6 ways Xi Jinping’s power grab will impact foreign brands

Last week, China announced a proposed constitutional amendment to end presidential term limits in China. Despite widespread discontent expressed online, the Communist Party now claims that the amendment is the will of the people.

If there were any doubt before, this statement make it all but certain that the amendment will pass before the conclusion of the “Two Sessions”, the annual meetings of the national legislature and the top political advisory body in Beijing.

The move, which received praise from U.S. President Donald Trump, is a significant shift toward a more autocratic regime. It also represents a formidable consolidation of power by Xi, who has just completed his first five-year term aspPresident. In the past five years, Xi has developed a more nativist, nationalist ideology that aims to increase China’s strength in the world and the party’s lock on political power.

Xi’s personal Chinese Dream is expected to dominate every aspect of Chinese development, and will have a profound impact on the business environment of foreign companies working in the country. In a time of considerable uncertainty, here are Jing Daily‘s six predictions for how Xi’s power grab will impact the luxury industry in China.

1. More surveillance and censorship

Surveillance and censorship are widespread in China, and that will only increase. More and more foreign brands have been penalized for “misbehaviors” in their communications in China and abroad.

Cases from Victoria’s Secret, Estée Lauder, and Harper’s Bazaar illustrate the risks of working with celebrities (both international and domestic), referencing foreign subcultures (such as hip-hop and anime), and having a global digital presence, where comments in other countries and other languages are increasingly scrutinized.

Furthermore, the Chinese government is likely to demand access to all website data, online customer information, personal communications, and more.

Attempts to circumnavigate surveillance and censorship will slowly be snuffed out. Since October 2017, domestic VPN providers have been required to register with government agencies in order to provide their services legally in the country. Foreign VPNs are likely next. (See "What if China closes the VPN window in its 'great firewall'?")

2. More emphasis on Chinese heritage

The ongoing clampdown on foreign cultural influence will give rise to more foreign brands referencing or co-opting traditional Chinese culture in their communications. As a matter of fact, a great number of brands are already doing so. RTG Consulting Group found that adopting traditional Chinese cultural elements is one of the politically safest and most effective ways to engage with a diverse Chinese.

Selected aspects of traditional Chinese culture have been nurtured by the state in recent years, helping them to resonate more with the younger Chinese generation, especially Generation-Z.

3. More competition from home-grown brands

With the Chinese government calling for domestic innovation and design to meet the growing needs of consumers, the spring of the domestic Chinese fashion brands is coming. However, with the ideological restrictions placed upon Chinese fashion designers, fashions may begin to diverge away from global trends.

Nevertheless, we believe it will be more and more easy for domestic fashion brands to achieve commercial success inside China in the current social and political context. The success will belong to brands who comply with contemporary nationalist values, such as sportswear brand Li Ning, whose triumphant debut at New York Fashion Week captured the attention of Chinese millennials and was praised widely on the country’s major social media sites.

4. More limits on conspicuous consumption

The anti-corruption campaign that President Xi initiated back in 2013 will continue to affect the consumption behaviors of an estimated 112 million government personnel, including officials, civil servants and the so-called ‘in-staff’ personnel who enjoy the same wages, social welfare and healthcare standards, a group that constitutes the core of China’s rising middle class. This will have a profound impact on certain industries, including the travel and tourism sector, as officials must seek permission to travel abroad, and the luxury goods sector, as officials are discouraged from flaunting their wealth.

5. More ambiguity for Chinese brands abroad

Aside from rejuvenating national pride, Xi also has a grand vision of China’s role on the international stage. In recent years, a slew of Chinese companies have ventured abroad, enjoying significant freedom to operate globally, unless of course they fall foul of the regime. Wanda Group, HNA, and Anbang Insurance Group are three prime examples whose falls have had great repercussions for their foreign partners. Foreign brands will have to carefully evaluate the risks and rewards of working with big Chinese companies like Alibaba, Tencent, Huawei, and Fosun.

6. Less interest in foreign intellectual property rights

In the proposal to get rid of the presidential term limit, the Party also suggests abandoning “rule of law” to fully embrace “rule by law”. This has profound legal implications for foreign brands that have long suffered from IP infringement in China. The change is likely to make it harder for brands to protect themselves from Chinese copycats.