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China's Crackdown Dims Luxury Sales

TAIPEI, Taiwan ( TheStreet) -- Less than a year ago I was threading my way up Canton Road in Hong Kong between lines of mainland Chinese shoppers who waited to step into clothing boutiques selling the world's best known brands.

Earlier this year I spoke to an executive with Sands China, a unit of Las Vegas Sands, (LVS) about plans to build space for 600 luxury stores in a planned $2.7 billion casino.

China will make up about 20% of global luxury sales by that year, worth $27 billion, McKinsey & Co. added in a 2011 report.

But something has changed.

Credit Suisse is saying that Chinese consumers, the top source of business for some of the world's glitziest fashion brands, are slowing purchases. Blame the aversion to glitter on China's crackdown against excessive gift giving, analysts at the Swiss bank say.

For two months in mid-2013 the Swiss investment bank interviewed 22 high-end retailers and distributors in greater China to learn that luxury demand had slowed through August.

Credit Suisse had already found signs of the same slowdown when a survey in the first quarter of last year identified a dip after strong luxury growth in 2011. It came up with more such evidence in a global watch-buying survey in the first quarter this year.

I'm guessing that its European base makes the investment bank particularly keen for info about major luxury goods that emanate largely from the same region.

Credit Suisse's mid-2013 survey found that 15 of the respondents had seen a slowdown, particularly in watches. It said watch Rolex, LVMH's Louis Vuitton, Kering's Gucci and Richemont's Cartier watch brands were "facing relatively more challenging near-term prospects."

That trend could also soil business for luxury store hosts such as Sands China, which has invested an unusually large $10 billion in China, if gamblers hold back on shopping.

The large number of Hong Kong entrepreneurs who rely on customers from the rest of China may also find business down. Buyers believe luxury goods sold in Hong Kong are less likely to be fake than those sold in the rest of China, so many Chinese travel to Hong Kong just to shop.

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