In markets that are especially opaque, business leaders glean insights from wherever they can. When the market in question is China, a one-party state and the world’s second-largest economy, fashion executives would be wise to listen carefully as the government puts forward its vision for the next five years — even if it is delivered at a ceremony peppered with unfamiliar choreography and ambiguous metaphors.

The National Congress of the Chinese Communist Party not only sets the tone for the CCP’s policies and defines its key personnel, but also shapes China’s economic outlook and the market environment in which companies operate. The 20th edition of the event ran from October 16 to 22 and saw around 2,300 delegates flock to Beijing’s Great Hall of the People.

All eyes were on president and general secretary Xi Jinping, who as expected secured a precedent-breaking third term, highlighting his consolidation of power across the CCP’s top echelons. During the week, other key officials were elected to the party’s central committee, politburo and elite standing committee, the most powerful decision-making body in the mainland.

Though much of the congress was held behind closed doors, Xi’s opening speech did shed some light on Beijing’s plans for the coming years including its zero-Covid policy, geopolitical relations with the US, Taiwan and Hong Kong, international trade, issues shaping the national culture and regulatory crackdowns looming over the tech and property industries. All these factors have a direct or indirect impact on the future complexion of the Chinese fashion market, which remains the largest in the world.

Many business leaders and investors were hoping for at least some shift in direction — particularly to the government’s stringent zero-Covid policies which have dampened consumer demand and made it even harder to operate in China — but Xi’s speech only cemented the CCP’s ongoing stance and dashed hopes for a short-term improvement in the Chinese consumer market and people’s mobility.

Market reaction to the congress was swift and unambiguous. By the end of last week, the yuan had slumped amid a 2.6 percent decline in the CSI 300 Index, a benchmark of the top 300 stocks traded on the Shanghai and the Shenzhen stock exchanges. That brought the year-to-date decline to more than 24 percent in what Bloomberg called a “dreadful year for Chinese markets” getting even worse because “expectations for stimulus measures at the… congress were left largely unfulfilled.”

At one point, Chinese stocks briefly rallied following news of a report circulating that officials may have debated about whether to reduce the time that inbound travellers must spend in quarantine, but gains were short-lived. Details of the rumoured report remain unclear and, more importantly, the duration of inbound quarantines is not the main issue hobbling the economy.

More of the Same

For months leading up to the National Congress, analysts and insiders predicted that Beijing’s zero-Covid policies, characterised by mass testing and sudden lockdowns, would remain in place to not rock the boat before the big event. But based on the lack of a direct statement on the ending or easing of China’s zero-Covid policy — and its disruptions to both the fashion market and supply chains in the country— the anti-virus strategy is very much here to stay, says Dr Xin Sun, senior lecturer in Chinese and East Asian business at King’s College London’s Lau China Institute.

In his near two-hour-long address, president Xi made no indication of how zero-Covid might even evolve saying instead: “we have demonstrated China’s sense of duty as a responsible major country, actively participating in the reform and development of the global governance system and engaging in all-around international cooperation in the fight against Covid-19.”

Despite concerns voiced by many in the international community, including the World Health Organization director general who said in May that he did not think China’s approach to Covid-19 would be sustainable and that “a shift would be very important”, president Xi made claims to the contrary. “All this has seen us win widespread international recognition. China’s international influence, appeal and power to shape have risen markedly,” Xi declared.

Xi’s speech didn’t spotlight many significant changes to policy in other areas either. “It demonstrated very strong continuity with what’s happened over the last two to five years,” said Sun. This meant a focus on terms like security and common prosperity, with fewer mentions of reforms or economic opening, excluding mentions of China’s trading prowess and plans to “expand institutional opening up with regard to rules, regulations, management, and standards.”

Xi did spotlight the role innovation — across fields like manufacturing, aerospace and cyberspace — will play in driving China’s economic growth, as well as the importance of sustainability initiatives like clean energy, both of which are already hallmarks of his tenure.

According to Liqian Ren, director of Modern Alpha at WisdomTree Investments, the impact of any new policy born out of the closed-door sessions at last week’s national congress will depend on how it is implemented in practice at a local, provincial and bureau level.

All in all, Ren characterised the speech as a “boilerplate” but for fashion brands, she said, Xi reiterating the government’s commitment to common prosperity could signal increased demand for discreet, rather than ostentatious, types of luxury goods consumption. This started affecting users on social media as early as May, when Xiaohongshu cracked down on so-called “wealth flaunting” (posting “misleading” photos of luxury goods like bags, watches and cars without useful information).

It also suggests there is no end in sight for tighter regulations on the entertainment sector, nor takedowns of internet personalities and celebrities like livestream stars Viya and Li Jiaqi (aka Austin Li). The former faced a tax evasion fine and the latter appeared to have disappeared for several months after a controversial livestream featured a tank-shaped cake ahead of the anniversary of the 1989 Tiananmen crackdown.

Unlikely Spike in Demand

The overall outlook for China’s luxury sector remains almost as uncertain as it was before the congress, not least because of the state of the wider economy.

The latest economic growth figures were released on Monday, after officials delayed publication until the congress had concluded. Analysts who had speculated that the delay was probably because the figures were not particularly strong were proven right. Third quarter GDP in 2022 expanded 3.9 percent year on year, slightly better than the forecast of 3.3 percent from analysts polled by Bloomberg but still far below that of China’s full-year target of 5.5 per cent, which is its lowest in three decades.

That doesn’t bode well for the economy, nor for global brands relying on Chinese shoppers to boost their bottom lines. Earlier this month the International Monetary Fund cut its forecast estimate for China’s 2022 GDP to 3.2 percent, down from 8.1 percent in 2021. Looking forward, China’s median growth is projected to be 5.2 percent in 2023 and 4.8 percent in 2024, according to Bloomberg’s quarterly survey of economists.

“Expectations for stimulus measures at the congress were left largely unfulfilled.”

“In the short-term there’s this big uncertainty due to [zero-Covid],” said Mario Ortelli of luxury advisory firm Ortelli & Co. But in the long-term, he suggested, brands could see an upside in both the government’s push for common prosperity — which if successful could eventually lead to a larger portion of the Chinese population able to spend more on luxury — and the lack of negative messaging regarding foreign brands.

The net result seems to be that there are two important takeaways for global fashion players: don’t expect a sudden influx of Chinese tourists to the shopping hubs of Europe, the US or other Asian countries, and don’t expect a spike in Chinese consumer sentiment either, any time soon. Though moderation is possible, it is unlikely that there will be any back-pedalling. “Many of these policies come from Xi himself, and if he delivered a U-turn, it’d be a huge blow to his personal credibility,” noted Sun.

Besides, there will be few serious challenges to Xi’s position on most issues since he is now the most powerful Chinese leader since Mao Zedong. After being re-elected as communist party general secretary over the weekend, the announcement of his presidency of the country in March of next year is nothing more than a formality. Xi has filled the politburo and standing committees with loyalists, a move which shifts the country back to one-man rule after decades of power-sharing among the party elites.

The move is hardly surprising, given that a key thread running through Xi’s speech was the prioritisation of security over economic growth.

Security Above All

The term “security” was mentioned some 80 times during the address, but rather than confining it to geopolitical, military, food and economic security, Sun adopts a broader interpretation tied to the political survival of the communist party and the centralisation of government control.

This goes some way in explaining the ongoing property crackdown, where China’s heavily indebted real estate sector was seen as a major risk to the regime. Tech platforms and the influence they wield over public opinion are also a “serious threat,” said Sun: just last week, photos and videos of an anti-Xi banner on Beijing’s Sitong Bridge calling for “freedom, not lockdowns” were posted on Chinese social media before being promptly deleted.

In recent months, optimistic analysts heralded an end to the years-long tech crackdown, which in 2020 claimed e-commerce giant Alibaba’s Ant Group and its $34 billion IPO as its first big catch. But it is more likely to be a temporary break, says Sun. “Once the party decides it’s not facing serious economic challenges, it’s very likely that the policies will be re-emphasised, and new ones will be imposed.”

“Many of these policies come from Xi himself, and if he delivered a U-turn, it’d be a huge blow to his personal credibility.”

Renewed or new crackdowns would have knock-on effects for fashion companies, which have to adapt to tech sector laws around content and data, while reckoning with dampened discretionary spending caused by the real estate crisis. A huge share of China’s household wealth, 70 percent according to investment management firm Loomis Sayles, is invested in real estate, roughly double the 35 percent share seen in the US.

The culture of heightened scrutiny is spilling over into the fashion sector in other ways. Fosun International, whose Lanvin Group subsidiary includes namesake brand Lanvin as well as Sergio Rossi, Wolford, St. John Knits and Caruso, recently lowered its equity valuation and was downgraded by the S&P, after a visit by its in-house CCP secretary to the Beijing branch of SASAC (State-Owned Assets Supervision and Administration Commission of the State Council) sparked fears.

Culture Wars Continue

While no mention was made of Xinjiang province during Xi’s speech, his comments on Taiwan, Hong Kong and the US indicated — in a similar vein to zero-Covid and regulatory scrutiny — that the CCP would stay on course. Beijing’s elimination of political opposition in Hong Kong was deemed “a major turn for the better,” and a pledge to return Taiwan to mainland control drew a long round of applause, during which Xi reiterated that he will never renounce the right to use force to do so even if he prefers a peaceful resolution with the island.

An escalation of Chinese military action in and around Taiwan, an outcome which experts continue to deem as improbable, would almost certainly prove calamitous for not only the global economy but the fashion and luxury sectors. Though the geopolitics at play differ greatly from this year’s invasion of Ukraine by Russia, comparisons of a potential invasion of Taiwan by Beijing are understandable. Bernstein’s Luca Solca predicts a 40 percent drop in luxury sales on the back of sanctions targeting China over such a conflict.

Inextricably tied to this, of course, is Beijing’s increasingly rocky relationship with Washington and US allies, which has had and will continue to cast a long shadow over fashion brands’ supply chains.

On these relationships, Xi committed to strengthening China’s “mechanisms for countering foreign sanctions, interference, and long-arm jurisdiction.” Self-sufficiency, especially in relation to innovation and supply chains, was reiterated as a cornerstone of this stance.

For fashion, the comments are likely to hasten the decoupling of some global firms’ supply chains from the mainland. This will not be easy considering how much western brands continue to rely on China, the world’s largest exporter of apparel, according to World Trade Organisation data. It doesn’t help that the link between the two — as exemplified by the Xinjiang cotton backlash, which saw the likes of Adidas and H&M boycotted for voicing concerns over forced detention and labour allegations — is getting more complicated.

As China’s economic and foreign policies become more inward-looking, Xi wants its so-called “advanced socialist” culture to follow. “Fine traditional Chinese culture is undergoing creative transformation and development,” he said. “Our young people are filled with greater optimism and enterprise, and there is a notably stronger sense of cultural confidence and a higher level of morale throughout the party and the nation.”

For brands familiar with guochao, or national wave, which refers to the growing pride Chinese shoppers feel in buying locally designed and made goods, Xi’s speech should ring a bell. It signals more room for growth for domestic firms, which have taken market share from foreign competitors in categories like fast fashion and sportswear in recent years. Though there are opportunities awaiting global brands that reference and celebrate Chinese culture in the right ways, says Ren, doing so will continue to be risky.

Ultimately, this goes to the heart of what most fashion brands are (or should be) working to finesse: selling to the Chinese market in bold yet thoughtful and respectful ways that boost brand equity in China while aligning authentically with global brand values. That’s a tall order in an increasingly complex and turbulent global business environment.

Playing it safe is a tempting option, especially at a juncture when the president used his national congress speech to warn his people to be prepared for “dangerous storms” ahead and when there is heightened sensitivity and vocal criticism of perceived indignities by Chinese consumers. But it is not an approach that will help fashion players stand out in an increasingly competitive market.