C hina’s big spenders are reining in overt shows of wealth, shelving shopping trips in Hong Kong and Macau gambling sprees in the face of the Chinese Communist Party’s anti-corruption and frugality drive, analysts say.
Chinese President Xi Jinping (習近平) has launched a highly publicized graft crackdown since taking office last year with a series of high profile takedowns of party officials sending shockwaves through an elite who once did little to hide their prosperity.
A related austerity drive — ordering an end to excessive gift-giving and banquet-holding within the state sector — has also meant officials are wary of popping too many champagne corks.
PHOTO: AFP
Fearful of drawing any scrutiny that might lead to a career-ending probe, many of China’s most powerful are either tightening their belts or being much more careful about how they spend their money publicly, analysts say.
That shift has been most keenly felt in the Chinese elite’s nearest playgrounds of Hong Kong and Macau, but a ripple effect is beginning to have an impact as far afield as the luxury fashion houses of Europe.
“The corruption crackdown shows no signs of slowing down. It has created a lot of concern within the country and as far as I can see, a lot of high-profile individuals are much more cautious about their overt spending,” said Steve Vickers, a risk consultant and former head of the Royal Hong Kong Police’s Criminal Intelligence Bureau.
Recent key indicators of the luxury market in Hong Kong and Macau have shown a noticeable downward trend in areas where China’s elite play a key role.
Gambling revenues in Macau have fallen for the second month in a row, while retail sales in Hong Kong, which many locals complain has become a giant shopping mall for wealthy Chinese, have been slipping since the beginning of the year.
The dip in Macau’s gambling revenues — the first major drop since 2009 following the global economic crash — is particularly stark. The territory’s gambling watchdog, the Gaming Inspection and Coordination Bureau, said casino income dropped by 3.6 percent year-on-year last month, following a 3.7 percent dip in June.
Analysts attribute the fall in part to a drop-off in so-called “VIP junkets,” trips where Chinese high rollers blow huge sums of cash on casino floors and in private rooms.
“We believe there is nothing on the horizon to suggest that a VIP recovery is imminent,” Union Gaming Research Macau analysts Grant Govertsen and Felicity Chiang wrote in a briefing shortly after the figures were released. “To the contrary, the anti-corruption crackdown in the PRC [People’s Republic of China] seems to be accelerating / expanding, which in our view should result in continued, although indirect, pressure on the VIP segment.”
Analysts say Hong Kong’s falling retail sales have been affected by a number of causes, including the general slowdown of the world’s second-largest economy, anti-Chinese sentiment in the territory and the tendency of big spenders to splurge further afield, where their shopping sprees are less noticeable.
Sales of jewelery, watches and other valuable gifts slumped 28.2 percent in June, according to official government data.
“At this critical moment, you don’t want to lavishly spend a lot of money and draw attention overseas even if it’s your own money,” said David Ji, head of research and consultancy for Greater China at realtor Knight Frank LLP.
On the mainland itself, other key indicators illustrate the more cautious approach officials and big spenders are taking.
The nascent, but growing market for private jets has slowed as business tycoons opt for smaller or less flashy models, while demand for yachts has also seen a hiccup.
John Watkins, the chief executive of ASC Fine Wines, one of the most prominent wine importers to China, said sales of high-end bottles and vintages purchased by state officials have dropped by 80 to 90 percent.
“The premium end of the imported wine market has been affected starting two years ago. The impact is still felt today,” he said. “With [Chinese] government officials we are seeing very little activity in restaurants, hotels and clubs.”
Last month, British drinks maker Diageo PLC said its international brands fell 14 percent in China in the last financial year, driven largely by weakness in demand for its whiskies.
Luxury goods houses in Europe are starting to feel the pinch. France’s Hermes International SA reported that sales fell in the second quarter, in part because of slowing sales in China.
Spirits group Remy Cointreau and fashion house Burberry had similar woes that period, while luxury giant Compagnie Financiere Richemont SA also noted slowing China sales.
Yet in Europe itself, the spending power of the luxury yuan is still going strong, analysts say, partially because China’s elite believe they set off fewer alarm bells the further they are from Beijing.
“It’s no longer just Hong Kong and Macau that are their stomping grounds for luxury purchases,” Vickers said. “They have other places to go where they are under less scrutiny.”
The New Taiwan dollar is on the verge of overtaking the yuan as Asia’s best carry-trade target given its lower risk of interest-rate and currency volatility. A strategy of borrowing the New Taiwan dollar to invest in higher-yielding alternatives has generated the second-highest return over the past month among Asian currencies behind the yuan, based on the Sharpe ratio that measures risk-adjusted relative returns. The New Taiwan dollar may soon replace its Chinese peer as the region’s favored carry trade tool, analysts say, citing Beijing’s efforts to support the yuan that can create wild swings in borrowing costs. In contrast,
Nvidia Corp’s demand for advanced packaging from Taiwan Semiconductor Manufacturing Co (TSMC, 台積電) remains strong though the kind of technology it needs is changing, Nvidia CEO Jensen Huang (黃仁勳) said yesterday, after he was asked whether the company was cutting orders. Nvidia’s most advanced artificial intelligence (AI) chip, Blackwell, consists of multiple chips glued together using a complex chip-on-wafer-on-substrate (CoWoS) advanced packaging technology offered by TSMC, Nvidia’s main contract chipmaker. “As we move into Blackwell, we will use largely CoWoS-L. Of course, we’re still manufacturing Hopper, and Hopper will use CowoS-S. We will also transition the CoWoS-S capacity to CoWos-L,” Huang said
VERTICAL INTEGRATION: The US fabless company’s acquisition of the data center manufacturer would not affect market competition, the Fair Trade Commission said The Fair Trade Commission has approved Advanced Micro Devices Inc’s (AMD) bid to fully acquire ZT International Group Inc for US$4.9 billion, saying it would not hamper market competition. As AMD is a fabless company that designs central processing units (CPUs) used in consumer electronics and servers, while ZT is a data center manufacturer, the vertical integration would not affect market competition, the commission said in a statement yesterday. ZT counts hyperscalers such as Microsoft Corp, Amazon.com Inc and Google among its major clients and plays a minor role in deciding the specifications of data centers, given the strong bargaining power of
INDUSTRY LEADER: INDUSTRY LEADER: Taiwan Semiconductor Manufacturing Co (TSMC, 台積電), a major chip supplier to Nvidia Corp and Apple Inc, yesterday said it aims to grow revenue by about 25 percent this year, driven by robust demand for artificial intelligence (AI) chips. That means TSMC would continue to outpace the foundry industry’s 10 percent annual growth this year based on the chipmaker’s estimate. The chipmaker expects revenue from AI-related chips to double this year, extending a three-fold increase last year. The growth would quicken over the next five years at a compound annual growth rate of 45 percent, fueled by strong demand for the high-performance computing
RSS