Close Menu

China austerity drive to impact until 2017

The impact of China’s austerity campaign will be felt on luxury alcoholic drinks sector for a further two years, according to Kiki Yang, partner at Bain management consulting in Hong Kong.

Speaking at the Wine in China Conference in Hong Kong on 5 November, Yang said that the crackdown on spending among government officials would continue to affect the luxury drinks market until at least the end of 2016, but added that the campaign’s effect should diminish from 2017 onwards.

“While the leading Baijiu brands thought that things had bottomed out 12 months ago, it hasn’t, and the austerity campaign will probably continue for another two years, although people expect it to dissipate in the next 3-5 years,” she said at the event, which was hosted by Debra Meiburg MW.

The austerity drive was begun almost 18 months ago by Chinese President Xi Jinping and has already cut $8.6 billion in public spending, according to state media.

Looking back over the last four years, Yang described China as “the dream market for all luxury brands in 2010,” and recorded that sales growth for the luxury sector was 30% between 2010 and 2011.

“It started slowing down in 2012 to become almost stagnant in 2013 when the government austerity and anti-corruption campaign began,” she continued.

Exemplifying the effect of the measure, she said that sales of watches were currently 11% down, but had been up 40% in 2010.

Nevertheless, Yang said that the Chinese were spending more on luxury goods outside their domestic market.

“There is a growing luxury spend [by Chinese] outside Mainland China, so they are making up in overseas spending… luxury spending overseas was up 33% in 2012-2013,” she recorded.

While Hong Kong and Macau were previously the main places for Chinese overseas spending, the focus has now shifted to Europe, in particular Paris, according to Yang, adding that this phenomena could in part be explained by the favourable euro-exchange rate.

She also said that Chinese tastes’ in luxury goods has become more sophisticated.

“They are migrating from ‘in the show” to ‘in the know’, and they are switching very quickly… it is a way of showing sophistication,” she commented

Looking at the trends in drinks sales she said that the austerity campaign had affected the baijiu sector in particular.

While the rate of sales growth in wine and beer have both slowed, Baijiu sales have stagnated (see below). “Baijiu sales are flat overall, but the premium sector is down by up to 20% because people are drinking it for consumption, but not for business entertaining,” she explained.

Yang said that wine was to some extent being consumed at business lunches and dinners in place of top-end Baijiu brands, although she stressed that wine was a small part of the market: “Wine is only about 6% of the Chinese alcohol market, people are just getting into it,” she stated.

Wine sales

2008-2012: up 17.8%
2012-2013: up 3.3%

Beer sales

2008-2012: up 10.1%
2012-2013: up 9.9%

Baijiu sales

2008-2012: up 28.4%
2012-2013: up 0%

It looks like you're in Asia, would you like to be redirected to the Drinks Business Asia edition?

Yes, take me to the Asia edition No