China’s voracious appetite for luxury products, including premium food and travel, is waning due to economic turbulence and geopolitical tensions, according to a new report by Paris-based investment bank Natixis.
China has long been a significant market for luxury goods. Although the country’s luxury spending remains high at 12 percent, compared to the global average of 9 percent, it saw a decline year over year in 2023. This downward trend is concerning for exporters of premium seafood like French oyster brand Gillardeau. In an effort to boost sales, Gillardeau collaborated with winemakers for a recent tasting event on Jinbao Street in Beijing’s financial district, where attendees paid CNY 588 (USD 82.30, EUR 76.44) to sample French oysters and wines from renowned regions like Bordeaux, Burgundy, Loire, and Rhone.
Natixis emphasized that a significant effort is needed to rekindle Chinese consumers’ interest in luxury products. China’s property sector, a historical driver of GDP growth, has recently faced severe challenges, leading the government to announce a CNY 300 billion (USD 42 billion, EUR 39 billion) rescue package deemed insufficient by analysts.
A survey by Beijing Dacheng of over 1,400 companies revealed that 60 percent of private businesses experienced a revenue decline or zero growth in 2023, with only 28 percent planning to increase investment in the next two years.
“Our view at this juncture is that China’s luxury market may stall due to structural deceleration,” Natixis noted. “A weaker yuan and a low inflation environment mean the cost of luxury spending will rise, deterring middle-class consumers. With decelerating disposable income and lower consumption propensity, regulatory changes, state-led wage cuts, and a weak property and equity outlook have dampened sentiment.”
Further evidence of tightening wallets in China is seen in the hotel industry, with revenue estimated to be only 79 percent of 2019 levels as of March 2024, affected by “consumption downgrades, deflationary pressure, and tightened corporate travel budgets.” Additionally, spending by Chinese tourists has plateaued or even contracted, with Natixis suggesting part of this spending reflects capital flight rather than actual tourism expenditure.
Natixis also predicted that higher taxes in China, implemented to support state budgets, will further curb spending.
“Reviving luxury spending in China will be an uphill battle,” Natixis concluded.
Seafood producers have had to adapt to these changes. In early 2020, the Chinese government introduced incentives for aquaculture companies to focus on farming luxury species like grouper, sea bass, salmon, and trout, anticipating a rise in luxury spending. However, the impact of the Covid-19 pandemic and recent economic struggles have shifted consumer spending towards lower-value species like tilapia, snakehead, and pangasius, reflecting the broader trend of consumption downgrade in China.