China’s big-money crackdown knocks billionaire Arnault down a peg on world’s rich list

August 20, 2021, 3:04 PM UTC

In a swipe at China’s growing billionaires club, Chinese President Xi Jinping vowed this week to “adjust excessive incomes” and prop up the country’s massive middle class. The ripple effects could be felt halfway across the world, starting with Europe’s luxury brands.

Shares in LVMH Moët Hennessy–Louis Vuitton, makers of $45,000 handbags, Dom Pérignon Champagne, and Hennessy cognac, have fallen nearly 10% since Tuesday when China’s superrich were put on notice. The tumble dented the net worth of chief executive Bernard Arnault, enough to knock him down a peg on the Forbes world’s richest list to No. 3, behind Elon Musk.

LVMH—the umbrella brand owning an arsenal of luxury names like Louis Vuitton, Tiffany & Co., Moët, and Christian Dior—wasn’t the only casualty. France-based luxury brand Kering, owner of Gucci, Saint Laurent, and Bottega Veneta, dropped 9.47% in the same period. Swiss-brand Richemont fell by 6.6%, and London’s Burberry sank 5.51%.

China is a critical market for luxury brands, and the new crackdown puts a potential spanner in their post-COVID recovery plans. The superrich in China helped account for 20% of global sales in luxury products last year, according to Bain & Co.

In the first quarter, LVMH sales in Asia (excluding Japan) were 86% higher compared with the same period a year earlier, underpinned by greater demand in China.

Beijing’s apparent crackdown on the superrich is ostensibly to combat growing wealth inequality, a hot-button issue in China. China’s Gini coefficient, a measure of inequality, increased to 70.4 in 2020, from 59.9 in 2000, according to Credit Suisse—and the pandemic has only widened the gap.

In a bid to combat economic inequality, China is mulling higher property, inheritance, and capital gains taxes on the ultrawealthy. Beijing has also unleashed a regulatory blitz on various industry sectors, from tech to insurance to transportation to education, a move that’s broadly sunk Chinese stocks and clipped the paper wealth of the country’s top earners.

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