Luxury goods emerge tentatively from long Chinese freeze

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Worries about Chinese growth have bedeviled stock markets as 2016 gets under way but, for the luxury goods sector at least, there has been some better – if not stellar – news from the world’s second largest economy.

Burberry Group and Richemont said the luxury-goods market returned to growth in mainland China at the end of last year; good news for the industry as sales in Hong Kong kept slumping. The British clothes-maker’s Asia-Pacific sales excluding Hong Kong and Macau rose by 1% in the three months through December, helped by China’s rebound, Burberry said on Thursday.

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Richemont, the name behind Cartier jewellery, said sales in the Asia-Pacific region declined 9%, compared with the 16% drop analysts had expected, thanks to better news from mainland China.

The reports may reduce concern about that market as the country’s economic growth weakens to the slowest pace in two decades. The luxury industry has focused on consumption from rich Chinese consumers, who in past years have accounted for as much as half the world’s spending on Swiss watches, for example.

Christopher Bailey, chief creative and chief executive officer at Burberry, said on Thursday that headwinds in Hong Kong and Macau “masked an otherwise stronger performance in many markets.”

Luxury goods sales in China have been hit hard by an anti-corruption drive launched in 2012 by Beijing. It has hit sales of luxury goods and top-line alcoholic spirits hard, as the gift giving previously integral to Chinese political and business life slowed.  The chart below from Capital Economics shows the effect of the ban on large luxury retailers’ sales.

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Back in December, Capital Economics’ China economist Chang Liu noted a rebound in sales of jewellery, catering for gala banquets, and Maotai, a high-end brand of China’s favorite liquor, and said it could be proof the worst of the campaign’s effects were over.

The level of spending still sits at or below where it was three years ago , but with few new restrictive rules introduced in 2015 the hope must be that the campaign is no longer causing additional cutbacks in spending.

By David Cottle Courtesy News.Markets

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