Trouble ahead for China's luxury goods market

Two parts of yesterday's FT didn't quite match up. The paper contained a 'special report' on watches and jewellery which explained at some length how China is all but single-handedly "driving growth in the hard luxury market".

Last year wasn't so great, we are told, thanks to the "government clampdown on corruption and ostentatious gift giving" that flattened, amongst other things, the Swiss watch market. Good news then, that this year "industry observers" reckon everything is back on track: they are all predicting a "bright year".

Maybe they'll get it. But look elsewhere in the paper and it is hard to be so sure. According to Patti Waldmeir, writing from Shanghai, there is to be no let-up in the drive to create a "new leaner, cleaner, more abstemious China".

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

Sign up

Officials dare not take bribes this Chinese new year, but worse, the "more innocent perks of the season have also been quashed". There are to be no more taxpayer funded office feasts and galas, and no more lavish new year raffles.

One state-owned financial company has replaced "new year gifts such as iPads with toothpaste" and another has banned the printing of new year calendars. But the end of drunken new year parties isn't the only thing I would be worried about if I were a luxury goods producer.

The Times weighs in this week with an interesting little story from Leo Lewis about a new campaign to "curb the greed and ambition" of so-called 'naked' officials. The naked bit refers to the fact that they have both "moved their families overseas and spirited huge illicit fortunes out of China".

The nakeds stay in China themselves continuing to accumulate cash and hope for the best, but they do so in a state of "permanent readiness to flee" and in the hope that if and when they are investigated, their families and their (or China's) money will avoid the fall-out.

This is getting harder: new rules are to bar officials from any form of promotion if they have close family living abroad (and in doing so presumably brand them as being under watch).

So black and white are the rules that even those who have divorced are to be banned if they have children living abroad with an ex-wife. Given that historically the main driver of luxury goods sales in China has been a booming mix of bribery and corruption, this would seem an odd environment from which to expect a "bright year" to blossom.

And if everything was really going that swimmingly for the sales of super expensive trinkets, would Montblanc be launching a new range of watches at "competitive prices" (think €10,000 and €27,000)?

After all, in the special report, Larry Pettinelli of Patek Phillippe notes that it is vital the prices of luxury products never fall: "any decline would erode customer faith in what pieces and brand equity are worth".