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Tag: China

  • Hong Kong Luxury Goods Stores Want Cheaper Rents

    Hong Kong Luxury Goods Stores Want Cheaper Rents

    Rents for retail space on the island of O‘ahu rose to a record earlier this year.  Colliers International says commercial rents here have been rising for the past several years, a trend that’s expected to continue. Commercial rents have also risen in Hong Kong, but some luxury retailers are fighting back.  HPR’s Bill Dorman has more in today’s Asia Minute.

    Selling luxury goods in Hong Kong is not the business it used to be.  Part of that reflects a slowing Chinese economy.  But those who follow the sales say an even bigger impact has been the crackdown on extravagant spending by Chinese government officials.

    This week, the chief financial officer of Gucci’s parent company threatened to close some stores in Hong Kong unless rents are reduced.  He told a conference call of analysts that “many landlords have not necessarily understood that the markets have changed.”

    Bloomberg reports Burberry may also try to lower its rent after its sales in the city fell to a two-year low.  Commercial rents have come down in some parts of Hong Kong, but they remain among the most expensive in the world.  Reuters reports a 500-square foot store space in the neighborhood of Causeway Bay can cost the equivalent of 64-thousand US dollars a month.

    Commercial real estate firm Cushman and Wakefield says annual rent for retailers tops two-thousand dollars a square foot in three different Hong Kong neighborhoods.  Many Chinese shoppers are now traveling beyond Hong Kong to buy luxury goods.  In a report last month, Bain and Company said the world’s luxury goods market is continuing to grow, and its major driver is tourism.

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  • Tmall.com promotes same-day grocery delivery in China

    Tmall.com promotes same-day grocery delivery in China

    Tmall.com, China’s largest business-to-consume platform and a unit of Alibaba Group, said on Friday that it has launched a CNY1 billion (USD161 million) online grocery promotional campaign targeted at Beijing users, and teamed up with Cainiao, the logistics affiliate of Alibaba Group, to offer same-day delivery services to Beijing city residents.

    Online grocery shopping is a rapidly growing e-commerce segment and a strategic area of interest for Alibaba Group. The convenience of online grocery shopping has already drawn in millions of users. According to Kantar Worldpanel, China’s FMCG (fast moving consumer goods) e-commerce penetration rate was 36 percent in 2014, while McKinsey states that 40 percent of Chinese consumers have bought food online.

    Tmall Supermarket will run its promotion three times a day, allowing Beijing-based internet users a chance to win “red packets” that subsidize their grocery purchases. The promotion will end by the end of this month.

    Beijing residents who order from Tmall’s supermarket before 11 am will be eligible for same-day delivery service. In the future, Tmall Supermarket and Cainiao plan to roll-out same-day delivery services to Shanghai and other Chinese cities.

    Jeff Zhang, President of Alibaba Group’s China Retail Marketplaces said Tmall Supermarket will draw on Alibaba Group’s complete e-commerce ecosystem – including Alibaba’s advantage in logistics, strength in online payments, big data and cloud computing, to bring consumers the most convenient and secure online shopping experience for quality products.

    Tmall Supermarket was established in 2012 and provides a one-stop shopping solution for Chinese users looking to purchase authentic food products, cosmetics, beverages, snacks, imported items, etc. In the past year, Tmall Supermarket’s Beijing area GMV soared more than 700 percent with 90 percent of consumers shopping on their mobile phones.

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  • China’s shoppers may take 10 years to step up

    China’s shoppers may take 10 years to step up

    Chinese policymakers are gung-ho to transition their economy away from investment and toward consumption, but that may not happen for another decade, new data shows.

    “Without a substantial intervention, we believe consumption’s share of China’s economy is unlikely to rise substantially before 2025,” The Demand Institute, a non-profit organization operated by The Conference Board and Nielsen, said in a new report.

    Private consumption as a share of gross domestic product (GDP) will average 28 percent from now until 2025, the think-tank said.

    To be sure, the mainland has long underperformed the global average in this regard as Beijing previously focused on export-led growth.

    Consumption as a share of GDP was 37 percent last year, according to the Brookings Institution, compared with around 70 percent in the U.S. and 60 percent in fellow emerging market, India.

    The indicator has only recently started to stabilize in recent years. Consumption relative to GDP declined 48 percentage points from 1952 to 2011, one of the longest and largest drops of any nation on record.

    Based on an examination of 167 countries between 1950 and 2011, the report found that nations with similar economic characteristics to China saw consumption remain flat relative to GDP for a considerable period following previous declines.

    China’s desire to rebalance its economy stems from the need to avoid the dreaded “middle-income trap,” in which developing countries are unable to graduate into high-income countries after achieving a certain level of per capita GDP.

    While many economists believe the economic transition is already underway, albeit at a gradual pace, they also expect it will take a while before consumption’s share of GDP spikes higher.

    “Only towards the end of decade, when the economy slows further to 5-6 percent, consumption’s share of GDP will become more important,” said Jian Chang, China economist at Barclays. “But we have seen investment slow significantly and I think total consumption as a share of GDP could near 50 percent this year.”

    Beijing’s strategic vision of boosting consumption was first outlined in 2011’s 12th Five-year Plan and since then, the government has unleashed a slew of measures, including raising wages and slashing import tariffs on high-demand goods.

    But The Demand Institute warns that the burden can’t rest on the government alone: “It is up to business to nurture the demand that policy unleashes, aligning goods and services with consumers’ shifting preferences.”

    Ensuring access to products and services via reliable distribution channels, satisfying demand across different income, regional and age groups as well as offering more financial services to support consumption are some of the factors that businesses can embrace, the report said.

  • Gap narrows for Chinese brands

    Gap narrows for Chinese brands

    Chinese brands are closing the gap with international brands as consumers become more concerned about product quality rather than the origin of the brands, according to a latest study.

    As high as 67 percent of consumers said they favor domestic brands, consumer research firm Mintel said in a research report yesterday.

    The study covered 3,000 consumers aged between 20 and 49 in 10 cities.

    The domestic food and beverage brands have a strong following, with 42 percent of the respondents favoring them over foreign products compared with 25 percent that prefer imported snacks.

    For domestic ready-to-drink beverage brands, 44 percent of consumers prefer them against 27 percent that favor foreign products.

    Baby food is an exception with 45 percent of respondents saying they would choose international brands against only 31 percent who favor domestic products.

    “We’ve seen Chinese consumers becoming more value-driven, as they’re more likely to judge a product by its content and quality instead of checking whether it’s an international or domestic brand,” said Laural Gu, Mintel China’s senior lifestyle analyst.

    The study also found that 47 percent of the consumers were more willing to indulge themselves by paying for services instead of products.

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  • Hang Lung posts strong result

    Hang Lung posts strong result

    Hong Kong listed Chinese mall owner Hang Lung Group has reported a three per cent rise in turnover in the first half of 2015.

    The group said revenue reached HK$4.893 billion, with rental turnover up eight per cent to HK$4.148 billion. Property sales income decreased 17 per cent to HK$745 million due to the sale of fewer residential units.

    Overall operating profit of the group increased by three per cent to HK$3.725 billion.

    In Mainland China the group says it has benefited from increased investment in the Chinese market by luxury brands.

    “Our seven shopping malls in mainland China collectively posted an 11 per cent rental income growth to HK$1.684 billion,” the company said in its stock exchange filing.

    That portfolio comprises two malls each in Shanghai and Shenyang, and one each in Jinan, Wuxi and Tianjin. The two malls in Shanghai, Plaza 66 and Grand Gateway 66, contributed nine per cent more in rents to HK$1.059 billion and were almost fully let.

    “The young malls outside Shanghai cumulatively contributed 16 per cent more in rents year-on-year mainly attributable to contribution from the Riverside 66 shopping mall in Tianjin which commenced operation last September. All the young malls are going through different stages of gestation period with ongoing tenants or trade adjustments. Their occupancy rates ranged from 80 per cent to 90 per cent.”

    In Hong Kong, rental turnover of our diversified Hong Kong leasing portfolio rose seven per cent to HK$1.816 billion against the backdrop of declining overall retail sales in the local market.

    “All business segments of our portfolio recorded growth with total profit rose seven per cent to HK$1.556 billion. The resulting leasing margin was 86 per cent.”

    Positive rental reversions of Hang Lung’s Hong Kong commercial portfolio generated six per cent more in rents to HK$1.040 billion.

    “All the malls, which are situated in prime locations of Hong Kong, were virtually fully let. Grand Plaza in Mongkok and Amoy Plaza in Kowloon East both enjoyed a 13 per cent rental growth. The Causeway Bay commercial portfolio posted a five per cent rental income growth, despite Hang Lung Centre has been closed for renovation by H&M since January 2015.

    “The properties in Central collected seven per cent more in rents. The Peak Galleria at the

    Peak contributed extra five per cent leasing income to the Group. Kornhill Plaza, our regional mall in Hong Kong East, posted a stable rental growth of four per cent during the period.”

    Hang Lung said final preparations are underway for the opening of its shopping mall at Olympia 66 in Dalian towards the end of the year. This new mall comprises almost 222,000 sqm of retail area and 1200 car parks.

  • Goxip mixes fashion, celebrities and shopping

    Goxip mixes fashion, celebrities and shopping

    Star-gazers – those who focus on the celebrities, that is – now have an app they can use to find fashion matching what their idols are wearing.

    A Hong Kong startup has launched an app called Goxip which uses social media, photo recognition technology and news feeds to connect fashion lovers with online retailers.

    So when 25 year old Tina in a downtown Hong Kong cafe sees Fan Bingbing wearing a stunning new dress on a red carpet stroll she can copy the image on Goxip, crop the photo and wait while the app digitally searches online stores around the world for something similar.

    The app’s creators – Juliette Gimenez and YC Lau – hope Goxip will become “the commerce layer, in between the world of [celebrity news] content and the retailers,” according to an interview.

    It’s aimed at ‘ordinary people’ who cannot afford to splurge $5000 on designer rags worn by a Hollywood superstar – but want something as similar as they can. Meanwhile, fast fashion apparel brands are constantly studying catwalks and red carpets to spot new trends and cuts they can incorporate into their next weekly or fortnightly release.

    Goxip helps the two parties meet – hopefully resulting in online sales for the retailer.

    Behind the app is a system constantly searching for new trends and celebrity revelations.

    “When you read the news, you can go straight to the article. Or you can shop. We have a snap and crop function. I like this dress, so I crop. I like this red dress for my cocktail party. I crop, take a photo, type the style and a list of clothing that matches your desire is listed,”.

    Gimenez, Goxip’s CEO, worked with group-buying startup uBuyiBuy.com in 2010 which was later acquired by Groupon. Lau, Goxip’s head of product, is an investor and adviser for Chinese language web forum HKGolden.com, which boasts 6 million daily page views.

    Goxip already has relationships with over 40 retailers (including Amazon, Shopbop, Zalora, Bloomingdales and TopShelf) and estimates it already has about 1 million clothing items in its database.

  • CapitaLand China malls post solid growth

    CapitaLand China malls post solid growth

    CapitaLand is making the most of China’s retail sales growth, its mall portfolio posting growth of 6.1 per cent in net property income.

    In results released this morning, CapitaLand Retail China Trust Management Limited (CRCTML), the manager of CapitaLand Retail China Trust (CRCT), announced distributable income of S$45.1 million for the first half of this year, an increase of 10.3 per cent over the S$40.9 million for the same period last year – a percentage rate coincidentally matching China’s 2015 retail sales growth.

    CRCT owns 10 quality shopping malls six Chinese cities: CapitaMall Xizhimen, CapitaMall Wangjing, CapitaMall Grand Canyon, CapitaMall Shuangjing and CapitaMall Anzhen in Beijing; CapitaMall Qibao in Shanghai; CapitaMall Erqi in Zhengzhou, Henan Province; CapitaMall Saihan in Huhhot, Inner Mongolia; CapitaMall Wuhu in Wuhu, Anhui Province; and CapitaMall Minzhongleyuan in Wuhan, Hubei Province. As at 30 June 2015, the total asset size of CRCT is approximately S$2.5 billion.

    Tony Tan, CRCTML CEO, said the portfolio of malls ended the period 95 per cent leased and achieved 6.1 per cent growth in net property income. Rental reversions of 4.6 per cent (excluding CapitaMall Minzhongleyuan, which reopened in May last year after refurbishment).

    “Tenants’ sales at our multi-tenanted malls increased 17.8 per cent year on year, while shopper traffic grew two per cent.

    “As part of our proactive mall management strategy to keep abreast of the latest retail trends, we continue to upgrade and refresh the tenant mix at our malls. CapitaMall Xizhimen enriched its F&B offerings on Level 1 with a popular restaurant Bellagio.

    “CapitaMall Wangjing signed popular international brands including Tommy Hilfiger and New Balance, while key tenant Le-Wellness Gym reopened after renovations with improved facilities and an enhanced image that strengthened CapitaMall Wangjing’s position as a one-stop family and lifestyle mall in the affluent Wangjing District.

    “CapitaMall Grand Canyon continued to enhance its fashion and beauty offerings by bringing in well-known brands such as British fast-fashion retailer New Look; and Korean cosmetic and skincare brands Etude House and Innisfree.

    “At CapitaMall Qibao, we reconfigured the space formerly occupied by a gym tenant on Level 3 and brought in Rucker Park to maximise the outdoor space for popular sporting activities such as street soccer, basketball and badminton.

    “At CapitaMall Saihan, we strengthened the sports brand offerings with Nike, New Balance and Fila, which helped to diversify the mall’s overall fashion offerings. We will continue to optimise the retail mix in our malls and increase their appeal to shoppers to further enhance unitholder value, while continuing to be on the lookout for suitable acquisition opportunities to drive our next phase of growth.”

    Victor Liew, CRCTML chairman, said in the first half of 2015, China’s economy surpassed expectations and expanded seven per cent year on year, while the country’s retail sales grew 10.4 per cent year on year to RMB14.2 trillion.

    “Notably, consumption accounted for a record 60 per cent of China’s Gross Domestic Product in the first half of the year. As the Chinese government has identified domestic consumption as a key driver of economic growth, this should augur well for our malls.”

    All the CRCT malls in the portfolio are positioned as one-stop family-oriented shopping, dining and entertainment destinations for sizeable population catchment areas. A significant portion of the properties’ tenancies consists of major international and domestic retailers such as Beijing Hualian Group and Carrefour under master leases or long-term leases. Anchor tenants are complemented by popular specialty brands such as KFC, Paris Baguette, Pizza Hut, Sephora, Uniqlo, Vero Moda, Watsons and Zara.

  • Big differences in Asian travel spending

    Big differences in Asian travel spending

    Koreans travel abroad most frequently, Chinese spent the most money and Japanese visit the most faraway places most often.

    Those are findings from a study by Visa card, 2015 Survey on Travel Plans, in which 13,603 people from 25 different countries shared information about their travels.

    According to the results, Koreans traveled an average of five times during the past two years, ranking the highest in travel frequency – well above the global average of three times.

    Around 90 percent of the Korean respondents answered they had travelled abroad within the past two years. But as travellers, Koreans seem to be of frugal mind when it comes to expenses. They spent an average of $1808, which was way below the global average ($2281). They also have a tendency to set a budget and stick to it. Korean travelers paid 46 per cent of their expenses before departure, and 75 per cent of the payments were made by credit card.

    On the other hand, the average travel expense for Chinese travelers was $4780 – more than double the global average. Unlike Koreans, Chinese people had a tendency to decide what they wanted to do on the trip first and then calculate the expenses.

    While 36 per cent of Korean travelers and 34 per cent of Chinese travellers visited Japan, 36 per cent of Japanese travellers visited the US, showing their preference for long distance travel. The average time taken to get to the destination was longer for Japanese travelers (nine hours), compared to eight hours for Chinese travellers and six hours for Korean travellers.

    The average travelling expense for Japanese was $3165, which was less than the average of Chinese.

    In terms of accommodation, 41 per cent of Korean travellers and 62 per cent of Chinese preferred hotels with more than four stars, while 49 per cent of Japanese preferred one to three star hotels.

    The portion of Koreans who preferred package tours (47 per cent) was similar to the portion of those who liked to travel freely (52 per cent). However, more than half of the Chinese (65 per cent) and Japanese (77 per cent) preferred tour packages.

    Ian Jamieson, head of Visa Korea, said it was impressive that Korean travellers prepare well and frequently go on trips and the purchasing power of Chinese travellers was also interesting.

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  • UK retailers to launch online d-store in China

    UK retailers to launch online d-store in China

    A group of former executives of high profile British retail brands are planning to launch a department store online in China, via JD.com.

    The creators of the virtual department store to be called The Jack Russell Emporium are ex Marks & Spencer, Burberry and Jonathan Saunders. The new store will go live in September.

    It will stock goods from brands such as Hackett, Reiss and Jigsaw, targeting the rising ranks of China’s middle class who aren’t yet quite cashed up enough to splurge on Louis Vuitton.

    “That emerging market has disposable income for the first time; they are cultured and may have travelled to the UK once or twice so they don’t want domestic product, but they cannot afford luxury brands like Burberry and Louis Vuitton,” co-founder Jamie Powell, told Drapers.

    The Jack Russell Emporium will launch with 10 brands initially and expand to 25 by Christmas, before adding a further 75 brands next year.

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  • Kering expects Hong Kong rent relief

    Kering expects Hong Kong rent relief

    Luxury international retail group Kering says it expects to be paying less rent in Hong Kong by the end of the year.

    Kering is the owner of a raft of luxury fashion brands, including Yves Saint Laurent, Bottega Veneta and Gucci, the latter of which comprises a third of its turnover.

    Kering says its global sales rose 22 per cent in the second quarter of this year, aided by a weakened euro and growing numbers of Asian shoppers in Europe. Sales reached €2.86 billion (US$3.18 billion). Excluding the impact of exchange rates, real organic growth was 7.7 per cent.

    CFO Jean-Marc Duplaix said a significant fall in sales in Hong Kong has given the company leverage in renegotiating rental terms with its landlords in the territory.

    He told an analysts’ call to discuss second half year sales that he “expects to pay less rent” by the end of the year.

    Duplaix described the retail climate in Mainland China and Hong Kong as “difficult” but said despite weakened sales it has no plans to close any of its 70 company owned stores there.

    The reality for Kering is that Chinese are still buying its luxury goods – they’re just shopping elsewhere instead of making short retail therapy sojourns to Hong Kong. The number of Chinese visitors to European stores rose nearly 30 per cent year on year and by a similar ratio in Japan.

    “All luxury brands, including Gucci, have benefited from the shift of Chinese tourists to Japan and Europe,” said Duplaix in the conference call.

    For the first six months of the current financial year, Kering’s profit fell 13 per cent to €489 million.

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  • How to open a restaurant in China

    How to open a restaurant in China

    Many expats in China at one point or another have dreamed about opening up their own restaurant, café, or other sort of food and beverage operation.

    The largest food market in the world, China offers many exciting opportunities for foodies and savvy business people alike, but foreigners can be daunted by the often bureaucratic process of establishing a business in China. In this article, we provide a step-by-step guide to the process involved.

    Step 1: Finding the Right Location

    The first step of business is to find the location for the food and beverage operation. This can be particularly tricky, as the investor must lease the restaurant premises before starting the registration process for the food and beverage business. In order to avoid renting out a location that will be denied business registration, investors should take extra precautions to find a business location that can pass inspections. It is often possible to ask for consultations from the Environmental Protection Bureau, Hygiene Bureau, local department of the Ministry of Commerce and the Administration of Industry and Commerce (AIC) to verify certain requirements, like whether the location will be able to obtain a license for the disposal of waste water.

    It is often safer to find a location that is currently in use as a food and beverage operation. This will require the investor to pay a transfer fee to the current lessee. The fee will vary by location, but it is usually at least RMB 100,000. If investors instead choose a space that was not previously used as a food and beverage operation, they will need to remodel it to make sure it passes inspections. This option can be more risky, and costly too – redecoration companies tend to charge a service fee of around RMB 10,000 per sq. meter, on top of the costs of materials. Even if the investor acquires the necessary permits and certifications, if residents in the area find the food and beverage operation to be disruptive in the community, the business license can be revoked.

    Step 2: Licensing and Registration of the Food Business
    Company Name Registration

    Before applying for any licenses and permits, it is necessary to apply to register the business name at the local AIC. The AIC will issue a “Notice of Company Name Reservation” after they double check to make sure that the company name has not previously been used anywhere else in the province.

    Health and Food Hygiene Licenses

    After obtaining a company business license, investors then face the task of health and food safety inspections for their food and beverage operations. For businesses involved in the food and beverage industry in China, there are three main types of food and beverage licenses, and some businesses may require more than one license depending on the scope of their food and beverage business operation:

    • A Catering License (餐饮服务许可证)is required for catering service providers, both individuals and organizations, that are involved in the provision of group meals (food stalls and providers of semi-finished food products are not required to carry this license). If an entity provides catering services in different locations, it must apply for a license for each location
    • A Food Production License (食品生产许可证) is required in order to ensure that businesses comply with standards pertaining to manufacturing capabilities and environmental regulations. All staff involved in food service must undergo training approved by the China Food and Drug Administration (CFDA), and there should be a health management system in place in order to ensure the health and hygiene of personnel. The state-level General Administration of Quality Supervision, Inspection and Quarantine (AQSIQ) is responsible for the nationwide administration of the food production license.
    • A Food Distribution License (食品流通许可证)is required for businesses engaging in the sale of food items and is administrated by the AIC. Any entity, both individuals and organizations, that is involved in food distribution (including retail and the wholesale distribution of pre-packaged food and bulk food) is required to acquire a Food Distribution license. However, sometimes when an entity holding a food production license sells food products on the premises of production, it can get around the requirement to hold a food distribution license.
    Alcohol Permit Registration

    For food and beverage operations that will be serving alcohol, an alcohol permit is required. The permit will be issued after the business license, tax registration permit, and food licenses are acquired, but the intent to sell alcohol should be clearly stated within the application for the health and food hygiene license.

    Environmental Protections Approval

    Before any catering service can began operation, it must get approval from the local Environmental Protection Bureau. This will include an evaluation of the indoor and outdoor surroundings of the site in order to ensure that the location complies with standards listed in the Directory for the Management and Classification for Construction Items and Environmental Influence.

    Step 3: Establishing the WFOE or JV Entity

    The steps for establishing the business entity will ultimately depend on how the food business is being registered. In China, foreigners are not allowed to be the sole owners of the restaurant or food business, but they are able to open it as a limited-liability Wholly Foreign Owned Enterprise (WFOE) or through a Joint Venture (JV) with a Chinese citizen as a business partner. In addition, some foreign investors may choose to choose to let the Chinese partner(s) open the business to simplify the registration process, but investors should be aware that this will not allow them to have any legal rights.

    The business project will be approved by the Ministry of Commerce, which will issue an approval letter  and an approval certificate that can be taken to the AIC to register the company business license.

    Risks and Challenges

    Investors should also brace themselves to be ready to battle China’s often volatile real estate market in order to develop their business operation. While most restaurants in global cities like New York City and London operate on at least 10 year leases, leases for food and beverage operations in China are often five-year leases, some even just three years.

    In addition, restaurant owners in top tier cities like Shanghai pay a much larger percentage of their profits on business leasing than they would in other parts of the world. In a survey on restaurant leasing fees conducted by SmartShanghai, it was found that paying 15 per cent of restaurant earnings on rent is the norm, with most restaurant owners paying between 10 per cent and 20 per cent on leasing.

    In contrast, restaurant owners in some of the world’s most expensive cities, like New York City, pay around 10 per cent of their profits in rent. High rental costs can often be reasons why food and beverage businesses go out of business, especially in the beginning, when changes to business strategy sometimes have to be made.

    In addition, after signing the lease investors should be ready to spend at least two to three months in order to acquire all the required licenses and permits to open the food and beverage business. It is sometimes possible to negotiate with the landlord to have a rent-free period of one to two months after signing the lease, which will be helpful in case the investor encounters delays in obtaining all the appropriate licenses necessary to start operation.

  • Fake iPhone maker shut down

    Fake iPhone maker shut down

    A Chinese manufacturer of fake iPhones has been shut down after authorities learned it had produced a stunning 41,000 handsets.

    Nine people have been arrested including the husband and wife couple behind the venture,

    reportedly aged in their early 40s.

    The factory was raided after a tipoff from US officials which had seized some of the fake iPhones after they had been landed in America.

    So sophisticated was the operation that many of the workers at the plant genuinely believed they were making the real thing.

    The factory, located on the northern edge of Beijing, was actually discovered and raided back in May, but the event was only revealed by Chinese authorities over the weekend.

    According to the BBC, “hundreds” of staff were employed in the ruse, which included repackaging used smartphone parts in new iPhone cases.

    It took just four months for the company to make 41,000 phones, all of which were exported, with sales topping US$19 million. By our calculations, that values each fake iPhone at US$463.

    All of which rather makes Hong Kong Customs’ weekend seizure of 88 smartphones being smuggled across the border into the Mainland pale into insignificance. Photos suggest those phones were iPhones, although likely to be gray imports.

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  • Hong Kong retailers feel the pain as China economic slump hits travelling, shopping

    Hong Kong retailers feel the pain as China economic slump hits travelling, shopping

    For Hong Kong, it’s been one thing after another.

    A series of anti-China and pro-democracy protests last year prompted stores to close and mainland tour groups to cancel bookings. Meanwhile, a slowing Chinese economy and President Xi Jinping’s anti-corruption and austerity campaigns have also made the Chinese more wary of buying pricey cognac and Gucci bags in the city.

    While still the biggest outbound destination for Chinese tour groups, Hong Kong is in danger of losing its lead. Mainland Chinese travellers to Hong Kong last year grew by the slowest pace since 2009, Bloomberg Intelligence data show.

    Suncorp notes that the declining AUD has brought in more short term arrivals to Australia, and Australian Bureau of Statistics data shows that it is the Chinese who are coming in increasing numbers with more than 1 million arriving in the 12 months through May, a 17 per cent increase year on year.

    The Aussie has declined almost 35 per cent against the US dollar in the past four years, increasing the purchasing power of tourists and encouraging Australians to holiday at home.

    “According to Tourism Australia, they spent $5.7 billion in 2014, and this is forecast to more than double to $13 billion,” says Suncorp. “China has now surpassed the US as the biggest spender on tourism last year. But Tourism Australia considers we need to do more to take advantage of this boom in tourism and that our attractions are outdated. While we had a massive investment in mining, there was an underinvestment in the not so appealing tourism industry. It is likely that further investment and polishing up our industry will take time, but it is an important step to achieving economic growth in the long-term for Australia, as key commodity prices unwind.”

    Back in Hong Kong, with fewer mainland Chinese staying overnight, average daily rates at Hong Kong’s hotels fell for a ninth straight month through June. The Pearl of the Orient also faces rising competition from regional rivals such as Thailand and South Korea, and mainland alternatives including Shenzhen and Shanghai.

    In addition, China slashed tariffs on products such as face creams and imported sneakers from June 1, reducing Hong Kong’s draw as a cheaper shopping destination.

    The effect on Hong Kong’s retailers has been immediate and painful. Retail sales fell in four of the five months through May, with jewellery, watches and other high-end gifts the worst hit.

    Burberry Group, whose stores in Hong Kong’s Causeway Bay and Tsim Sha Tsui shopping districts sell $HK18,500 ($US2400) handbags and $HK24,000 dresses, has said it may try and lower its rent bill to offset a worsening slump in Hong Kong, while Emperor Watch & Jewellery, which sells Cartier and Montblanc watches, said it may shut one or two of its Hong Kong stores when their leases end this year.

    And the news out of China doesn’t inspire much confidence. French distiller Remy Cointreau reported first-quarter sales that missed analyst estimates as Chinese wholesalers continued to hold back on cognac orders. Prada also reported first-quarter profit that trailed analyst estimates on slumping sales in China, while foreign carmakers including Audi have stepped up discounts to woo buyers.

    So there’s no relief in sight for Hong Kong. The tourism board forecasts overall visitor arrival growth to slow to 6.4 per cent in 2015 from 12 per cent last year, with mainland Chinese tourist arrivals expected to drop by half to 8 per cent. Hong Kong’s economy expanded 2.1 per cent in the first quarter from a year earlier, weaker than a revised 2.4 per cent expansion in October through December.

    “We’re just too exposed to China,” said Silvia Liu, a Hong-Kong based economist at UBS. “Structurally, until the tourism sector consolidates and Hong Kong finds new growth engines, I don’t see the way out yet.”

  • Alibaba drive perks up China sperm donations

    Alibaba drive perks up China sperm donations

    Alibaba has used the internet to revolutionise China’s retail, banking and transport markets, and now the ecommerce juggernaut has turned its attention to the country’s sperm shortage.

    Amid spiralling infertility rates, sperm banks across China have been running dry. Worsening environmental conditions and hectic work schedules have taken their toll on male fertility in China, experts say.

    According to a 2012 study by the China Population Association, a state agency, 12.5 per cent of Chinese couples are infertile.

    Enter Alibaba, whose Groupon-like website Juhuasuan markets everything from underwear to insurance. The ecommerce group’s move into boosting sperm donation features a banner advertisement with a phallic cartoon candle exploding into a white cloud, bearing the Chinese character for “semen” in bold lettering.

    “Avid concentration” the ad reads, with a pun on the character jing which in Chinese means both mind and sperm. During the donation drive, Alibaba offered payments of up to $800 for successful sperm donations.

    Posted between July 15-17, the campaign garnered 22,000 new registrants for the seven participating provincial sperm banks — equivalent to nearly a year’s worth of traffic for some of the centres.

    “This exceeded all expectations,” said Wang Zhiqiang, director of the state sperm bank for Guanxi province. “On average, we get about 300 donors a year, but during the three days of the Juhuasuan event, more than 1,000 people signed up. Assuming 20 per cent of them will donate, that is 200 new donors.”

    The mismatch in supply and demand for sperm has prompted donation centres to overcome many taboos in tradition-bound China. In April, the shortage had become so dire in Hubei province that the regional sperm bank turned to Weibo, China’s equivalent of Twitter, to broadcast: “Stop wasting all that tissue paper!”

    “Under-achievers! This is your opportunity! Hubei Sperm Bank is badly in need of sperm,” it said.

    The shortage of sperm donations is partly caused by stringent requirements for donors — roughly one in five is acceptable — but mainly because men in China have “shyness about such topics”, according to Mr Wang. “We mainly try to get recruits by passing out flyers and holding awareness seminars, but we do not get enough qualified men.”

    But Alibaba has made a speciality out of taking dysfunctional markets and overcoming everything from supply bottlenecks to onerous government regulations to low demand — it has done so in areas such as finance and taxis.

    Matching sellers with the masses of online traffic is the company’s speciality, usually combining with a bit of fun, marketing savvy, big data and, most importantly in the case of sperm donation, anonymity.

    “People feel shy and embarrassed when we meet them face-to-face,” said Mr Wang. But he said that marketing via the internet added a layer of privacy that makes previously forbidden topics acceptable.

    “Online, when they don’t have to face a human being, they are more comfortable, and this is a major reason why this project is a success,” he said, adding: “We don’t know whether they will actually come in or not.”

  • Bridgewater Clarifies China View After Client Document Leaks

    Bridgewater Clarifies China View After Client Document Leaks

    “While the report to Bridgewater clients is a private communication which they want to continue to try to keep private, Ray Dalio and Bridgewater believe that too much has been made of the shift in their thinking and want to clarify their thinking,” the statement said. The Wall Street Journal first published an article based on a July 21 client memo that outlined their thoughts on China. ValueWalk later reported on the client memo based on a copy it had received, noting the retail focus and the fact that concern was expressed after a stock market crash.

    As the largest hedge fund in the world whose respected economic and political viewpoint has become increasingly important in public economic policy discussions, Dalio and his global analysis is in consistent demand from sophisticated institutional and high net-worth retail investors. Over the past year ValueWalk has published nearly two dozen articles chronicling the organization’s thoughts on significant economic matters.

    In regards to statements about China’s faltering economy and the odd focus on the retail investor, Bridgewater says they were simply and accurately noting a market fact that had repercussions. It was an observation not to be given an extraordinary amount of significance.

    “The observations that were made simply noted that falling stock prices have a negative wealth and negative psychological effect. When a classic stock market bubble (supported by unsophisticated investors buying stocks on a lot of margin) bursts there are negative growth effects,” the statement said, downplaying the significance of the retail aspect of the analysis in making forward looking projections.

    In the original Bridgewater analysis the firm was clear to point out that it was economic statistics that would determine their outlook going forward. “When combined with the debt and economic restructurings underway, that will most likely result in slower growth, and more simulative government policies to offset these downward pressures,” the report said.

    Rather than sound an entirely negative note, the world’s largest hedge fund looked on the positive side as well as considering the negative. “Bridgewater’s view that China faces debt and economic restructuring challenges, and that it has the resources and the capable leaders to manage these challenges, remains the same.”

    Two distinct approaches going forward: “Hunting time” and cautiously monitoring economic statistics

    For investors there appear to be two approaches.

    Goldman Sachs Group Inc said “its hunting time” in China, potentially being the first and most aggressive to call the low in the region. This comes at a time when certain algorithmic signals are also pointing to stock market normalization and the market experiencing a normal mean reversion retracement off a dramatic market move over the past year. Past performance is never indicative of future analysis, and algorithmic systems based on past performance statistics, like all investment analysis, is never perfect. In fact, when considering algorithmic investment signals degrees of probability are used to evaluate different future paths.

    Bridgewater appears to be rather pointing out issues with China that investors should consider and taking a wait and see attitude on economic numbers and the economic fallout before making such a bold claim. Its a fundamental, discretionary analysis that is watching for further impact.

    Who will be correct, Goldman and their early call on China or Bridgewater’s wait and see approach? Its hard to tell at this point, but the next several months could be an interesting time to watch as China, the potential withdrawal of quantitative easing and yes, even Greece, may all come into market focus this fall.

    The full Bridgewater Associates statement is below:

    While the report to Bridgewater clients is a private communication which they want to continue to try to keep private, Ray Dalio and Bridgewater believe that too much has been made of the shift in their thinking and want to clarify their thinking.

    The observations that were made simply noted that falling stock prices have a negative wealth and negative psychological effect. When a classic stock market bubble (supported by unsophisticated investors buying stocks on a lot of margin) bursts there are negative growth effects. When combined with the debt and economic restructurings underway, that will most likely result in slower growth, and more simulative government policies to offset these downward pressures.

    Bridgewater’s view that China faces debt and economic restructuring challenges, and that it has the resources and the capable leaders to manage these challenges, remains the same.