Luxury Brands in China: Price Cuts Ahead?

As I mentioned in a previous post one of the big draws of China is the mark-up many will pay for western brands. In light of this it was with interest that I read an interesting article in last Thursday's Financial Times which suggested that the Chinese government is actively targeting a cut in the price of luxury goods. This theory stems from the recent history of the baby milk business- health scares involving Chinese manufacturers’ milk has resulted in a huge premium for brands such as Danone and Nestlé. More recently, both companies have become the focus of a price-fixing investigation and in rapid response have announced cuts of 5-20 % and 11% respectively.

Even more interesting though is the writer’s assertion that this is the rule not the exception: “This undisguised pressure from Chinese officialdom seems to form part of a broader campaign to cut prices for domestic consumers. Over recent months, officials have targeted a wide range of foreign and domestic companies, from drug manufacturers and luxury carmakers to jewellers.”

If this is the case, it is both interesting and important for any number of reasons; but perhaps one positive that Irish exporters can take from it is that the authorities may actually welcome more competition amongst foreign brands. Alternatively, and more negatively, maybe it just demonstrates that this market remains a tough place to operate if you are not a domestic player.



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