Friday, March 28, 2014

Golf Too Lowly? Try Polo.

Ultra-luxurious polo clubhouse. In Tianjin, China.

Polo has long been considered the sport of kings. Persian royalty invented it. Princes Harry and William play it. Ralph Lauren built a fortune selling its reflected glory on otherwise prosaic cotton T-shirts. So enough said.
Now, polo is fast becoming the pastime of choice for China’s most discerning citizens. Or so hopes Pan Sutong, Chairman of the Goldin group. If Donald Trump were reincarnated as a Chinese billionaire, he’d likely bear a striking resemblance to Mr. Pan. They both believe that the good life comes gushing out of gold-plated bathroom fixtures. They share a passion for promoting la dolce vita to the nouveau riche. They both believe that the recipe for savoir faire comes printed on the margins of $100 notes. For Mr. Pan, he has travelled a long career arc, starting with cornering the market for karaoke machines in China – that essential piece of electronic hardware in those ubiquitous entertainment clubs that host business deals and ill-reputed activities – to building a gated community near Tianjin, China that focuses on first class wines, luxury housing, and horses. In his mind, nothing depicts success more than the sight of equines chasing after a small wooden ball on a perfectly groomed patch of Kentucky bluegrass. It’s true in England. So it must be for China. And golf is soooo pre-Xi Jinping.   

Friday, March 21, 2014

Crony Nations

This fascinating chart was included in an article in The Economist that reports on the relative proportion of cronyism to wealth concentration in different countries. As shown, Asian nations fared poorly, accounting for seven out of the top ten places where wealth in crony sectors is highest relative to the overall economy. By way of definition, “cronyism” refers to sectors that rely on the doling out of scarce resources (e.g. land, natural resources, utilities, gambling licenses) to a few private interests by the government. The business model is more about extracting “rents” from the assets, rather than creating value through ideas or innovation. While governments are meant to regulate how much “rent” is charged to the public in order to ensure equitable pricing, it’s too easy to conclude that, due to inherent inefficiencies and outright corruption, the benefits have been heavily skewed towards the asset owners. In effect, the economic rents extracted from the market have been far higher than what a more free and fair market would normally dictate. 
When one thinks of cronyistic countries, certain names easily jump to mind – Russia, China, Indonesia, Philippines, Latin America, India. These places are resource rich and/or have strong governments that control almost every major facet of the economy. Most illuminating to this blogger is how Hong Kong and Singapore pop up in the top five, with Hong Kong out front by a country kilometer. The prominence of the two city states on the list is largely a result of the scarcity of land and the often-infuriating land policies that the governments have adopted that enrich property developers. However, particularly in the case of Hong Kong, there are stark and incontrovertible lessons about the inherently Darwinian nature of supposedly free economies to amplify the advantage of the strong over the weak. Close to 60% of total GDP in the hands of crony billionaires in a bastion of free enterprise?? The biggest surprise may be that such wealth concentration should not be a surprise.
One final note – why isn’t China ranked higher? Because the state itself is still the biggest crony. And the chart is not able to calculate and include pockets of hidden wealth that exist behind the thick, musty curtain of state ownership.

Wednesday, March 19, 2014

Pricey Hole-in-the-Wall

Selling a shitload of cameras, we hope?

How much would you pay to buy this 130 square foot shop (the one crowned with the Canon logo)? Before you take a guess, consider that it is located in Hong Kong, specifically on a street (Matheson Street next to Causeway Bay’s tony Times Square) that commands the highest retail rents in the world. Even with that hint, chances are that your guess will be low.
Answer? Try US$23 million. That works out to a whopping $177,971 per square foot. The selling agent claims that the rental yield at that price would be a miniscule 1.5%. However, even that paltry percentage translates into $28,750 per month. Assuming an average sale price for an SLR camera at $800 and a 15% margin to the shop, that means 240 cameras need to be sold each and every month just to cover the rent. That would require a huge amount of selfie-seeking foot traffic to wander in.
Even the local business community, which has gotten desensitized to property prices rising into the stratosphere, think that this case is lunacy. It makes the average market observer wonder what the shop owner is sniffing. Maybe breaking open a few camera cases might reveal more than electronic components...

Friday, March 7, 2014

Forbes' Asian Billionaire List - 2014

China and Hong Kong up, Indonesia down

As reported in the Forbes 2014 list of billionaires, the past year was generally a good one for the world’s wealthiest, given the rebound in the stock markets and continued recovery from the crisis years. There were 1,645 billionaires with a combined wealth of $6.4 trillion, up from $5.4 trillion the previous year.
In Asia, China stayed at the front of the pack, extending its lead against all other nations other than the US (which had 492 uber-wealthy souls worth 10+ digits). Hong Kong continued to punch far above its population weight, just as the SAR’s Li Ka Shing continued to hold the trophy of Asia’s Wealthiest, with $31 billion. HK’s Superman stood only a whisker behind Google’s Sergey Brin and a couple of bucks ahead of Mark Zuckerberg. As reported in this blog a few weeks ago, Li KS is followed not too further back by the Macau casino magnate Lui Che Woo, who is eight places behind (and Asia’s second wealthiest), with $22 billion.
Singapore fared well, adding six more names to the list from 2013. These newcomers may be sighing with relief for their good fortune given that, with the island nation now the most expensive place in the world to live, even the wealthy need a few more bucks in their pocket.
Asia’s big losers? First off, Indonesia, which had six fewer billionaires. The bursting of the natural resources bubble and decline of the rupiah knocked the wind out of the archipelago’s sails. But more importantly, Asia’s little guys also continued to fall backwards on the wealth disparity curve and as victims of inflation. While such dismaying social trends continue, ranking the world’s wealthy feels like a matter of curiosity and entertaining dinner party chatter, one that does little to address more fundamental issues.
One final note – the Forbes ranking is based on measurable wealth. The reality of affluence in countries across Asia, including in China, Indonesia, Vietnam, Myanmar, North Korea, Mongolia etc. is that much of the big bucks lie undercover and in the shadows, away from the public’s prying eyes. 

Thursday, March 6, 2014

"I $ Portugal"

On sale now!

Several countries, notably Canada, the UK and Australia, have long had fast-track, big-bucks residency programs for foreigners willing to invest money and create jobs in the local economy. For the past few years, Canada has been a stand-out example of a country willing to throw its legs, er sorry, doors open to the well-flushed foreigner. Its controversial visa program, which came into effect in the 1980s, granted residency to anyone worth at least RMB 8.83 million (close to $1.5 million), and willing to loan the Canadian government C$800,000 (RMB 4.4 million) interest-free for five years. The program was not written to be China-specific but, in reality, it often played out that way; as of last January, more than 70% of all applicants were from the Mainland. However, due to overwhelming demand and concern that it was looking rather whorish, Canada recently cancelled the program.
Luckily for the wanderlustful Chinese, Portugal has stepped into the void. And what a bargain! Portugal’s new visa program offers residence to any international investor who need only buy 500,000 euros worth of real estate, invest one million euros into a Portugese corporation, or create 30 jobs. So far 542 "Golden Visas" have been issued, with Chinese investors taking up 433 of those slots, or about 80%. Furthermore, the term “resident” can be taken rather loosely; there isn’t really any need to actually live there. Then again, the lure of a great climate, gorgeous shoreline and rich history just may not be appealing enough for the adrenalin-fuelled Chinese wealthy. If the Portuguese truly want such residents and not just their money, the formula, however, is pretty clear. M.A.C.A.U.