Chinese Consumers Cut Down on Luxury Spending as Bubble Prosperity Ends

A Cartier store in Beijing on May 8, 2015. Greg Baker/AFP via Getty Images

Business Analysis

According to Richemont’s financial report released this week, Chinese consumers scaled back on luxury spending in the last quarter of 2024 amid broad economic weakness ahead of the new lunar year.

The Swiss-based maker of prestigious maisons such as Buccellati, Cartier, Delvaux, and Montblanc saw China sales drop by 18 percent in the last three months of 2024. It contrasts with other world regions where Richemont experienced a strong sales rebound. For instance, sales rose by 22 percent in the Americas, 19 percent in Europe, and 19 percent in Japan.

The fall in Richemont’s sales in China follows similar declines by other luxury makers such as Louis Vuitton and Estée Lauder over the past 12 months, suggesting that spending cuts on luxury products among Chinese consumers are a deepening broader trend rather than a temporary aberration.

This trend reflects a broad slump in consumer spending. Retail sales growth dropped from the upper teens more than a decade ago to the low single digits by the end of last year.

That’s thanks to the end of the “bubble prosperity,” which left Chinese households saddled with debt, falling asset prices, and limited job opportunities as economic growth spattered.

For more than a decade, the world’s second-largest economy has relied on monetary easing and robust government spending to boost economic growth and compensate for the challenges it faced in its export markets.

The problem with these policies is that they blow asset bubbles that take the economy for a wild ride: a temporary boom followed by a bust.

For instance, monetary easing boosts risky household assets such as equities and real estate. Still, it ends in a bust once the nation’s central bank drives interest rates near zero, leaving no ammunition for further stimulus.

It happened in Japan in the late 1980s and early 1990s, and it has happened in China over the past decade.

For instance, monetary stimulus helped the China Shanghai Composite Index rally by close to 35 percent between 2029 and 2015, but it has been a bear market since then, back to where the rally began in 2009.

Real estate asset growth fared better, holding on to some gains for a while, but it too descended from double digits in 2019 to negative territory in 2024.

Likewise, fiscal stimulus, often directed to projects that aren’t economically feasible, such as bridges to everywhere and nowhere, airports without travelers, and shopping malls without shoppers, fuels economic booms. At the same time, the construction lasts but is followed by busts when it ends.

In short, the Chinese economy is addicted to repeated doses of monetary and fiscal stimuli. It runs high when under a high dose of these policies, but it slows down once the dose is over. For instance, the nation’s Gross Domestic Product (GDP) ran in the upper single digits in 2009 and 2010, following massive monetary and fiscal spending, but it dropped to around 5 percent in 2024.

Low economic growth and lower asset prices give Chinese consumers little resources and appetite to buy discretionary items such as imported luxuries.

“China’s slowing economy is reshaping consumer priorities, with a clear shift away from discretionary luxury spending,” Michael Ashley Schulman, chartered financial analyst, told The Epoch Times.

“This trend not only impacts global luxury giants like Richemont, Porsche, LVMH, Kering, and Burberry but also signals broader economic caution among Chinese consumers as they navigate uncertain times and tensions with the West rise.”

In addition, Schulman sees national pride campaigns persuading Chinese consumers to favor domestic brands, particularly in sectors such as technology, fashion, and cosmetics—with high-quality and lower price points.

“Past tensions, such as boycotts of brands like H&M and Nike over their stances on Xinjiang cotton, have also helped to fuel public sentiment against Western goods,” he added.