China's crackdown on luxury gifts raises industry fears China accounts for 25% of revenues for Louis Vuitton, which is trying to establish higher price points for its products Burberry has been one of the brands leading the charge in developing luxury retailing online Hermès, known for its Birkin and Kelly bags, has estimated that Chinese consumers could account for half of its global sales in the coming years Gucci is trying to ride out the declining demand from Chinese consumers by going further upmarket, making goods from exotic skins such as python Rémy Cointreau has warned that a sharp slowdown in sales in China will mean that operating profits will be down at least 20% this year For the past few years, as financial chaos tore through the US and a sovereign debt crisis crushed growth in Europe, the world's luxury goods groups have done the best business in at least a decade. China. Between 2010 and last year, brands from the comparatively small and exclusive Hermès to the bling of Louis Vuitton have seen the mix of China's emerging wealth and its population's love of all things luxury fatten an entire industry - during the leanest times almost anyone can remember. But the mighty Chinese engine is moderating - at least by its own high-revving standards - and the new government is cracking down on exuberant personal spending and gift-giving by officials. As a result, people in the €217bn-a-year luxury industry find themselves staring at an uncomfortable but inescapable question: is the era of double-digit growth over? The answer has huge implications for brand strategy in the world's most populous country - as it does for luxury groups" approaches in other markets. It also has direct implications for the valuation premium that investors have placed on the sector compared with other companies. "Just a few years ago, a slowdown in Chinese consumption would barely have produced a ripple in the luxury sector," says Luca Solca, a sector analyst at Exane BNP Paribas. Today, it has the potential to produce a tidal wave. For the past three years, revenue in the luxury sector has grown at an average of more than 11 per cent a year in euro terms, spurred on by Greater China, where revenue grew a heady 19 per cent in 2012, according to a study by Fondazione Altagamma and Bain & Company. But this year, growth in Greater China is expected to fall to 4 per cent, dragging down overall revenue growth to just 2 per cent. The falling growth numbers in China caused by the slowing economy and the government's crackdown - or what Rémy Cointreau, the Paris-based spirits and liqueurs group, calls "anti-extravaganza measures" - have been so marked that the Americas this year surpassed Asia as the luxury sector's main growth engine. One of the problems for the brands that produce the world's most expensive and desirable watches, jewellery, fashion and bags is that China finally matters. Greater China now accounts for a quarter of Louis Vuitton's revenue, 35 per cent of Cartier's, and a whopping 45 per cent in the case of Omega, according to Exane BNP Paribas. Hermès, famous for its Birkin and Kelly bags, recently estimated that Chinese consumers could account for more than half of global sales in the coming years. The effects of the slowing growth have started to hit home. Rémy Cointreau, maker of $3,000-a-bottle Louis XIII cognac, this week warned investors that operating profits would fall at least 20 per cent this year compared with 2012 as a result of what it described as "a sharp slowdown in China." Revenue at the fashion-and-leather-goods unit of LVMH, the world's largest luxury goods group by sales and the parent of Louis Vuitton, suffered a small decline during the third quarter this year compared with the same period last year. The poorer than expected figures provoked a 6 per cent fall in the group's share price, wiping €4bn of its market capitalisation. Frédéric Pflanz, Rémy Cointreau's new chief executive, is convinced that the slowing of growth in China is temporary. "It will come back," he says of demand. And when it comes back we will be there. Mr Pflanz's business card is printed on both sides - in English and in Chinese. Other groups point out that even if sales growth is deflating in China, Chinese tourists are still buying abroad. Altagamma and Bain estimated that while sales of luxury goods in Greater China are only about 13 per cent of the global total, the Chinese account for 29 per cent of all luxury customers. In 2005, by contrast, they accounted for less than 5 per cent. However, luxury groups are now trading at an estimated 2014 price-to-earnings ratio of about 18.5 times, which is roughly 50 per cent higher than the Stoxx 600 index of European companies. That may be in line with historic valuations for the sector, but it also represents a huge increase since the collapse of Lehman Brothers, when luxury and Stoxx 600 p/e ratios were level pegging on seven times. Léopold Authié, an analyst at Oddo Securities in Paris, asked in a recent report "whether the sector deserves to trade at the same valuation level as in the past since its growth profile is now less attractive." Luxury companies are reacting to the slowdown in several ways. One response has been to command higher prices by going upmarket. Gucci, which is owned by Paris-based Kering, is producing more bags made from exotic skins, such as python. LVMH's Louis Vuitton is also looking to establish higher price points for its products. Others are heading in the opposite direction, highlighting the difficulty of formulating an effective brand strategy in the face of China's newfound disdain for luxury gifting. Shuijingfang, one of China's most exclusive brands of the spirit baijiu, the Communist party's favourite tipple, will now sell half its product range at Rmb500 a bottle or less - a price point at which the company previously sold nothing. Analysts say luxury groups also have to start looking elsewhere for growth. Mr Luca of Exane BNP Paribas believes that one area is increasing the number of directly-operated stores. Another is ecommerce, where he argues that luxury goods groups have been slow to develop effective strategies. For now, though, Mr Luca says that one thing is clear: "The low-hanging fruit has mostly gone."