Will Chinese President Xi Jinping’s call for Common Prosperity dent China’s hitherto expanding luxury market? The country’s strong economic recovery with a growth in gross domestic product (GDP) of 18.3 per cent in the first quarter of this year had brought much cheer to the estimated $53 billion luxury market in the post Covid 19 pandemic phase.

In a report, published in December 2020, Bain & Company said that the luxury goods market in mainland China saw a significant boost in consumer spending in 2020, despite the pandemic. It said that the demand and growth in the luxury segment will continue and by 2025, it will have the largest global share.

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The report also said that a decrease in global travel in the wake of the early Covid-19 lockdowns prompted Chinese consumers to turn to national sources for their luxury purchases, sending the domestic market climbing.

However, that was then. The recent speed breakers in the country’s economic landscape with the default of the real estate major Evergrande Group and the Xi’s clampdown on the private sector have cast a shadow on the luxury segment players. Many believe that the luxury sector could be the next target. "Luxury market in any case is directly linked to the wealthy Chinese and the government's new ethos could be a dampener," an analyst told India Narrative. 

“Common prosperity is an essential requirement of socialism and a key feature of Chinese-style modernisation,” Xi has said.

While an ageing population was already posing a threat to consumption, the cracks in the Chinese economy could have a more immediate effect on the sector.

Real estate segment has been one of the key saving instruments for the Chinese. The Chinese real estate sector and its allied services account for about 30 per cent of the country’s gross domestic product (GDP). Besides, according to the latest data, about 29 per cent of all bank loans are directed towards housing. This would mean the uncertainty in the real estate sector will force the Chinese to spend less.

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Meanwhile, in a report, Jing Daily— a digital publication on luxury consumer trends — said that a study conducted by the Chinese Academy of Social Sciences has revealed that China’s population will peak at 1.44 billion by 2029, entering an “unstoppable” decline.

“There is a growing apprehension among the people who are restraining from flaunting wealth or going in for high value purchases. This is a rather recent phenomenon, we have to see how this trend impacts overall consumption,” the analyst said.