The Banking and Strategy Initiative

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China: Luxury retail and HK property prices

Aside #1: Most of the FT reporting on China is a smattering of China’s statistics with no feet on the ground ( from the diagnosis with due apologies to any press posting from real China , as there is no visible reporting showing that available body of knowledge of a live observer)

Aside #2: Only one story was common to the China thread last week at both FT and WSJ, to that green companies in China had started an investigation against US importers and US ready to impose dumping duties on solar panels. US exports most solar cells o China and imports back panels. Dumping duty on that – obviously penal facets to WTO offer much opportunity for trade wars

Property prices in China subdued in select metros ( read Shanghai) in the last two months but not many other places, have been at the center of a storm that China has avoided with clampdowns on banks and extra costs for second and third mortgages. However, Hongkong retail land prices have also been climbing, rentals on Commercial property up 25% in one last month with local retailer Shanghai Tang working out of yurts in the harbor.

This one however is not a result of the larger property bubble with two divergent trends obvious in 2011 that need an appraisal here. The first is that Audi and luxury cars sell almost a half of the monthly car production in China except for the recent clampdown on Chinese bureaucrats who were yet investing in lower end Passats and Hondas instead of more conventional office fare.   The quest for luxury goods, means a captive market for Hongkong, why Abercrombie and Fitch has outpriced Shanghai retailers to get prime showroom space in Hongkong

A slowdown may impact sale of luxury goods in China and more likely Hongkong as Chinese tourists are also looking to duuck the taxman, but it will only accelerate the emigration of Wealthier families incl ex bureaucrats to the West. Over 900 EB1 visas were issued in 2011 to Chinese, which require an upfront $500k minimum investment and at least 10 employees in the US for 3-5 years.  A recent Bank of China study with local consultants, the Hurun Report found that half of China’s millionaires have plans for immigration to the West, US a destination for 40% followed by Canada, Singapore and Europe

Nearly 5000 wealthy families plan to leave China this year. While increasing demand for luxury in India means nearly 1000 Mercedes, BMWs and Audis in a year after a 200% growth, in China, mercedes are a common demand in marriages seemingly, with each of the three selling more than 100k cars every month of 2011 to end with more than a million units in sale for 2011

Despite a healthy respect for indigenous innovation in China requiring Chinese to ape the western manufacturers even in aircraft and high speed trains ( both accidents this year were use of indigenous Chinese equipment/configuration staff in Japanese imports, western manufacturers from Nestle and Unilever to McDonanlds and Starbucks and global Car giants from Europe like Daimler Benz, VW(Audi) and BMW have had a dream run in China with strong demand in cosmopolitan China.

Urban retailers ANF, luxury make up brands and high end fashion find ready buyers in China feeding the need to Display wealth in affluent China. Western Brands won many Advertising Grand Prix at Cannes this year as they fuel the need with a 30% uptick in advertising spending in China esp across Consumer discretionary and Automobile brands

 

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This entry was posted on December 2, 2011 by in Financial Markets and tagged , , , , , , , , , , , .

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