China injects $150 billion into its economy – What are the consequences for luxury goods?

Recently, China has been facing a real estate crisis, sluggish consumption and high unemployment among its youngest citizens. The world's second-largest economy, behind the United States, is struggling to recover and achieve the 5% GDP growth expected by the Chinese authorities for 2024.

As a result, the growth of luxury brands is stagnating. Chinese consumers, who accounted for 23% of the global luxury goods market last year, no longer have the same priorities. Luxury products have taken a back seat to other purchases such as experiences. The Chinese are even said to be ashamed of buying luxury goods, and to favour the ‘quiet luxury’ trend, which advocates discreet, sober and minimalist luxury.

In recent months, the Chinese authorities have stepped up stimulus measures and support for the private sector, infrastructure construction, and consumer spending. In 2021, the authorities launched a shared prosperity programme aimed at reducing inequality and targeting the wealthiest. But until now, the central bank has opposed the idea of a major stimulus plan.

In concrete terms, the plan provides for a reduction in the key rate of the People's Bank of China from 0.25% to 0.2%, measures to support the property sector with a reduction in mortgage lending rates and special support for the tourism sector. Other measures have been taken to stimulate domestic consumption and encourage spending. According to Pan Gonsheng, head of the Central Bank, ‘the measure will benefit 50 million households and 150 million people’ and ‘will help stimulate consumption and investment’, reports Le Figaro.

The announcement on Tuesday, 24 September, struck a chord with investors worried about the slowdown. The CAC 40, up 1.43% at the opening of trading, and France's luxury giants were propelled to centre stage. LVMH's share price rose by 3.5%, Hermès by more than 4% and Kering by almost 5%. Elsewhere in Europe, other luxury brands and groups with high exposure to revenues from the world's second-largest economy, such as Burberry, Richemont and Ferragamo, rose by around 4%.

But although luxury stocks surged after Beijing's announcement, nothing is certain yet. A rise in the purchasing power of Chinese consumers is no guarantee of luxury spending. It would be premature to declare victory just yet for the luxury sector, which, it should be remembered, is experiencing a sharp slowdown in its exports.