by Casey Hall

SHANGHAI (Reuters) – The luxury sector in Europe has been shaken on the stock market by fears that Hermès handbags and Dior pumps could be the next targets of Beijing’s retaliatory tariffs, but several analysts nevertheless believe that ‘such a measure is unlikely.

So far, the measures taken by China in the context of strong trade tensions with the European Union (EU) have targeted certain spirits, pork and dairy products, all three important sectors for France which has decided in favor of additional customs duties on electric vehicles manufactured in China and imported into the EU.

On Tuesday, the announcement of Chinese measures targeting European spirits caused luxury stocks such as LVMH, which also sells high-end cognac Hennessy, Hermès, Kering, Ferragamo and Burberry, to fall between 2% and 6%.

However, investors’ fears are not shared by everyone.

“The question is how Beijing will react to tariffs on electric vehicles. Will there be an escalation? I think so. Will China go after luxury goods? I don’t don’t think so,” said Patrice Nordey, head of a Shanghai-based innovation consultancy, Trajectry.

Director of activities in China for the consultancy firm Digital Luxury Group, Jacques Roizen believes that targeting luxury products in China would go against policies that have always been favorable to luxury companies in the second largest economy. global, where Beijing is keen to keep spending towards the sector rather than seeing its consumers spend in foreign markets.

He cites the example of Hainan, which became a major duty-free center largely because policymakers recognized that luxury spending in China was good for the country.

“When sales of luxury goods take place in China, this results in an increase in tax revenue, which is not insignificant,” he explains.

“If a new tax environment forced luxury brands to raise their prices in China, Chinese consumers would be more incentivized to make their luxury spending outside of China, which goes against what the government wants. “

According to Jelena Sokolova, an analyst at Morningstar, the size of the Chinese luxury market, even taking into account its recent slowdown, is expected to represent 35% of the global total this year. This partly explains the sensitivity of European luxury on the stock market to each announcement from China, according to her.

The sheer size of the luxury industry in China could make it a less likely target for Beijing, notes Albert Hu, professor of economics at the China Europe International Business School in Shanghai.

“I think at this stage neither the EU nor China want a full-scale trade war that would harm both economies,” he said, adding that the relatively careful orchestration of retaliatory targets by the China so far indicates that Beijing wants to continue negotiating and working towards a compromise with Brussels.

Due to the very nature of luxury goods, it is also difficult for China to defend its dumping claims with common sense.

“It is difficult to logically justify the dumping of a handbag costing $2,000,” says Jelena Sokolova.

(Written by Casey Hall; Florence Loève, edited by Blandine Hénault)

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