France and luxury go hand in hand. The majority of Cac 40 companies belong to the luxury sector, a sector which represents 15% of the French economy and which now appears to be the next target of this trade war between Beijing and Brussels over customs tariffs on electricity. cars from the Asian giant.
Beijing’s response to this is a tariff on European cognac, which comes into effect today, and which represents a major blow to the Gauls. 95% of exports of spirits from the Old Continent to China came from across the Pyrenees last year and represented $1.7 billion in 2023. Regarding European luxury products, China imported 11 billion euros.
It is true that Spain is also affected by this measure, but it does not affect it as much as the customs duties on pork, since our country is between the second and third exporter of pork to China. For now, Xi Jinping’s administration has dismissed the pork idea and gone after France, voting in favor of tariffs on electric vehicles, while Spain abstained.
On the issue of brandy, a product entry rate into the country of 34.8% would be applied to wineries like Osborne or Miguel Torres (producers of this liqueur). In the case of French companies, Martell brandy would have an entry duty of 30.6%Rémy Martin 38.1% and Hennessy 39%. This dealt a blow to companies whose prices on the French stock market began to fall since the announcement and cognac prices fell between 2% and 6% on Tuesday after Beijing announced it would impose “anti-dumping measures”.
According to data from Bank of America, the luxury sector in France has experienced an average growth of 9% for two decades and 40% of this growth is due to the Asian giant’s wealthy consumers.
The president of the Cognac producers’ union, Anthony Brun, assured French public television TV5 Monde that these tariffs would lead to “disastrous consequences”, but not only for those who market the product, but that “they will generate a domino effect. to the rest of the industry and the families who make a living from it,” he said.
The fact is that the luxury industry in France extends from leather goods (bags and shoes), to cosmetics and haute couture. Hermès, Hering, L’Oréal, Chanel, etc., the major luxury flagships are very exposed to China’s new protectionist measures. It must be taken into account that for many of these companies, the giant Asian market represents 30% of their turnover.
In 2022, luxury exports from France to China increased by 0.2% to reach 6.3 billion euros and doubled compared to 2019. Furthermore, according to the latest China Luxury Report from Bain&Company, the China’s luxury market saw an increase of 12% in 2023 and is expected to grow at a rate of 1.5% this year.
It is clear that the weak domestic demand of the Asian giant is affecting the recovery of the sector and that these figures, indicates the report, are due to the fact that they were based on very low consumption levels due to the long closure that the country suffered during the Covid-19 coronavirus pandemic.
“Uncertainties remain about how quickly consumer confidence will recover and how luxury purchases abroad will evolve,” said Bruno Lannes, senior partner at Bain & Company in Shanghai.
The size of China’s luxury market, even accounting for its recent slowdown, is expected to account for 35% of the global total this year, according to Jelena Sokolova, senior equity analyst at Morningstar.
In this sense, the managing director of China consulting at Digital Luxury Group said in statements reported by Reuters that targeting luxury goods in China “would go against policies consciously favorable to luxury companies.” What the expert is referring to is that Beijing hopes that Chinese wealthy people buy on its territory and do not waste money on foreign markets.
“If there were a new tax environment that forced luxury brands to raise their prices in China, it would further incentivize Chinese consumers to spend their luxury spending outside of China, which is the opposite of what wishes the government,” he assured.
The type of luxury industry, based on exclusivity, makes it very difficult for China to justify the tariffs as an “anti-dumping” measure. The classic Chanel 2.55 bag costs almost 2,000 euros; it would be impossible to accuse the firm of unfair competition when faced with a Chinese bag.
