China's rich throw lifeline to West
By Olivia Chung
HONG KONG - As world leaders at recent gatherings such as the Group of 20
countries and the International Monetary Fund pledge to rebalance world trade,
with the implication of a stronger Chinese currency, Western manufacturers of
luxury products, such as BMW cars and Swiss watches, are already seeing sales
surge in China.
A stronger yuan would increase the purchasing power of the Chinese currency for
the country's citizens, leading to increased imports into China. That would
benefit countries such as the United States, boosting jobs there while helping
to rein in large trade deficits.
Sales in China by Munich, Germany-based BMW, the world's biggest luxury
automaker, surged 63.2% in August from a year
earlier to a record monthly high of 9,013 vehicles. That helped to compensate
for a 10% plunge in overall auto sales in the same month to 101,679.
The company's sales in China jumped by almost a third, or 31% year-on-year in
the eight months to August, to 54,263 units, including 51,832 BMW vehicles and
2,431 Mini cars.
Driving sales is the rapid increase in the number of affluent Chinese business
owners and other citizens as the economy continues to grow through the global
downturn, helped by a strong government economic stimulus package introduced
last November. The stimulus has helped to offset a collapse in exports that has
forced many export-oriented factories to close or lay off workers.
The power of China's economic growth amid a general downturn is highlighted by
the 14.2% decline last year in Asia-Pacific's population of high net worth
individuals (HNWIs) - that is individuals who have net assets of at least US$1
million, excluding their primary residence and consumables, according to the
annual Asia-Pacific Wealth Report released this week by Merrill Lynch Global
Wealth Management and Capgemini. The total number fell to 2.4 million last
year, according to the report. The combined wealth of the region's HNWIs
dropped 22.3% to $7.4 trillion, the report said.
Yet the number of US-dollar billionaires in China has jumped to 130 this year
from 101 in 2008, according to the Hurun Report magazine, which publishes an
annual "rich list".
"That's just the half of it," said Rupert Hoogewerf, the British accountant who
compiles the list. "There should be the same number again of US-dollar
billionaires that we have not yet found." Many rich people in China disguise
their true wealth for tax or other reasons. The Hurun Report describes itself
as "a leading luxury publishing and events group" that is "targeted at China's
high net worth individuals".
Beneath that top tier, 51,000 individuals had personal wealth of more than 100
million yuan (US$15 million) and 825,000 individuals had more than 10 million
yuan as of the end of 2008, according to Hurun.
The growing wealth among China's richest and their continuing expansion in
numbers means that China's luxury market has been less affected than elsewhere
by the global economic downturn. Sales of top-end goods has declined only 5% in
China this year, compared with a 20% plunge in the US and a 15% fall in Europe,
according to US-based World Luxury Association (WLA).
In the process, China is climbing up the ranks of destinations for luxury
products. Mainland sales of these were worth $8.6 billion in the period in the
14 months to January 31, 2009, accounting for 25% of the global luxury market
and surpassing the United States to become the world's second-largest luxury
goods market behind Japan.
The WLA, which does marketing research and other activities targeting the
luxury market, forecasts that China will catch Japan to become the biggest
consumer of luxury goods by 2015, accounting for at least 32% of the market.
This as the cost of goods coveted by the rich and the aspiring rich has climbed
faster than prices of other goods over the past three years. Hurun says the
general consumer price index (CPI) dropped 1.7% in the year ending June 1,
while the luxury CPI, which tracks prices of 59 luxury consumer goods and
services including high-end homes, cars and jewelry, rose 4.6%.
Among items becoming more expensive on the shopping lists of high spenders are
executive MBA programs, liquor and jewelry.
Perhaps appropriately, the man with most cash to spend on the high life this
year, and with little need for an executive MBA, is Wang Chuanfu, named on the
Hurun rich list this year as China's richest person.
Wang, the founder of battery and carmaker BYD, saw his wealth surge after an
investment by famed US investor Warren Buffett led to a fivefold surge in BYD's
share price, driving Wang up 102 places on the rich list as the value of his
assets rose to US$5.1 billion.
BYD's latest product, a plug-in electric "dual mode" vehicle, the F3DM, sells
for US$21,900 - putting it well beyond the reach of most people in China. But
as green concerns mount along with the number of rich folk in the country, Wang
should find no shortage of buyers.
To show that environmental awareness is the new green, as in greenback, Hurun
lists Cheung Yan (also given as Zhang Yin), founder of Nine Dragons Paper
Holdings as China's second-richest person this year, with $4.9 billion. Her
company specializes in recycling paper, and the value of her shares has doubled
over the past year.
Western companies are confident that the ranks of China's big spenders will
continue to grow, certainly in the short term, with BMW's China chief
Christopher Stark forecasting a good result in the country for the full year.
That is good news for his board, as sales in the United States, which account
for 20% of global sales and is the company's largest single market, crashed 18%
to 24,343 units in August and are down 26.5% for the first eight months this
year.
It is a similar tale for German carmaker Mercedes-Benz. Its global vehicle
sales slumped 17.5% in the first seven months of the year, while vehicle sales
in China soared 49% from a year earlier to 31,711.
"Though most of the major markets have been severely impacted by the economic
downturn, China continues to maintain positive growth," Klaus Maier, president
and chief executive officer of Mercedes-Benz (China), told China Daily. "The
rapid growth of the economy and the automobile industry has spawned more
wealthy people and also broadened their vision and understanding of
international luxury brands."
In China, there is still plenty of room for top-end sales growth. According to
Maier, the ratio of luxury car sales to passenger cars in the European Union or
North America is about one premier model in every five cars sold. In China, the
ratio is still only one to 10.
Even better, the Chinese luxury car buyers are younger than those in Western
countries. "The growing economy in China has made more people get rich at a
younger age," said Tang Sai-kit, a Hong Kong-based commentator on the
automotive industry. In Western countries, the average age of a luxury car
consumer is about 55.
In China, about half of the buyers of the country's top three selling high-end
brands - BMW, Mercedes and Audi - are aged between 30 and 40 years, according
to the 2008 China Sales Satisfaction Index (SSI) Study by market research
company JD Power Asia-Pacific.
BYD's Wang Chuanfu, climbing to vast wealth after being born into a family of
poor farmers, is now just outside that range, at about 43 years old. Nine
Dragons founder Cheung Yan was 49 when in 2006 she first topped lists of
China's richest people. She took over top billing from Gome retail-chain boss
Huang Guangyu, then aged about 36.
Tang, recognizing the role the government's stimulus measures and keen brand
awareness in the demand for top-end vehicles in China, highlighted another
local market characteristic - more expensive luxury vehicles are more popular
than smaller entry-level luxury cars.
Also, when the price tag for a luxury car in China frequently exceeds one
million yuan and most customers purchase their vehicles with cash, "For bosses
in state-owned enterprises, their vehicles virtually are paid for by public
funds, so they prefer full-sized or mid-sized luxury cars, which give them 'big
face'," Tang said.
What goes for cars in China applies to other products, and you can't drive a
high-end car without a compatible watch on your wrist. Here again, China's big
spenders are bailing out Western manufacturers
As global sales of Swiss watches collapsed more than 26% to 7.3 billion Swiss
francs worth (US$7 billion) in the January to July period this year compared
with a year earlier, Hong Kong, a city of only seven million people, stood out
as the world's biggest buyer, importing 1.2 billion francs worth of timepieces,
according to the Federation of the Swiss Watch Industry (FSWI).
About a third of those, and about 10% of their value, is re-exported to China,
other than those sold to tourists, says FSWI president Jean-Daniel Pasche.
With China's economic growth forecast to grow more than 9.9% in the fourth
quarter and 9.5% in 2010, sales can only continue to rise, and rise further if
the government allows the currency to strengthen, as urged by the United States
and other leading industrialized countries.
Still, the Chinese government is wary of such demands.
"Washington is talking about decoupling and rebalancing the global economy, but
the true nature of these pursuits is the United States scramble for markets,"
Chen Fengying, an expert on world economic issues with the China Institute of
Contemporary International Relations, a think-tank that advises the government,
told the China Times recently.
Premier Wen Jiabao is also taking a firm line on currency policy and the
official view that it cannot be blamed for the lopsided trade flows and world
economic imbalances. Beijing intended to contribute to a global recovery by
maintaining the continuity and stability of its policies, he told the country
this month.
That may discourage some Western manufacturers keen to boost sales in China's
vast market, but for the top-end products, the present buying strength of the
country's rich is already benefiting them very nicely.
Olivia Chung is a senior Asia Times Online reporter.
(Copyright 2009 Asia Times Online (Holdings) Ltd. All rights reserved. Please
contact us about
sales, syndication and
republishing.)
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
