America: Land of the Free, Home of the Huge Wealth Gap

This is a chilling video about America's ballooning wealth gap. Whether the numbers are accurate or not, few people doubt a trend that is driving America towards economic feudalism. Socialism may be a dirty word to many in the U.S., but this type of inequality is an even more frightening vision of an alternative reality.

Forbes Billionaire List – 2013 Edition

Li Ka Shing – good reason to smile

It’s that time of year to feel puny again - the Forbes 2013 list of the world's most rich is out. Not surprisingly, given all the chatter about rising wealth inequality, billionaires as a class are richer than ever. This year, there are 1,426 of them, up from 1,226 last year, and they command $5.4 trillion in wealth. 2013 was a year when Asia surged up in its proportion of names, mainly on the strength of Hong Kong and China. Some initial statistics regarding Asia are as follows:

• Non-Japan Asia (excluding Australia and New Zealand) had 334 names, up from 267 in 2012. Nevertheless, Asia continued to trail the US, which had 442 names and Europe, which had 366.
• The geographic distribution of billionaires in Asia is in the chart below. After China (122) and India (55), Hong Kong with its measly 7 million population came in with a whopping 39 names. Singapore, which has approximately 70% of Hong Kong’s population, had 24. When it comes to wealthy, all hail the city states of Asia.

• Superman Li Ka Shing of Hong Kong outshone all other Asians again, but by an even bigger margin than before. He moved up from 9th in the world to 8th, with a whopping $6 billion increase in net worth to $31 billion. No other Asian cracked the world’s top 20.
• As with 2012, the next richest Asian was India’s Mukesh Ambani of the Reliance Group. However, given that his wealth dropped $1 billion, he only ranked 22nd. In general, the India names did not advance in 2013.
• Other Hong Kong-related names, including Lee Shau Kee (Henderson Group) and the Kwok brothers (Sun Hung Kai), did well on the back of Hong Kong’s continuing asset inflation (some would say ‘bubble’).
• China added 29 new names.

China+HK’s surge up the ranks of the world’s wealth elite continues. However, much of it is built on asset prices rather than the value of the output of industrial enterprises. How sustainable that wealth is, and how far it might fall in a world where hot money and ultra-low interest rates no longer exist, will be an interesting show to watch from my lowly, undersized footstool.

India’s Lutyens’ Delhi – Location, location, location

Working electricity and other amenities not included.

A house in disrepair, with chipped paint and musty bathrooms. Undrinkable tap water. Poor electricity supply. Sub-zero refrigerator or infinity swimming pool? Forget it! Price range for real estate gems like this one? US$40-70 million, or more. Welcome to the Lutyens’ Delhi neighborhood of India’ capital city. Why would anyone in their right mind pay so much for something with such little upkeep? Location, dahling. Nothing screams “British Raj!” like this leafy district in the heart of New Delhi’s government district. Those with money to burn who want to live in a trophy neighborhood rich in colonial history and rub shoulders with government officials in bureaucracy-rich India have few other choices. The rare multi-acre lots that come up for sale here simply ooze privilege and cache, even though the structures that have been built on them often simply just ooze. Therefore, these properties have proven to be hot hot hot, despite their appearance.

Interested in a closer look? Check out this New York Times article on Lutyens' Delhi property prices. Then grab a suitcase of cash, head to New Delhi, put on your blindfold, and get in line.

Lifestyles of North Korea’s Elite

1% newlyweds, North Korea style.

As an outsider, not much can be said about North Korea’s 1% lifestyle because so little is known about them. Okay, we know from Google Earth images that the Dear Leader (the late Kim Jong Il) lived in a highly manicured compound with an Olympic-sized pool (which explained his svelte physique) and a waterslide. The international media has widely reported that he had an enduring fondness for Hollywood movies and French brandy. His oldest son continues to live the high life in Macau, preferring its freewheeling morality to the shackles of his homeland’s austerity and thought police. The current leader Kim Jong Un gets to call international luminaries such as basketball player Dennis Rodman as a lifelong buddy.

But what about the other elite members of society? Luckily for those curious about the lifestyles within the walled slum-fortress that is North Korea, an organization like New Focus International exists to bring insiders’ reports about day-to-day existence. This report from NFI highlights some of the aspects of North Korea’s 10% elite, which the article defines as “Party and state officials, high ranking officers in the Korean People’s Army, those who have foreign work experience or have family members who have been dispatched abroad.” The report goes on to describe the ambition of those in this privileged class to move even higher into the 1% super-elite class, which get to enjoy $12.50 whiskey shots in karaoke clubs, own private PCs, and watch international news broadcasting on wall-mounted flat panel TVs. And the weddings, oh my! A lucky few get to hold their ceremonies at the Mansudae Theatre of the Arts, which until recently was reserved for performances held exclusively for top political leaders and visiting foreign dignitaries.

Is there much social mobility happening at the top of this pyramid? Are we seeing a wider proliferation of home unit meat freezers and LCD televisions? Will any of these spoils filter down to help the starving masses? Stay tuned for the answers. I need to ask Dennis Rodman.

Come Fly with Mei

Let’s see how the other half lives, honey.

Chinese toddlers have spoken, and Chinese tour companies have heard their cry. Rich tots are no longer content with just receiving “My parents went to Italy, and all I got was this overpriced Armani T-shirt” gifts after an overseas trip. Wealthy Chinese are starting to turn away from vacations that simply revolve around luxury boutiques, follow-the-megaphone tour groups, or junket trips to gambling cities like Macau or Las Vegas. In increasing numbers, they are looking for “experiential” trips that focus on getting to know other cultures or communing with new environments. It’s the kind of trip that ordinary western travelers might call, er, a “standard vacation”. However, the similarities stop there. As reported in this Jing Daily article about new luxury travel trends for China's elite, ultra-high-end travel agencies have been set up to cater to jaded Chinese travelers who are willing to fork out up to US$189,000 for “round the world” trips. That amount of money is almost 50 times the average disposable annual income for Chinese urban residents. Yet, such first-class travel offerings are said to be selling out within a day.

One high-end agency, HH Travel, which is now a unit of Ctrip (China’s leading online travel company), claims that they had an average client spend in 2012 of $16,000 per person. Travel themes offered include an eight-day cruise in the Middle East ($13,000) or a South America adventure ($31,900). They are also offering an eight-day “Life of Pi”-inspired trip to India for $6,800. Let’s hope that this itinerary doesn’t involve one day in India and seven days on a life raft with a hungry tiger and hyena. If so, all that may be left of a toddler’s returning parents is the T-shirt.

Puttin’ on Less Ritz

Those who have been following the luxury goods buying trends of cashed-up mainland Chinese consumers have already detected a slowdown in the past year of a market that had been ripping along like a Maserati on an open highway at 4 a.m. These days, the malls in Hong Kong are looking a bit more hollowed out, with more idle sales clerks playing Candy Crush Saga on their smartphones. There are far fewer cases of a consumer walking into a Gucci store in Shanghai, pointing at a rack of ladies’ handbags and loudly commanding, “everything except that one with the frilly pom pom”, then slapping down a fat wad of RMB. More frequent looks of indifference - dare I say ennui? - come over the faces of Chinese buyers when brands such as Prada or Chanel are mentioned. As a consequence, an increasing number of luxury goods companies, including Gucci, LVMH and jeweler Chow Tai Fook, are reporting sharply lower sales growth in 2012.  

This Caixin Online article confirms and provides updates on the slowing trends. Of particular interest is the report’s focus on the importance of gift-giving to officials in return for political favors and the corresponding impact of the announced ban in 2012 of luxury goods purchases by all government agencies. The article estimates that close to 25% of all luxury purchases have been as gifts. Often, in order to disguise who was purchasing what, intermediaries were used to buy in bulk watches, leather products, or suits that cost as much as US$18,000 each. Invoicing was done more flexibly, sometimes to pass off the purchase of dozens of handbags as “office supplies.” Store exchange policies were loosened, as gift recipients seeking to swap an ill-fitting suit for a leather briefcase were unable to produce receipts.  

Despite the slowdown, no one is expecting that China will not soon be the largest luxury market in the world. China’s taste for expensive kit will not likely fade away. Luxury companies are continuing to bet on the enduring appeal of their products to mainlanders. However, the country will be better served if these hoity-toity goodies can be valued for what they are – badges of individual personal success, however garish their display – rather than a currency for the trading of corrupt practices.

A Spring Not Sprung. Yet.

It has been roughly two years since the onset of the Arab Spring. For many months after the initial tumultuous events, many observers feared contagion into Asia, most worryingly, China. Thankfully, however, sudden and violent revolution did not take place in the largest country on Earth. Disorderly disintegration would have led to dire consequences for the Asia region and beyond.

 

It is clear why such contagion fears arose. Similarities between China and the Middle East abound. Autocratic self-rule that does not reflect the will of the people? Check. Rising wealth gaps far beyond what is considered healthy? Check. High youth unemployment and discontent? Check - more than people think in China. Rampant official corruption on par with other failed states? Check. A closed official media, yet one with a flourishing social and micro-blogging network underbelly? Check.

 

So why not China? As laid out in this insightful essay in The Diplomat magazine, the country has had its share of protest movements - 180,000 in 2010 alone, by one estimate. However, the sheer size and diversity of the country may have been a key saving grace, at least to date. A country as complex as China cannot be governed centrally. Rather, much authority must be (and has been) delegated down to the regional and local levels in order for an enormous nation state to survive over the long run. As a consequence, China’s protests have largely occurred at local levels and against corrupt, low-ranking officials engaging in nefarious acts such as land grabs. Protests on the national scale have been deemed too complicated to organize as well as unlikely to remedy injustices quickly. And local shows of discontent In recent years have indeed occasionally resulted in changes to local leadership. The case of Bo Xilai in Chongqing is one of the most prominent and recent examples.

 

This is not to say that the central government is unassailably removed from danger. A country’s citizens generally recognize that morality and good leadership flow downward from the fountainhead at the top. And the new regime under Xi Jinping seems to understand the risk of not addressing corruption and wealth disparity in a timely manner, especially if another global economic slowdown throws more angry young Chinese onto the streets. If China wants a fertile spring and long growing seasons to follow, tending to the fields while the season is young is imperative.