Merryn's Blog

China’s clampdown on luxury starts to bite

China’s war on corruption has meant a big drop in sales of Swiss watches. Other luxury goods could soon follow, says Merryn Somerset Webb.

We've written hereseveral times that we expected the clampdown on corruption in China to have an effect on the luxury goods market.

Cue a fascinating little fact from an analyst at Credit Suisse: it turns out that on their estimates, 8% of Lamborghinis sold in China are bought by the armed forces. The same goes for 5% of Maseratis, 8% of Land Rovers (this might make more sense), 6% of Aston Martins and 2% of Ferraris. Amazing.

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The bad news - for luxury car makers, if not Chinese taxpayers - is that a new regulation has just come into force that prevents luxury vehicles from carrying new military licence plates.

This, says Credit Suisse, will be particularly bad for sales of luxury SUVs (very popular with the army) such as Range Rovers and Audi Q7s. How bad? Credit Suisse think the rules will "only marginally affect sales near term".

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But looking at watch sales I wonder if it might be a little more than marginal. It also turns out that, thanks to the new government's war on watches (well, luxury watches taken as bribes anyway), in the first three months of this year the value of Swiss watch exports to China is down 26% against the same period a year ago. In March alone sales to China were down 31%, and those to Hong Kong down 9%.

That, says an analyst at Citi, makes it "one of the worst monthly performances" for three years. There might be more of those coming.

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