Apple standout winner in China’s luxury slowdown

Girls check out the iPhone 6 in an Apple store in Shanghai, China.
Johannes Eisele | AFP | Getty Images
Girls check out the iPhone 6 in an Apple store in Shanghai, China.

Chinese corporates and wealthy consumers are taking gift-giving down a notch this Lunar New Year, opting for iPhones instead of Birkin bags or Louis Vuitton wallets.

The annual holiday, which falls on February 19-20 this year, is a time of gift exchange between family, colleagues and business contacts.

"The iPhone 6 has replaced luxury items as a key gift this Chinese New Year," Shaun Rein, founder and managing director of the China Market Research Group told CNBC.

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"Corporates, for example, used to buy luxury products to give their high performing employees, now they are giving iPhones because they more reasonably priced and still considered premium enough," he said.

Choosing to gift iPhones over a designer handbag fits in the vein of the government's corruption crackdown, Rein noted.

"When you gift a Berkin bagit's too high profile everyone knows its super expensive and in this anti-graft campaign brings about questions of ill-gotten gains and corruption," he said.

The same applies for China's rich who are trying to keep a lower profile.

Apple ranked as top gift brand

China's booming smuggled iPhone business
China's booming iPhone black market   

According to the Hurun Report's Chinese Luxury Consumer Survey 2015, Apple has replaced Hermes as the top gift choice among the country's rich.

Hurun surveyed 376 Mainland Chinese millionaires, which the group defined as individuals with a personal wealth of 10 million yuan ($1.6 million).

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"With luxury gifting expected to be down a further 5 percent this year, on top of a 25 percent drop last year, this has provided a strong opportunity for more affordable luxury, such as Apple," said Rupert Hoogewerf, chairman and chief researcher of the Hurun Report, a monthly magazine best known for its "China Rich List."

Shallower pockets, tighter grip

China's luxury sector has been reeling from Beijing's crackdown on conspicuous spending, the economic slowdown and changing consumer preferences.

"The anti-corruption drive is more serious than most analysts realize," said Rein.

It impacts the luxury sector on three fronts: Government officials can no longer get away with using public funds to buy luxury items; businessman are buying fewer luxury gifts for government officials; and corporations are opting for less flashy products to reward their employees.

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On top of this, slowing economic growth is forcing consumers to think twice about their purchases.

China's economy grew at its slowest pace in 24 years in 2014 and latest economic indicators point to a continued loss of momentum in the first quarter

Finally, consumers are maturing. "Instead of spending money on luxury items, they want to spend on experiences," Rein said.