who possess luxury products should give convincing explanations on how they got them.”

Luxury brands were already struggling with a slowing economy and a bit of flashy fashion fatigue as Chinese shoppers shun flamboyance in favour of understated displays of wealth.

Beijing’s crackdown suggests that even if economic growth starts to recover later this year,as many economists predict,luxury demand may lag.

“There is definitely a general moving away from the bling and the gold taps. This is a permanent shift,” said Rupert Hoogewerf,chairman of the Hurun Report,a Shanghai-based luxury publishing house which compiles China’s Rich List. Hoogewerf said while many Chinese consumers are pulling back on spending because of a weakening economy,there is also a heightened sensitivity surrounding luxury purchases.

British fashion house Burberry Group’s warning on September 11 that its sales growth in China was far slower than expected spooked luxury investors and raised concerns that the entire sector was in danger of stumbling.

Its Italian rival,Hong Kong-listed Prada,releases half-year earnings later on Monday and investors are looking to the company to provide a clearer picture of the state of Chinese demand.

In Hong Kong,a popular luxury shopping destination for mainland Chinese,July sales rose just 3.8% from a year earlier,slowing from June’s 11% year-on-year growth. August figures are scheduled for release on October 4.

Beverage magnate tops China’s rich list

Shanghai : China’s super-rich saw their wealth shrink this year as property lost its spot as the number one source of wealth for the first time since record-keeping began,an annual rich list shows.

Nearly half of China’s 1,000 or so richest individuals and families suffered a loss of wealth over the past year,mainly those involved in the solar,textiles and retail sectors,according to the China Rich List published annually by Hurun Report.

China’s richest person,Zong Qinghong,hails from Wahaha Group,China’s leading beverage maker. Wang Jianlin,who holds the number two spot,is founder and chairman of property developer and cinema operator Dalian Wanda Group,which recently acquired US-based AMC Entertainment. Zong’s fortune totals $12.6 billion,according to the report,while Wang trails at $10.3 billion.

The threshold to make the rich list fell by 9% to $290 million,but the lower figure is still three times higher than the cut-off in 2007. China had 2.7 million US dollar millionaires as of August 15,while the number of dollar billionaires fell by 20 to 251.

Manufacturing replaced property as the top source of wealth for the ultra-wealthy. Property was number two,followed by finance and investment,natural resources,and pharmaceuticals.

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