First, China isn't creating wealthy consumers like it used to. According to a Credit Suisse report, with economic growth slowing, the country's population of millionaires increased by only 90,000 over the past year. That's about 5 percent of the 1.7 million new millionaires created during the same period in the U.S., and much lower than the more than 200,000 millionaires created in France and Germany. China is now a global laggard when it comes to creating wealthy consumers.
(Read more: US created 90% of world's new millionaires)
The country's crackdown on corruption is also hurting. For years, luxury watches, jewelry and handbags were given as gifts to politicians in return for favors. After outraged Chinese websites started showing all of the Rolexes and Pateks on the wrists of party officials, and the government started arresting businesspeople and politicians getting rich off corruption, the buying has slowed.
A new report out Thursday from HSBC says that while the luxury watch trade in China may be stabilizing, "gifting is probably not coming back soon." It added that the rush to buy gold jewelry in China during the spring and summer also appears to be slowing.
"The gold rush has faded," the report said. One bright spot, it said, is higher-end gems and gem sets, which are expected to sell well in coming months.
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The report said that overall luxury sales in China may "start to look better" in the fourth quarter with easier comparisons to last year. But global luxury companies may want to take a hard look at their exposure to such a small slice of one country.
—By CNBC's Robert Frank. Follow him on Twitter
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