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Photo by Sheng Peng Peng Cai on Unsplash.com.

LUXURY INDUSTRY PONDERS COST
OF CHINA’S ZERO-COVID POLICY

 

With the outbreak of the novel coronavirus in Wuhan Province in late 2019, China became the first country to deal with the onslaught of what became known as COVID-19. It stood alone, but not for long. In just several months the illness had become pandemic, and there is today no nation on the face of the earth that has not been touched.

China, though, has remained apart. While, over the past two years almost all countries have developed systems of living alongside the coronavirus, with many already operating as if the pandemic is in the reverse mirror, the Chinese authorities continue to enforce a strict zero-COVID policy, by which they aim to eliminate all evidence of the disease though lockdowns and social distancing. What this has meant is that almost all activity is suspended in any metropolitan center where COVID-19 has been detected, severely hampering economic activity in the area.

It is a strategy that has puzzled many outside of China. The wider availability of vaccines and therapies, acquired immunity from severe illness through both vaccines and wide-spread infection, not to mention the lower virulence of the now dominant Omicron variants, has meant that threat of the collapse of public health systems is considerably lower today that it was at the start of the crisis. Furthermore, the evidence that many who previously had COVID are still susceptible to reinfection raises question as to whether the Chinese have an end-game mind, or whether they are caught in a bind from which they cannot escape.

The economic impact of the policy is a substantial, especially if one considers that we are referring to the world’s largest producing country and its second largest consumer economy. For the luxury industries, for almost two decades the China has also been the engine for a period of almost uninterrupted growth. Could that be coming to an end?

Photo by Martin Sanchez on Unsplash.com.

HEAVY HANDEDNESS AFFECTS CONSUMER CONFIDENCE

The scale of the Chinese COVID restrictions are staggering. Reporting midway through May, the Japanese financial firm Nomura Holdings estimated that about 373 million people residing in in 45 cities in the country, which is a number more than the entire population of the entire United States, have been living under some form of lockdown over the past 30 days.

The drag that this created on the Chinese economy almost certainly has impacted luxury stock prices, with the value of shares of all the major French luxury firms – Louis Vuitton, Kering, Hermès, and Richemont – slipping in May. Also cited as reasons for the softer share prices are the war in Ukraine and supply chain bottlenecks.

Economists quoted by Jing Daily have warned that the cost of the latest coronavirus outbreak in China could be more than ten times as that of the episode in Wuhan. This seem to be an uncalled for consequence, because by the standards of some Western countries the number of individuals infected China remains low. According to Worldometer, on May 26 there were 3,387 active cases in all of mainland China, which a country with a population of 1.44 billion. To illustrate, the figure is less half the number of active cases in Denmark, which has a population of 5.83 million and has dropped almost all its COVID restrictions.

So it is less COVID and more the government’s heavy-handed policy which is a impacting on the Chinese market, and more particularly on consumer confidence about the future.

“I never realized the importance of saving until last month when Shanghai came under total lockdown. An entire department from my company was fired over a video meeting, and it is really hard to say if this will hit me anytime soon,” said Lily Huang, a 27-year-old product manager in a major Chinese tech firm, quoted by Jing Daily.

“Until last year, I wouldn’t have had a second thought about using my annual bonus to reward myself with a Chanel bag or a luxury watch. Everyone around me took it for granted that our income could only grow higher and higher in the future. But times have changed,” she added.

CHINESE LUXURY UNLIKELY TO SINK

But in a Jing Daily article entitled “Why China’s New Lockdowns Won’t Sink Luxury,” Adina-Laura Achim suggests that, while the lockdowns will create temporary challenges and setbacks for luxury product houses, they are unlikely to have any long-lasting impact on their performance.

 “We’ve seen [in previous lockdowns that] once this is over, demand comes back to stores as prior to lockdowns. There’s no reason this shouldn’t be the case this time,” Achim quotes LVMH’s chief financial officer Jean-Jacques Guiony as saying.

Business of Fashion reports as similar positive outlook at Hermès . The company recorded “a strong start to the year in China,” said Eric du Halgouet, the company’s chief financial officer, even though the lock down did force it to temporarily shutter some of its stores.

“We are confident and hope that these stores in Shanghai will reopen quickly — in any case the fundamentals are excellent in China,” he added.

Chinese vendors like JD.com, Alibaba, and Pinduoduo are expected technology-driven omnichannel marketing to get them through the period. This, says Jing Daily, includes AI solutions, digitally enabled delivery systems, smart stores, and digital supply chain systems.

Photo by Sheng Peng Peng Cai on Unsplash.com.

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