Luxury Sector: India Opportunities & China Risks (Thoughts from our China & India Outlook Call)

By David Schick and Jonathan Feeney and David Katzman and Jack Hermann Published on December 5, 2025 PDF

India’s luxury growth has strong tailwinds – the best luxury growth story in the world. The country has all the ingredients for exceptional luxury market growth from 2026-2030. India’s recently enacted EFTA trade agreement is accelerating already-strong luxury dynamics. Through 2040, India is positioned to lead the world’s major economies in both population and economic growth (IMF). This translates to the fastest GDP and luxury spending growth among large economies globally. India’s luxury market is roughly 15% the size of China’s, 10% of the US, and 8% of Europe (Kearney). Historically, India has over-indexed to jewelry within luxury due to deep cultural appreciation. We expect Swiss watch, jewelry, and accessories players—including Titan, LVMH, Hermès, Richemont, and Swatch—to benefit most in the Indian market.

China faces both near-term and structural headwinds. Two forces are converging: (1) Chinese consumer perception of Western brands is on a structurally negative trajectory, and (2) real estate wealth effects are important and are quite negative. The “Guochao” (national wave) trend shows Gen Z consumers increasingly favoring Chinese over Western brands. Home prices are down 6.5% year-over-year, 20% from their 2021 peak, and have reverted to 2006-2007 levels (Bank for International Settlements). With 96% of Chinese households owning real estate and 20% owning multiple properties (PBOC), the wealth headwind is significant. Chinese luxury tourism to Japan—boosted by a 27% JPY/CNY depreciation over five years—has provided some offset for luxury brands. However, even this driver is decelerating, with growth slowing to 11% year-over-year in 3Q25 versus 53% in CY24 (Japanese Tourism Agency). China remains a far larger luxury market than India, we are cautious on Western luxury performance with Chinese consumers. Chinese luxury spend has a much higher apparel mix than India, potentially pressuring brands with that exposure.

Increased economic integration between the US & India in 2026 could call attention to its long-term importance. While consumer perception of Western brands took a hit this spring from tensions with the Trump administration, the table is still set for structural improvement. US signing of the already drafted trade deal could unlock unprecedented opportunities in energy exports, agriculture, and technology in 2026.

China and India combined have roughly 8.5x the US population and 2-3x US GDP growth rate. American brands, retailers, restaurants, lodging, and financial service companies have long seen opportunities and risks in these markets. US remains at roughly 68% consumption economy while China is at 40% (and growing, but slower) and India is at 60% (with accelerating growth).

How US Brands, Retailers (& More) Should Think About China & India 2026-2040

Executive Summary

On 12/2, Optimal Advisory hosted a discussion with Dan Markey, senior fellow in China & South Asian programs at the Stimson Center in Washington DC, to discuss the critical & changing dynamics of the economic and political landscape for American companies in China & India from 2026-2040. Markey explained that companies don’t need to “pick sides” between China and India. India’s powerful demographics and China’s inevitable global rivalry with the US are the most powerful long-term forces. Recent moves by the Trump administration have created surprising new directions for each relationship. As such, 2026 is set to be a pivotal year. A pending US-India trade deal could be a huge economic unlock that reverses a recent cooling of relations. Ongoing Taiwan-related tensions and hints of a sweeping “G2” framework will set the direction for US-China trade.

Historical Context (2000-2025)

China: The relationship has evolved from unbridled optimism about globalization to wariness of strategic competition with the US. Starting in the mid-Obama administration, US concerns about China as a strategic competitor intensified. Under Xi Jinping (from 2012), China shifted from a “hide-and-bide” strategy to more assertive strategy of “striving for achievement.” The relationship deteriorated significantly during COVID and after.

India: The opposite trajectory occurred. After a strategic lowpoint surrounding unexpected 1998 nuclear tests and sanctions, the US-India relationship improved dramatically, exemplified by the 2005 civil nuclear deal with the Bush administration. US-China rivalry further strengthened US-India ties as both nations share concerns about China’s increasing global assertiveness.

Current Situation (2025)

Three recent events are setting the framework for China & India relations presently:

The Trump administration has pursued a surprising thaw with China, discussing a “G2” partnership framework that has fostered increased communication but unnerved some US allies.
Trump’s handling of recent India-Pakistan flashpoints upset both leaders and citizens in India, especially since May 2025.
A promised breakthrough trade deal with India remains unsigned on the President’s desk, while India ostensibly faces approximately 50% tariffs.

Consumers and Western Brands

China: Consumer enthusiasm for Western brands has declined sharply due to rising nationalism and government promotion of domestic brands. The “buy Chinese” sentiment has grown stronger since 2018.

India: Western brand acceptance has grown over 20 years, though recent political tensions may dampen this progress. The present “Make in India” campaign reflects desire for self-sufficiency, which could intensify if Indians relations deteriorate.

Demographics and Economic Outlook

China: Its population is leveling off and beginning to shrink. Aging demographics limit long-term consumer market growth potential. The era of an endlessly expanding middle-class may be overstated due to structural uncertainties.

India: Population growing quickly and set to continue for decades ahead. A less developed education system limits middle-class development. Rapid population growth is concentrated in poorer northern states, while wealth and development are largely concentrated in the south. This north-south divide creates political tensions; the rise of Prime Minister Modi’s Bharatiya Janata Party (BJP) has its most solid base in the north.

Technology and AI Positioning

China: China has highly scaled technological capabilities, and world-class manufacturing. Despite recent restrictions on high-end chips, China has doubled down on developing its own capabilities and remains competitive in every sphere.

India: India has nowhere near China’s manufacturing capabilities. Its focus has been on software applications and services, leveraging its talented technical workforce. However, India lacks capital formation to compete optimally. Having missed the manufacturing boom China experienced, AI automation threatens to undermine India’s service sector advantage.

2026 Outlook

What Could Go Right?

China: Announcement of a framework agreement restoring “guard rails” would reduce uncertainty in the business environment.

India: US signing of the already drafted trade deal could unlock unprecedented opportunities in energy exports, agriculture, and technology.

What Could Go Wrong?

China: A calculated escalation of the simmering Taiwan conflict could create a major regional disruption.

India: Any steps increasing the risk of nuclear conflict with Pakistan could bring a global catastrophe. The most recent (May 2025) crisis included alarming missile strikes near Pakistani nuclear command centers.

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