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No rules for the rich: How China spends its new wealth | No rules for the rich: How China spends its new wealth |
(about 1 hour later) | |
By Rebecca Marston Business reporter, BBC News | By Rebecca Marston Business reporter, BBC News |
Here's a story an upmarket wine merchant told me about a particularly memorable - and potentially instructive - evening. | |
A group of Chinese businessmen arranged to meet up one evening for a drink. They were asked to bring their best bottle of wine. | A group of Chinese businessmen arranged to meet up one evening for a drink. They were asked to bring their best bottle of wine. |
Here was a selection of some of the best-known fine wines in the world. Chateau Lafite 1962, Chateau Latour 1970 - bottles that cost in the region of $1,600 (£1,000) each. | |
On arrival, the host said: "Gentlemen, show your wines," and the guests presented their bottles for each other's approval. | |
The host then called: "Gentlemen uncork your bottle," which they did. | The host then called: "Gentlemen uncork your bottle," which they did. |
He then indicated a vast silver punchbowl and ordered: "Gentlemen pour your wine," which they did - into the punchbowl. | He then indicated a vast silver punchbowl and ordered: "Gentlemen pour your wine," which they did - into the punchbowl. |
The mingled contents of some of the most distinctive clarets in the world were then ladelled out between them. | The mingled contents of some of the most distinctive clarets in the world were then ladelled out between them. |
It is a memorable anecdote. But it is also instructive, because it illustrates the way China's new rich approach established luxury goods. | It is a memorable anecdote. But it is also instructive, because it illustrates the way China's new rich approach established luxury goods. |
Rich keep spending | |
As the country sucks up more and more of the world's luxury goods production, producers are growing in their understanding of Chinese tastes. | As the country sucks up more and more of the world's luxury goods production, producers are growing in their understanding of Chinese tastes. |
Unlike China's middle class, which is suffering from high inflation, the rich feel no such drag upon their lifestyle. | Unlike China's middle class, which is suffering from high inflation, the rich feel no such drag upon their lifestyle. |
BMW, which also owns the Rolls-Royce brand, almost quadrupled its first-quarter profits thanks in part to increased demand from China. | |
It joins a long list of leading luxury brands whose profits have been spurred by demand there. | It joins a long list of leading luxury brands whose profits have been spurred by demand there. |
According to Barclays Capital, the country now buys 12% of the world's luxury goods. | According to Barclays Capital, the country now buys 12% of the world's luxury goods. |
A research report from Barclays says this is set to grow by 20-30% a year. It means in five years' time China could be buying a third of the global luxury goods ouput. | |
That is a staggering growth rate, but if you look at the increase in the number of millionaires it is not hard to see how it could rise so fast. | That is a staggering growth rate, but if you look at the increase in the number of millionaires it is not hard to see how it could rise so fast. |
There are around half a million Chinese millionaires, 31% more than in 2008, according to the most recent Merrill Lynch Cap Gemini World Wealth Report. | There are around half a million Chinese millionaires, 31% more than in 2008, according to the most recent Merrill Lynch Cap Gemini World Wealth Report. |
Donald Holdsworth, director of MatchPower in Australia, has been fascinated by China's growing love affair with luxury since the 1990s. | |
Little emperors | Little emperors |
Why does he think the desire for luxury goods has seized the Chinese mind so firmly? | Why does he think the desire for luxury goods has seized the Chinese mind so firmly? |
The answer, he thinks, is rooted in demographics: "The average age of a Chinese millionaire is 39 - that's 15 years younger than in the developed world. | |
"It happens to coincide with the start of the one-child-per-person policy - the year of the Little Emperors. These children were given the very best by their parents." | |
So the Little Emperors grew up with as many resources as could be mustered by their parents - at the same time as the economy shifted from communism to capitalism. | So the Little Emperors grew up with as many resources as could be mustered by their parents - at the same time as the economy shifted from communism to capitalism. |
That, says Donald Holdsworth, sheds further light on Chinese tastes: "If you've grown up in a conformist society where there's no freedom of speech, once a chance appears for you to express yourself without danger you are going to take it. | That, says Donald Holdsworth, sheds further light on Chinese tastes: "If you've grown up in a conformist society where there's no freedom of speech, once a chance appears for you to express yourself without danger you are going to take it. |
"It's like unscrewing the top from a bottle of fizzy water." | "It's like unscrewing the top from a bottle of fizzy water." |
That desire is just as well for the largely European producers of luxury goods. | That desire is just as well for the largely European producers of luxury goods. |
LVMH - Moet Hennessy Louis Vuitton - is the world's biggest luxury brand company with more than 50 of the best-known in its stable, including Gucci, which has pushed hard in China and has some 40 outlets across a string of Chinese cities. | |
Overall, LVMH already makes about 40% of its profits from the country. | Overall, LVMH already makes about 40% of its profits from the country. |
Others with growing profits in the region include Burberry and German carmaker Audi, whose latest sharp rise in profits were thanks in part to a strong growth in sales of luxury cars in China. | |
Prada is also exploring other ways of accessing China's wealth. Like other firms it is considering raising money by issuing shares via the Hong Kong stock exchange | |
Easy on the ear | Easy on the ear |
The recent growth in the market is pointed up in sharp detail by Berry Bros and Rudd, the upmarket wine merchants. | The recent growth in the market is pointed up in sharp detail by Berry Bros and Rudd, the upmarket wine merchants. |
Wine buying director Alun Griffiths says the Chinese wine market has been growing by 15-20% a year and his firm now does 25% of its business in Hong Kong. | |
Five years ago that figure was barely 6%. | Five years ago that figure was barely 6%. |
Chinese tastes are certainly high-end; Bordeaux, which makes some of the most expensive fine wines in the world, is a favourite. But only a few chateaux seem to interest them. | |
Mr Griffiths says the wine is not necessarily bought for its taste, as the opening paragraph of this piece fully illustrates, but the name is important, too. | Mr Griffiths says the wine is not necessarily bought for its taste, as the opening paragraph of this piece fully illustrates, but the name is important, too. |
"Chateau Lafite sounds well to the Chinese ear, in a way that other Bordeaux wines don't. That may change, but it is the label they are choosing for the moment." | |
Showing off | |
Big names are key to wealthy Chinese buyers, in part because the market is new. | Big names are key to wealthy Chinese buyers, in part because the market is new. |
Chinese tastes are likely to evolve, as has happened elsewhere. | Chinese tastes are likely to evolve, as has happened elsewhere. |
Donald Holdsworth says if one looks at the UK market of the 1980s, Rolls-Royce cars were the favourite of the rich, giving way to the slightly more restrained Bentley, and these days to the less showy Audis and Mercedes. | |
"That will probably eventually happen in China, as it has in Japan, where they still love their luxury brands but in a less obvious display of wealth. | "That will probably eventually happen in China, as it has in Japan, where they still love their luxury brands but in a less obvious display of wealth. |
"Until then it will be a market that wants to show off." | "Until then it will be a market that wants to show off." |
Meantime, tales of fine wines in a punchbowl - or mixed with 7-Up or Coca-Cola - will doubtless continue to circulate. | Meantime, tales of fine wines in a punchbowl - or mixed with 7-Up or Coca-Cola - will doubtless continue to circulate. |
But, as Alun Griffiths puts it: "As a wine lover it's a horror story, but you've got to let people do what they want with what they buy. | But, as Alun Griffiths puts it: "As a wine lover it's a horror story, but you've got to let people do what they want with what they buy. |
"After all, there are no rules for being rich." | "After all, there are no rules for being rich." |