SHANGHAI, Oct 9 (Askume) – Investors worriedShares of European luxury brands fell after the EU decided to impose tariffs on Chinese electric cars , but analysts said Hermès handbags and Dior slingback shoes could be the next targets of Beijing’s retaliation , but analysts said they are unlikely to move.
“The question is how Beijing will react to the EV tariffs. Will the tariffs go up? I think so. Will it target luxury goods? I don’t think so,” Patrice Nordi, CEO of Shanghai, a U.S.-based innovation consultancy, told Trajectory.
China’s actions so far in its ongoing tit-for-tat trade dispute with the EU have mainly targeted brandy, pork and dairy products, all key industries for France, which is lobbying to impose tariffs on imported Chinese-made electric cars in the bloc.
LVMH (LVMH.PA) and Hermès, which also sells high-end Hennessy cognac(HRMS.PA) , Kering (PRTP.PA) , Ferragamo (SFER.MI) and Burberry (BRBY.L) fell 2% after Beijing said on Tuesday it would impose temporary anti-dumping measures on imported brandy .
Targeting luxury goods in China would be in contrast to the usual preferential policies for luxury goods companies in the world’s second-largest economy, where Beijing is keen to maintain a greater presence, said Jacques Roizen, managing director of China consulting at Digital Luxury Group, citing the high consumption of luxury goods in the country.
He cited as an example Hainan, which has become a major duty-free hub largely because policymakers recognised that China’s luxury consumption was good for the country.
“When luxury goods are sold in China, it means more taxes, and that’s important,” he said.
“If the new fiscal environment forces luxury brands to raise prices in China, this will encourage Chinese consumers to spend on luxury goods outside of China, which is contrary to the government’s wishes.”
Even taking into account the recent slowdown, the size of China’s luxury goods market is expected to account for 25% of the global total this year, said Jelena Sokolova, senior equity analyst at Morningstar.
He said this helped explain the reaction of European luxury goods stocks to every Chinese announcement, but it also meant that the threat of imposing tariffs on imported luxury goods or increasing domestic consumption taxes would also hurt French luxury goods groups.
Last year, exports of French brandy to China reached $1.7 billion, accounting for 99% of the country’s spirits imports, while China imported 11 billion euros ($12 billion) of European luxury goods last year.
But Ho Chi Minh, an economics professor at China Europe International Business School in Shanghai, said the very size of the luxury goods industry could make it an unlikely target for Beijing.
“I think at this point, neither the EU nor China wants a full-blown trade war that would harm both economies,” he said. He added that China has so far been relatively cautious in planning its retaliatory targets, a sign that Beijing is keen to continue talks and work toward a deal with Brussels.
The nature of the luxury goods industry also makes it difficult for China to properly support dumping claims.
“Logistically, it’s very hard to justify dumping a $2,000 handbag,” Sokolova said.
(1 USD = 0.9122 EUR)
(This Oct. 9 report has been corrected in paragraph 9 to show that analysts’ estimate of China’s market size was 25% of the global market, not 35%.)
