The global luxury goods industry is facing increasing pressure as China tightens its tax measures on the wealthy, coinciding with the emergence of signs of weak consumer spending in the United States, which threatens to deepen the crisis of a sector worth about 350 billion dollars, and which has been suffering from an ongoing slowdown for 3 years.
Markets are awaiting the results of major European groups in the coming days, amid fears that new Chinese taxes, the repercussions of the war on Iran, and a decline in American consumer confidence will delay the recovery that companies and investors were hoping to achieve during the second half of the year.
The new Chinese measures target wealthy people who used trust funds outside the country to protect their assets, as the authorities obligated them to disclose their tax obligations and pay accumulated taxes from previous years by October 22.
Analysts believe that the 20 percent tax may put pressure on the spending of the very wealthy segment, which remains more able to purchase luxury products compared to the middle class affected by the Chinese real estate crisis.
These developments are of particular importance. Because Chinese consumers represent about a fifth of global purchases of luxury goods, after having been the main driver of growth for major European brands for years.
Pressure on major buyers
Alexis Bonhomme, president of Trinity Asia, a luxury goods consultancy based in Shanghai, said that tax measures have begun to affect the spending decisions of high-net-worth individuals.
He explained that some wealthy people may face temporary liquidity pressures before the deadline for settling taxes, which prompts them to postpone high-value purchases. He added that this does not mean that they will stop buying luxury goods completely, but that the current consumer mood does not encourage spending.
These pressures come after years of decline in Chinese demand since the “Covid-19” pandemic, as a result of the slowdown in the economy and the decline in confidence associated with the continuing real estate sector crisis.
Data from shopping malls on the Chinese mainland during the summer showed a sharp slowdown in sales growth, according to a note by Bernstein analysts.
Reuters quoted two sources familiar with the performance of shopping centers during the third quarter as saying that market conditions remained generally weak, with a large discrepancy between brands. Brands that focus on quiet luxury, such as Brunello Cucinelli, which specializes in cashmere, and Loro Piana, a subsidiary of the Louis Vuitton group, achieved better performance than brands that are more prominent in displaying their logos, such as Louis Vuitton and Gucci.
This shift reflects a change in the preferences of some wealthy buyers, who have begun to prefer less eye-catching products, rather than traditional manifestations of luxury.
Sharp losses for European stocks
The weak demand was reflected in the performance of shares of major companies, as the shares of “LVMH” and “Hermes”, which manufactures “Birkin” bags, lost about 40 percent of their value since the beginning of the year, trading near their lowest levels in years.
The shares of the Kering Group, which owns the Gucci brand, also fell by 29 percent, amid mounting concerns about its ability to restore growth.
Gucci faces special challenges, after Kering warned analysts of the expectation of a further contraction in the brand’s sales, which prompted a number of financial institutions to reduce their target prices for the group’s shares. These developments indicate that the pressures are no longer limited to weak sales in China, but rather have extended to the valuations of European companies and their future profit expectations.
The US market is losing momentum
The situation is becoming more difficult with the emergence of signs of slowing demand in the United States, the largest market for luxury goods in the world, which until recently constituted one of the most prominent sources of support for the sector.
Gains in US stocks, especially technology companies, have boosted consumer wealth and supported purchases of luxury products.
But data on credit card spending, tracked by Citi, showed purchases of luxury goods declined for the third month in a row during August. This coincided with polls indicating growing concern about the prospects for the US economy before the midterm elections, which threatens to weaken discretionary spending even among the highest-income consumers.
The repercussions of the war on Iran increase the state of uncertainty, in light of its impact on energy prices and the global economy, which makes restoring demand more difficult for companies that depend on the confidence of wealthy consumers.
Jewelry benefits from the search for value
Amidst these pressures, fine jewelry has emerged as one of the few industries that has maintained relatively better performance. Brands such as Cartier, a subsidiary of the Richemont Group, have benefited from the increasing interest of wealthy consumers in gold and precious metals, which are seen as products that retain their value better in the long term.
This trend indicates a shift in buyer behavior from spending on products associated with fashion and brand logos to acquiring pieces that combine personal use with ongoing material value.
In Beijing, Deng Zhi, 51, who works in exporting ceramic building components, said he expects to reduce his spending on luxury goods by 20 percent compared to previous years. He explained that the tax measures do not necessarily mean that the wealthy people subject to them will stop buying luxury products, because the amounts they spend on these purchases are not large compared to their wealth.
But he considered that the most important problem is the broader impact of these measures on confidence, as those with relatively lower incomes and wealth may fear that similar measures will be extended to them in the future.
Corporate results test recovery prospects
Investors will get their first major indicator of the sector's performance when LVMH announces its business results next Monday. Analysts expect the group to record quarterly sales of 18.5 billion euros ($20.7 billion), an increase of one percent compared to the same period last year.
Kering and Hermes are scheduled to announce their results on October 22, coinciding with the deadline set in China for settling tax liabilities owed on assets held through offshore funds.
Markets will focus on sales performance in China and the United States, along with indicators of improving demand among wealthy customers and the ability of companies to maintain their profit margins.
The luxury industry thus faces a double test. The first is to restore Chinese consumer confidence amid tightening tax controls and a slowdown in the economy, while the second relates to its ability to overcome weak American spending.
As brands continue to diverge, companies may re-evaluate pricing, expansion and marketing strategies, and focus more on products that combine quality and long-term value. But the upcoming quarterly results will determine whether the current pressures represent a temporary phase of decline, or the beginning of a longer period of weak growth in an industry that has become accustomed to relying on the strong spending of the wealthy in the world’s two largest economies.
US stock index futures rose slightly on Friday, with oil prices falling due to easing concerns about supplies in the Middle East, while telecom stocks remained under pressure after the SpaceX acquisition of bandwidth raised concerns about competition in the sector.
Oil prices fell after US President Donald Trump said that his country would not attack Iran before the US midterm elections scheduled for next month, which eased fears that the conflict would lead to further disruptions in global energy supplies, according to Reuters.
Brent crude futures fell by 1.2 percent, but remained above $100 per barrel, which is considered an important psychological threshold in the markets.
In the bond market, US Treasury bond yields were characterized by relative stability, as the yield on standard 10-year bonds settled at 5.25 percent, remaining close to its highest level in 24 years, amounting to 5.364 percent, recorded on Wednesday.
The Standard & Poor's 500 and Nasdaq indices, which are dominated by technology company stocks, headed towards achieving weekly gains, despite their decline during the previous two sessions, supported by optimism surrounding the season of announcing third-quarter results, especially in light of the momentum led by the artificial intelligence sector, which pushed the two indices to record levels earlier in the week.
The Dow Jones index of major companies was also heading towards achieving slight weekly gains.
Shares of major growth companies recorded general increases in pre-market trading. “Nvidia” shares rose by 1.6 percent, while “Tesla” and “Amazon” shares rose by about 1 percent each.
SpaceX shares rose by 3.7 percent, after the company specialized in manufacturing rockets and satellites concluded a deal to acquire a portfolio of low-bandwidth spectrum bands covering all parts of the United States, in a move that represents a direct challenge, through space, to the major traditional wireless communications companies in the country.
On the other hand, the shares of telecommunications companies came under severe pressure. T-Mobile US and AT&T shares fell more than 6 percent each, while Verizon shares fell by 5.3 percent.
By 5:54 a.m. EST, Dow Jones mini-futures rose 86 points, or 0.17 percent, and Standard & Poor's 500 mini-futures rose 31.5 points, or 0.4 percent. Nasdaq 100 futures rose by 251 points, or 0.81 percent.
The season for announcing companies' quarterly results is scheduled to accelerate next week, with major banks preparing to reveal their results. Expectations of strong profits have contributed to supporting US stocks during the recent period, despite geopolitical fluctuations and concerns about rising interest rates.
Among the stocks that recorded early gains, Humana's stock rose by 14.5 percent, after US government data showed that 95 percent of the company's members participating in Medicare Advantage health insurance plans for the year 2027 are registered in plans with a rating of 4 stars or more.
On the other hand, Apple shares fell by 1.8 percent, following media reports that the iPhone manufacturer had asked some of its suppliers to reduce production of components for the iPhone 18 Pro and iPhone 18 Pro Max, in light of the rising costs of memory chips and increased prices, which led to a decline in consumer demand.
China intensified measures to support its economy, on Friday, by allocating 550 billion yuan ($82 billion) of unused government debt issuance quotas, with the aim of relieving financial pressures on local governments and accelerating investment in infrastructure, in the latest attempt to boost economic activity and ensure achieving the annual growth target of between 4.5 and 5 percent.
The move coincided with the People's Bank of China's announcement to increase its net purchases of government bonds during September, and the Ministry of Finance's pledge to expand domestic demand and improve the efficiency of spending on technological innovation. Beijing is also preparing to resume refined fuel exports after a temporary halt during the National Day holiday, in a move that may provide some supplies to Asian markets facing a shortage of oil derivatives.
These decisions reflect a coordinated move at the level of fiscal policy, monetary liquidity, and supply management, at a time when the second largest economy in the world faces continued weakness in consumption and investment, and a long-term real estate crisis, despite the strength of exports and sectors related to advanced technology.
$82 billion to support the local economy
The Chinese Ministry of Finance announced the distribution of 550 billion yuan of unused government debt shares, of which 300 billion yuan will be allocated to support the daily operations of governments at the levels of sub-provinces and administrative regions.
The remaining value, amounting to 250 billion yuan, will be directed to infrastructure projects, especially projects currently being implemented, with attention given to the economically strongest regions capable of converting financing into tangible investment activity.
This distribution aims to address two simultaneous problems: The first is pressure on the financial resources of local governments, and the second is the slowdown in investment, which constitutes one of the traditional engines of Chinese growth.
Local authorities are facing difficulties in financing their obligations as a result of the continuing real estate sector crisis, which has weakened land-related revenues, in addition to the accumulated burdens on debt and spending on public services.
Directing part of the funding to core government operations would ease liquidity pressures, while financing existing infrastructure projects could help accelerate implementation and avoid faltering investments that have already begun.
The move comes after the Chinese State Council pledged, last month, to intensify counter-cyclical economic support, in the face of increasing pressures on domestic activity.
Beijing had used untapped debt quotas to boost spending towards the end of the past two years, but the amount announced this year exceeds similar allocations in 2024 and 2025, indicating a widening scope of financial intervention.
Slowing demand threatens growth target
The need for stimulus measures increased after the Chinese economy lost some of its momentum after the first quarter of the year, with domestic demand continuing to weaken and real estate investment declining.
Although the advanced technology sectors and industrial exports benefited from global demand, these drivers were not enough to compensate for the slowdown in the traditional sectors of the economy.
This discrepancy reflects a structural challenge facing decision makers. Exports and technology can support industrial production, but sustainable growth requires a broader improvement in household spending and corporate investment.
In a report on the performance of fiscal policy during the first half of 2026, the Ministry of Finance pledged to pursue a more active fiscal policy, work to expand domestic demand and deepen financial reforms.
She also stressed the need to raise the efficiency of investments directed to scientific and technological innovation, indicating the continued priority of advanced sectors within the Chinese growth strategy.
Here, the challenge facing Beijing in distributing resources between supporting consumption in the short term and financing investments that raise productivity and competitiveness in the long term is highlighted. Increasing infrastructure spending may provide rapid support for economic activity, but its sustainable impact depends on the economic feasibility of the projects and their ability to achieve returns that exceed the cost of financing them.
The central bank enhances liquidity
In parallel with the fiscal move, the People's Bank of China announced that it carried out net purchases of government bonds worth 100 billion yuan ($14.94 billion) during September, via open market operations.
The amount represents double the net purchases recorded in August, amounting to 50 billion yuan, reflecting increased liquidity support in the financial system.
Government bond purchases can help improve liquidity conditions and relieve some pressure on the debt market, at a time when the authorities are preparing to increase the use of available borrowing quotas.
But the impact of these measures on the real economy will depend on the extent to which liquidity is transferred to investment and spending, and not only on the availability of funds within the banking system.
China faces the challenge that low financing costs or abundant liquidity do not necessarily guarantee a recovery in credit demand, as long as households and companies remain cautious about their income prospects and return on investment.
Hence, the combination of direct fiscal spending and the provision of liquidity may be more effective than relying on monetary policy alone.
Stimulus effectiveness test
The measures announced on Friday reveal the widening scope of the Chinese authorities’ response to the economic slowdown, by supporting local government budgets, accelerating investment, providing liquidity, and managing exports of petroleum products.
But the success of the package will depend on its ability to address weak domestic demand, and not just improve financing conditions or complete existing projects.
The real estate crisis remains a pressure on household confidence and local government resources, while continued reliance on government investment raises questions about the efficiency of capital allocation and debt sustainability.
On the other hand, the growth of exports and advanced technology provides a support base for the economy, but it does not eliminate the need for a recovery in private consumption and domestic investment.
As the end of the year approaches, investors will focus on the speed of utilization of new debt shares, the extent of improvement in domestic spending, and the impact of the central bank’s bond purchases on credit conditions.
Beijing is betting that a combination of more active fiscal policy, monetary liquidity, and targeted support for productive sectors will help it achieve its annual growth target. However, the real test will remain in the ability of these measures to transform government support into a broader and more sustainable economic recovery.
