Geopolitics & Luxury: the consequences of Xi Jinping’s visit

Less than a week ago, the French and Chinese flags were unfurled together on the Esplanade des Invalides in Paris in honour of Chinese President Xi Jinping, who was visiting the French capital. Despite the smiles on the faces of the heads of state in front of the press photographers, the tensions generated by this visit were palpable. China is a crucial market for European luxury brands, accounting for around half of the sector's sales. Any external political tension can translate into boycotts and retaliation against Western brands.

Several thorny issues had to be put on the table: unfair competition in the field of electric cars (the Chinese industries in this sector are massively supported by state aid, and the taxes applied to European cars in China, including luxury models, are higher than the taxes applied in Europe to imported vehicles), counterfeiting, the reciprocity of trade rules not respected, denounced by the European authorities, and the slowdown in the Chinese market, which is struggling to return to its normal rhythm.

What worries European producers of top-of-the-range products today is the attitude of Chinese consumers, who are less inclined to buy luxury goods. Indeed, the draconian measures taken by China to counter the COVID-19 epidemic have brought part of the middle class to its knees. For them, caution is the order of the day, and purchases on the second-hand market are on the increase. Against the backdrop of the economic crisis, the appeal of iconic Western labels is beginning to fade. Bain and Company predicts that the luxury goods market in China will slow by several percentage points: while sales could still grow by 12% in 2023, this year, they could fall below 10%.

The repercussions of the trade dispute are already being felt, with China preemptively increasing customs duties on certain French products, including spirits like cognac (although this increase has been temporarily suspended). The French wine industry is already grappling with these challenges, but it's the future of the cosmetics and fragrances sector that is causing the most concern among industry leaders, given its significant role and the potential impact of the dispute.

While France has a trade deficit of €46 billion with China, the cosmetics and fragrances sector is the only one to have a surplus and a positive balance sheet. Could the stand-off with the European authorities jeopardise the situation?

Instead of seeking a compromise with Europe, Xi Jinping persists in firmly defending China's trade strategy, regardless of the warnings issued by the President of the European Commission, Ursula Von Der Leyen, and the concerns of European manufacturers who are seeing Chinese state-subsidised products flooding into their domestic markets.

While the dialogue with Xi Jinping has yet to produce the hoped-for results, France is trying to make its presence felt elsewhere. The 7th Choose France summit, aimed at promoting foreign investment in France, is currently being held in Versailles. More than €15 billion of investment across all sectors has been announced, a record figure achieved mainly thanks to American investors. France, which remains the most attractive country in Europe in terms of business and investment, is determined to look further west.