Luxury Goods Manufacturers Crippled by Anti-Extravagance Campaign in China

Published on Author Walker Helvey

brother+watchA Chinese blogger has spurred a nationwide anti-corruption and anti-extravagance campaign after compiling and publishing photos of government officials wearing expensive watches that they could not reasonably afford. China’s new railway minister, Sheng Guangzu, was photographed wearing watches worth a combined 400,000 yuan ($64,544). The average salary for a government minister is roughly 65,000 yuan ($10,747). The discrepancy between the two statistics appears to be a recurring theme across the board for government officials, prompting backlash from Chinese president Xi Jinping.

President Xi launched a campaign “targeting the lavish buying habits of government officials.” Judging by the profits and losses reported in China by several luxury goods manufacturers, the campaign appears to have been a success.

Richemont, the Swiss luxury watch manufacturing company, experienced a flat-line in revenue from sales in China and Hong Kong, which account for more that 25 percent of company sales, during the third quarter of this fiscal year. The value of Richemont shares fell by 7.9 percent during the same time period.


The Prada Group experienced a drop in net income of over 28 percent for the fiscal year of 2014, with sales in China down 7 percent. To provide substance to the correlation between China’s anti-extravagance campaign—or perhaps China’s overall slowing economic growth– and Prada’s sales: this it the first time Prada reported a drop in profits since it was listed on the Hong Kong Stock Exchange in June 2011.

According to an HSBC Global Research report, Chinese buyers account for 25 percent of global luxury spending. Furthermore, the Australian Financial Review reported that as much as 60 percent of expensive watches in China are gifted to government officials.


3 Responses to Luxury Goods Manufacturers Crippled by Anti-Extravagance Campaign in China

  1. China’s anti-extravagance is aligned with anti-corruption campaign. Historically, China’s rapid economic growth is closely related to corruption because these relationships helped get around the excessive regulations and controls and thus improved efficiency. The government’s current effort to eradicate corruption, however, is focusing on its demoralizing effect on perception of social equity and justice. For the campaign’s success, the government will need to suggest altering incentives by eliminating regulations that nurture corruption.

  2. It seems that these anti corruption campaigns are effective. They target the psyche of government officials, making it socially taboo to flaunt wealth or extravagance. The stat saying that the top European watchmakers Chinese revenue fell last year seems telling, considering government officials and the wealthy are the only people capable of these purchases.

  3. Conspicuous consumption is an easy target, and past short-lived campaigns were effective in stemming the sales of certain goods (high-end baijiu, Chinese vodka).

    There is another hypothesis: economic slowdown. But are luxury goods sensitive to short-term changes in average income (= GDP)? — I don’t know!