Thursday, February 28, 2013

Puttin’ on Less Ritz

Those who have been following the luxury goods buying trends of cashed-up mainland Chinese consumers have already detected a slowdown in the past year of a market that had been ripping along like a Maserati on an open highway at 4 a.m. These days, the malls in Hong Kong are looking a bit more hollowed out, with more idle sales clerks playing Candy Crush Saga on their smartphones. There are far fewer cases of a consumer walking into a Gucci store in Shanghai, pointing at a rack of ladies’ handbags and loudly commanding, “everything except that one with the frilly pom pom”, then slapping down a fat wad of RMB. More frequent looks of indifference - dare I say ennui? - come over the faces of Chinese buyers when brands such as Prada or Chanel are mentioned. As a consequence, an increasing number of luxury goods companies, including Gucci, LVMH and jeweler Chow Tai Fook, are reporting sharply lower sales growth in 2012.  
This Caixin Online article confirms and provides updates on the slowing trends. Of particular interest is the report’s focus on the importance of gift-giving to officials in return for political favors and the corresponding impact of the announced ban in 2012 of luxury goods purchases by all government agencies. The article estimates that close to 25% of all luxury purchases have been as gifts. Often, in order to disguise who was purchasing what, intermediaries were used to buy in bulk watches, leather products, or suits that cost as much as US$18,000 each. Invoicing was done more flexibly, sometimes to pass off the purchase of dozens of handbags as “office supplies.” Store exchange policies were loosened, as gift recipients seeking to swap an ill-fitting suit for a leather briefcase were unable to produce receipts.  
Despite the slowdown, no one is expecting that China will not soon be the largest luxury market in the world. China’s taste for expensive kit will not likely fade away. Luxury companies are continuing to bet on the enduring appeal of their products to mainlanders. However, the country will be better served if these hoity-toity goodies can be valued for what they are – badges of individual personal success, however garish their display – rather than a currency for the trading of corrupt practices.

Monday, February 25, 2013

A Spring Not Sprung. Yet.

It has been roughly two years since the onset of the Arab Spring. For many months after the initial tumultuous events, many observers feared contagion into Asia, most worryingly, China. Thankfully, however, sudden and violent revolution did not take place in the largest country on Earth. Disorderly disintegration would have led to dire consequences for the Asia region and beyond.
It is clear why such contagion fears arose. Similarities between China and the Middle East abound. Autocratic self-rule that does not reflect the will of the people? Check. Rising wealth gaps far beyond what is considered healthy? Check. High youth unemployment and discontent? Check - more than people think in China. Rampant official corruption on par with other failed states? Check. A closed official media, yet one with a flourishing social and micro-blogging network underbelly? Check.
So why not China? As laid out in this insightful essay in The Diplomat magazine, the country has had its share of protest movements - 180,000 in 2010 alone, by one estimate. However, the sheer size and diversity of the country may have been a key saving grace, at least to date. A country as complex as China cannot be governed centrally. Rather, much authority must be (and has been) delegated down to the regional and local levels in order for an enormous nation state to survive over the long run. As a consequence, China’s protests have largely occurred at local levels and against corrupt, low-ranking officials engaging in nefarious acts such as land grabs. Protests on the national scale have been deemed too complicated to organize as well as unlikely to remedy injustices quickly. And local shows of discontent In recent years have indeed occasionally resulted in changes to local leadership. The case of Bo Xilai in Chongqing is one of the most prominent and recent examples.
This is not to say that the central government is unassailably removed from danger. A country’s citizens generally recognize that morality and good leadership flow downward from the fountainhead at the top. And the new regime under Xi Jinping seems to understand the risk of not addressing corruption and wealth disparity in a timely manner, especially if another global economic slowdown throws more angry young Chinese onto the streets. If China wants a fertile spring and long growing seasons to follow, tending to the fields while the season is young is imperative.

Wednesday, February 20, 2013

Meat Freezer - The North Korean One-Percenter’s Must Have Appliance

Freezer Unit on the left – chock full of gifted meat

Kitchens of western one-percenters' households are equipped with the now compulsory wine fridge, some of which can hold over 200 bottles. Homes of South Korea’s wealthy include high tech kimchee refrigerators, which store the pungent side dishes in perfect aging conditions and keep the fermented smells separate from less noisome fresh produce. In ever-peculiar North Korea, the must-have item for the country’s political elite (is there any other kind?) is the meat freezer, referred to locally as ‘geukdonggi’. As detailed in this insightful article by New Focus International, the good folks who bring reports of North Korea to the rest of the world, a geukdonggi is vital to properly store the meats and foodstuffs that are received as bribes from citizens in need of favor from the bureaucracy. And because a “minimum of a piglet in the meat’s weight or value” is required for the gift to be constituted as a bribe, the freezer units need to be of industrial size and strength. These sturdy appliances are also referred to as a ‘rich man’s safe’ or ‘bribe storage box.’
As sad as the existence of these household meat storage units are in a country as socially unequal as North Korea, it may be a comfort to consider that circumstances could be much worse. Whereas every well-equipped western kitchen has a salad spinner, at least North Korea’s military elite have not yet caught on to placing orders for the ultimate convenience appliance – the Ronco SpinUr – a table top, plug-and-play uranium centrifuge.

Monday, February 18, 2013


              Less of this

and much less of this.

During the past “golden” week’s Lunar New Year holiday, the Chinese mainland greeted the Year of the Snake with as much hush as “hiss”. The recent campaign by the PRC’s new leadership under Xi Jinping to impose an anti-consumerism ethic on the public and tamp down rampant government corruption resulted in a more solemn, less extravagant observation of the week’s activities than recent years. Some of the more noteworthy events are the following:
-  Overall consumer spending for shopping and restaurants was up 15%, but that was a slower pace of growth than in the previous four years. The slowdown was particularly pronounced in the high-end restaurants, where government officials are typically entertained by those courting their favor;
- As this Jing Daily article discusses in more detail, the government imposed a ban on advertising of luxury products in TV, radio and billboards. The State Administration of Radio, Film and Television (SARFT) issued a statement that such advertising “promotes incorrect values and helps create a bad social ethos.” While market analysts have taken serious note of the government’s nanny-like tone on this action, they also doubt how much affect this ban will have on actual sales, since print media and more importantly online media are still allowed to push the goodies into the hands of an ever-enamored public.
- Sales and prices of Moutai and other fiery baijiu alcohol fell on their face like drunken party animals during the celebration week. 70-80% of annual sales of the liquor traditionally takes place during the Lunar New Year and Autumn festivals. With soft sales volume and the bursting of a price bubble that had inflated on high end baijiu in previous years, prices dropped a staggering 33%, to approximately $250 per bottle. During the period since Xi has taken power in mid November, although the benchmark Shanghai Composite index has jumped 20 percent, shares in Shanghai-listed Kweichow Moutai Co., the maker of the white spirit, have dropped 17 percent.
- Even the extravagant fireworks display that normally paints Beijing’s night sky with color and smoke was also toned down. The government clearly felt that reducing the wheezing and coughing of citizens choking on the already notoriously bad air took priority over eliciting louder “oohs” and “aahs” from an adoring public.
How long these increased moral austerity measures will last is yet to be seen. Some analysts believe that there has been a real sea change in the resolve of the new government to be more accountable towards promoting social equality. Others simply see a new year and new faces at the top, but with the same agenda and no real desire to stop an opportunity to rein in waste from slithering away.

Titanic II – Sail or Sink?

Australian businessman Clive Parker’s ambition is launching. Will it cruise?

Fans of luxury ocean cruising and Leonardo DiCaprio, rejoice! Last night, 700 guests in Macau participated in a gala dinner that was the start of an international marketing and publicity roadshow to promote Australian magnate Clive Parker’s project to build a replica of the Titanic. The Macau dinner featured the same 11-course menu served to first-class passengers the night the Titanic sank on April 14, 1912. Though the proposed ship would primarily service the Atlantic Ocean route between Europe and the US once it is completed (target date 2016), Titanic II will make the occasional detour into the Pacific to give Asians a chance at a cruise weighted with history.
The more important connection to Asia is that Mr. Parker’s Blue Star Line cruise company, which will own the ship, is aiming to use state-owned Chinese shipyard CSC Jinling to build the vessel. An MOU between the parties was signed in April 2012. That arrangement sounds like a savvy proposition, partially given the publicity that it is meant to generate to the Chinese market. But even more enticing to Mr. Parker is the concessions that he is hoping to wring from the Chinese shipyard and other suppliers to lower the overall construction cost of the ship, which some estimates put at a minimum $500 million. (Blogger’s note: I’ve separately heard that the ship itself costs $100 million, but the extra life boats and flotation devices will add $400 million to the project’s budget). The Chinese shipping industry seems very keen to take on this type of landmark project, just to prove that it can. Basically, though China now accounts for 70% of the world’s shipbuilding, the country’s share of the luxury cruise line construction section is much less impressive, at 2%. The Chinese, therefore, are interested in doing some resume building. Whether world customers are keen to flout the eponymous ship’s ill-fated past by taking a ride on a vessel that has schooled China’s shipbuilding industry is a different question. An early indication of the Titanic II’s seaworthiness will be its initial transfer, escorted by vessels from China’s navy, from Jiansu Province to England’s Southampton, then onward to New York.
In any event, at least “half a dozen” potential customers have already indicated an interest to pay upwards of $1 million to take the maiden voyage. Any guesses on who two of them might be? Personally, I wouldn’t bet against Leo and Kate. They’ve probably already booked their place on the bow, ready to shout, “I'm...”. Well, you know the rest.

Saturday, February 9, 2013

Happy New Year from Asiaonepercent!

However you might mark this passing and renewal of time, if at all, here’s wishing that the Year of the Snake finds you coiled in happiness and good fortune.

Friday, February 8, 2013

Indians 'Thai' the Knot

... Thai style

An Indian “I do”

Two things that Indians stereotypically love are (a) huge, lavish weddings and (b) bargains. No country celebrates nuptials like the Indians. And no place provides the bargains for hosting them for Indians like... Thailand.
It is impossible for any invitee to a proper Indian wedding not to come away feeling punch-drunk from the multi-day explosion of colors, glitter, dancing, food and drink. It is a ceremony that out-ceremonies all the others, anywhere. And such extravaganzas don’t come cheap. The average middle class wedding in India costs US$34,000 and involves hundreds of guests. The top tier Indian families can easily spend US$1 million+ on events that host thousands. Social reciprocity and one-upsmanship are factors that have caused costs to skyrocket across India as the country has modernized over the past few decades.
Fortunately, help has been at hand from a neighboring country (if you ignore the massive Bay of Bengal that separates them). Thailand is Asia’s undisputed leader when it comes to theme-related tourism. Weddings have joined beaches, temples, food, medical treatments - and sadly, sex – as reasons why thousands upon thousands of foreigners head for Thailand’s shores every year. For Indian wedding planners, the country provides a compelling combo of significantly lower (30-60%) costs, beautiful and exotic locations, and the bragging rights that accompany a foreign wedding ceremony. The Thai government’s tourism board reports that the average spend per Indian wedding is approximately $340,000 for 200 to 500 guests. The average duration of each wedding is three to five nights, with as many as 600 hotel rooms booked. That’s no small affair, but it is a fraction of what such splash-outs can cost at home.
Thai people have long held ambivalent feelings about Indians, even though much of Thai culture and religion trace their roots back to India. However, when it comes to working together to create over-the-top weddings at under-budget prices, the two countries have been a match made in heaven.

Wednesday, February 6, 2013


Well-behaved dude for hire.

As your humble blogger wrote in this column a few months ago, wealthy Chinese in increasing numbers are hiring all sorts of people to help manage the complications that have piled onto their affluent lives like so many underutilized electrical appliances. Hiring Downton Abbey-style English-trained butlers to manage the household is one way to show off la dolce vita cinese. In Hong Kong, following the lifestyle of Hollywood stars, the well-heeled are increasing hiring Personal Managers to help them sort through the chores and mundane aspects of their lives. What do these PMs do? Name it. Organize and file tax returns. Plan weekly menus for the domestic helpers to feed kids healthy meals. Pack artwork for shipping. Sort out administrative chaos for the newly divorced. Set up a home security system. Nothing says "luxury" more than "bespoke". And as human beings (allegedly) have free will, there is nothing more bespoke than, well, a person.
Hiring personal help in China isn’t just for the well-established professionals. During this Chinese New Year season when family members gather together from afar, an irritating topic of conversation for young women is whether they will be getting hitched in the foreseeable future. To help address this perennial parental nag, those women with a few spare RMB in their pockets but insufficient interest or time to find an actual boyfriend can, yes you guessed it, rent one to take home to Dad and Mom. Rent-a-Dude service rates range from several hundred to up to two thousand RMB (approximately US$320) per day. And that's just the base fee for the temporary company of a pleasant looking guy on his best behavior and with presumably decent acting skills. Many of the lads charge extra for specific value-added services, including movie watching, party attending, and booze drinking. The booze fees are scaled according to the alcohol content and volume, with white spirits such as baijiu commanding the highest prices. As to whether there are a large number of cases when these short-term arrangements turn into long term romance, I quote a variation on an old Groucho Marx line: wealthy Chinese girls wouldn't marry boyfriends who would allow themselves to be hired as such. Money matters in China.

Monday, February 4, 2013

Did I Rip You Off? Oh Pardon.

SK Chairman Chey Tae Won heading to jail

Election time in Korea, as elsewhere, is a time when some – usually the incoming parties - talk tough and others – the outgoing – settle scores while they still can. In this regard, two major news items have converged in the past few days to ignite a firestorm of public animosity against Korea’s rich and powerful. First, the outgoing President, Lee Myung-bak, has just granted presidential pardons to 55 people, many of whom were senior political allies who had been jailed for corruption and bribery. The incoming President Park Geun-hye, who was elected to office in December partially on the promise to deal with the continually growing wealth disparity between the chaebol-related Haves and the Have-nots, has duly expressed her outrage at this outsized display of magnanimity.

Secondly, Chey Tae Won, the charismatic Chairman of SK Corporation, has been ordered to jail by a judge for a US$45 million embezzlement charge that he has been on trial for during the past year. He is appealing the case and his four-year jail term; therefore, his guilt is not yet finally established. However, it is clear that Mr. Chey seems to have been untidy with the governance of Korea’s 3rd largest chaebol, relying on his political clout to clean up any mess. In 2003, he was convicted of a bookkeeping fraud, but had his sentence suspended. The magnanimous President Lee then pardoned him in 2008.

This situation hands the incoming President Park an early test case to prove her resolve to be Ms. Clean-up and a champion of “economic democracy.” It is unusual for someone of Mr. Chey’s stature to be tossed behind bars while the case is on appeal. However, these are unsettled, angry times in Korea politically. The income gap has noticeably widened over the past five years – the top 20% of society now make 7.8x more than the bottom fifth. Furthermore, the large chaebol have a habit of squeezing the life out of small-medium sized businesses, while not providing employment and security to the masses. Studies show that, in 2010, the top 30 chaebol accounted for roughly 42% of the economy’s output, but only employed 6% of the country’s workforce.

With the touchy public sentiment against Korea’s power elite, President Park will think twice about using her influence to go easy on Mr. Chey. The masses may not be so pardoning towards her.

Friday, February 1, 2013

Beijing, Get a Whiff of This!

One Chinese businessman’s answer to Perrier

The main topic of conversation these days in Beijing is the horribly toxic air quality, which is the worst that it has been in decades. The government is attempting to take emergency measures to address this serious and chronic structural problem. However, an already-wealthy individual, Chen Guangbiao, who made his fortune in the recycling business, has come up with an enterprising solution – clean air in a can. The pristine product is allegedly sourced from the far-reaches of the country, where people can actually trust air that they can’t see. Each can sells for RMB 5, or US$0.80.
A gimmick? Absolutely! But, with the sale proceeds going to charity, this publicity stunt is clearly meant to draw attention to more than one social problem facing China. So hopefully, the 1% won’t mind buying a six pack or two. It will probably go well with the imported designer water that they have already stocked up on.