As Xi Jinping visits France, luxury brands seek to overcome trade tensions

For years, wealthy Chinese tourists traveled to Europe to shop in its boutiques, but when the Covid-19 pandemic hit, the country introduced draconian restrictions that prevented them from leaving the country. The measures have also plunged the world's second-largest economy into a slowdown from which it is struggling to recover, with consumer confidence shaken and attitudes towards high-end shopping beginning to change. Today, as China emerges from the haze of the coronavirus, luxury brands are trying to seduce their buyers. In this difficult context, they clearly want to avoid being trapped by trade tensions between the European Union and China.

While Chinese President Xi Jinping is on a state visit to France, the luxury sector hopes to put several sensitive issues on the table.

Tariffs and regulatory barriers

In recent months, the EU has increased investigations into Chinese public subsidies to several industrial sectors, notably electric vehicles. In response, China opened an anti-dumping investigation against the European spirits sector and threatened certain products in particular cognac and armagnac with a preventive increase in customs duties.

At the end of LVMH's annual general meeting in Paris on April 18, the group's CEO, Bernard Arnaultsaid he hoped that China's Xi Jinping's visit to France would help smooth trade relations with Beijing. I hope that economic tensions will ease and that we can continue strong economic collaboration with China, he told reporters.

As far as cognac is concerned, his wishes have been granted, the increase in customs duties is, it seems, suspended.

But this was not the only area of ​​concern for French luxury brands; the cosmetics industry, for its part, hopes that the heavy regulations that Beijing wants to put in place will be lightened. While France has an annual trade deficit of 46 billion euros ($49.6 billion) with China, the perfume and cosmetics sector is one of the rare areas where France benefits from a trade surplus. The stakes are enormous for the country!

For trade to be fair, everyone's market access must also be reciprocal. We discussed how to make real progress on market access. I remain convinced that further progress can be made. At the same time, we are ready to make full use of our trade defense instruments if necessary, said The President of the European Commission, Ursula von der Leyen » declared Monday, after a trilateral meeting with French President Macron and Chinese President Xi Jinping.

Slowdown in China

These trade tensions come at the worst possible time for the luxury industry. Several global brands recorded declining sales due to the slowdown in the Chinese market. Consulting firm Bain & Company predicts single-digit growth in China's luxury market in 2024compared to 12 percent last year.

“The economic slowdown has an impact on the confidence of Chinese consumers of luxury goods,” said Lisa Nan, Jing Daily correspondent, which reports on the Chinese luxury sector. “We are faced with much more cautious and value-oriented consumers, who also check the market value of the handbag before making a purchase.“

After the pandemic, consumer tastes and priorities have also changed. Some consumers say they prefer to travel rather than buy overpriced products.

That's a trend evident in a report on the preferences of wealthy individuals compiled by research firm Hurun. “There is a significant shift towards experiential luxury rather than luxury products,” said Nan of Jing Daily.

Fflur Roberts, head of luxury goods at Euromonitor International said the outlook for the luxury market remained “challenging” and that brands should err on the side of caution. “That said, China still has more than 2.5 million people with a net wealth of more than $1 million.” she added.