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Gossip September 2012

China’s slowing economic growth rate has given many luxury brand executives cause for concern. Recently the government launched a new policy that may give them even more to worry about. This July, new regulations were announced prohibiting government departments and officials from purchasing luxury products as gifts beyond a specified standard and level, this policy may significantly affect the sales of luxury goods in the Chinese market.

In China gift giving is an integral part of doing business. Products such as watches, luxury cars and other luxury gifts are used to consolidate commercial relations, but the new policy will fundamentally work against this practice. The new policy will be formally launched on October 1 and aims to put an end to the wasteful consumption by government officials and rectify the bureaucratic ethos. Apparently, those officials who do not comply with this requirement will be severely punished, and may also lose their jobs. Can the invisible bond between government officials and luxury goods be broken?

Allegedly, luxury brand executives have noticed the decline in the number of government officials purchasing luxury products this year, however, they would have been expecting the situation to recover around November after the change of communist party leadership, but this new policy may still deliver a colder than expected winter for those luxury brands in China.
As a result of the announcement of this new policy, the Internet is alive with Chinese netizens searching for and reporting corrupt officials with more than their fair share of luxury products. Pictures of them sporting luxury watches at official functions for example, are commonplace. The government has established a department called the ‘discipline inspection committee’ just to investigate these officials, and inspectors are now being trained how to identify luxury products that are ‘unapproved’. This whole process sounds suitable to become a script for a comedy series, and no doubt we could imagine officials hiding luxury items in their homes, or disguising them as something else, whilst the bungling inspectors fumble around attempting to catch them red handed.

The end of 2012 will be an interesting time for us
all here in China with a new guard laying out their new policies, and it may be a time of many headaches for luxury brands as well. However, this is China, and expecting the unexpected is the name of the game.


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