In the second of a three-part series looking at China's slowing economy, China Correspondent Grace Ng examines the shrinking appetite for luxury items.
By Grace Ng 23 May 2012
It is all going a little flat for China's once ravenous investors. One by one, they are seeing their bubbles burst.
After the heartache of the property slump, their more indulgent acquisitions like Chateau Lafite Rothschild wines and Longjing Chinese tea are also losing value.
Prices are dipping across wildly divergent sectors as buyers turn prudent amid tightening credit and souring business confidence.
With China's clouded economic outlook, 'investors are turning cautious', said Ms Qin Haiying, president of a local bank in north- east Liaoning province.
That has cast a pall stretching from the vineyards of Bordeaux to the auction houses in Hong Kong.
Lafite wines, for instance, have been a favourite of super rich Chinese in the past few years. At the height of the bubble last year, a bottle reportedly cost dinner party guests in a swanky restaurant in China an inflated price of about 50,000 yuan (S$10,000) - and there were doubts whether the wine was even genuine.
The retail price of a bottle of 2008 Chateau Lafite has reportedly dropped from a high of 16,000 yuan to between 8,000 yuan and 9,000 yuan.
China's art lovers are shying away too. Chinese bidders made up only 20 per cent to 25 per cent of the US$316 million (S$401 million) of sales from the spring auctions in Hong Kong last month, according to top auction house Sotheby's in reports last week.
In contrast, they accounted for 44 per cent of the US$411 million in sales at last autumn's auctions.
Even China's premier tea, the Longjing from West Lake in eastern Hangzhou city, has suffered a massive drop in value.
Its wholesale price plunged from 6,000 yuan per kg to 1,200 yuan over a few weeks, the People's Daily Online reported last month, citing prices at the Fuzhou Tea Market in southern China.
A key culprit responsible for the cooling investments is tight credit.
Bank loans last month shrank to an estimated 682 billion yuan, from 1.1 trillion yuan in March. This came as banks' ability to lend was curtailed partly by the government's tight monetary policies as well as a 465.6 billion yuan drop in deposits.
Some analysts say nervous companies and individuals have been depositing less yuan and even withdrawing capital from the system as the outlook for the Chinese economy darkens and negative interest rates persist.
Still, there are some bright spots for diehard investors.
After all, Chinese investors are still among the most upbeat in the world about their country's economic prospects, according to a survey by asset management firm Franklin Templeton released on Monday.
Of the 1,000 Chinese polled, 54 per cent are optimistic about China's outlook over the next three years, much higher than the 33 per cent global average who feel that way about their respective countries.
So, some are now looking at jade. Jade prices have spiked 10-fold over the past decade to well over US$3,000 an ounce last year and is expected to rise further this year. 'This year's demand has doubled from last year,' said a representative from Beijing Yu Mei Cui Jade chain company.
Gold is seen as a safe haven too. Chinese people are buying so much of it that they are tipped to become the world's biggest consumers, overtaking India.
China's gold demand bucked the global downtrend by rising over 9 per cent to a record high of 265.7 tonnes in the first quarter from a year ago.
'Further growth in gold consumption is expected in China,' the World Gold Council said in a report last Thursday.
Among the gold hoarders is retiree Li Ruigong, 67, whose latest buying spree during the Labour Day holiday yielded two pendants and a necklace worth 7,000 yuan.
Although she felt the price, at 378 yuan a gram, was rather steep, she still saw it as 'a value- preserving tool, unlike currencies which are devaluing by the day in this current bad economic environment'.
And there are still risk-takers willing to stake their spare funds on an emerging opportunity: cash-strapped developers.
Ms Li Dan, 36, says that she can get 60,000 yuan in interest by lending 300,000 yuan for one year to a small, struggling property builder.
'I can get 25 per cent returns, and it's safe because the developer uses his property as collateral,' said Ms Li, who owns a computer maintenance company in northern Inner Mongolia.
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The bursting of the luxury bubble
In the second of a three-part series looking at China's slowing economy, China Correspondent Grace Ng examines the shrinking appetite for luxury items.
By Grace Ng
23 May 2012
It is all going a little flat for China's once ravenous investors. One by one, they are seeing their bubbles burst.
After the heartache of the property slump, their more indulgent acquisitions like Chateau Lafite Rothschild wines and Longjing Chinese tea are also losing value.
Prices are dipping across wildly divergent sectors as buyers turn prudent amid tightening credit and souring business confidence.
With China's clouded economic outlook, 'investors are turning cautious', said Ms Qin Haiying, president of a local bank in north- east Liaoning province.
That has cast a pall stretching from the vineyards of Bordeaux to the auction houses in Hong Kong.
Lafite wines, for instance, have been a favourite of super rich Chinese in the past few years. At the height of the bubble last year, a bottle reportedly cost dinner party guests in a swanky restaurant in China an inflated price of about 50,000 yuan (S$10,000) - and there were doubts whether the wine was even genuine.
The retail price of a bottle of 2008 Chateau Lafite has reportedly dropped from a high of 16,000 yuan to between 8,000 yuan and 9,000 yuan.
China's art lovers are shying away too. Chinese bidders made up only 20 per cent to 25 per cent of the US$316 million (S$401 million) of sales from the spring auctions in Hong Kong last month, according to top auction house Sotheby's in reports last week.
In contrast, they accounted for 44 per cent of the US$411 million in sales at last autumn's auctions.
Even China's premier tea, the Longjing from West Lake in eastern Hangzhou city, has suffered a massive drop in value.
Its wholesale price plunged from 6,000 yuan per kg to 1,200 yuan over a few weeks, the People's Daily Online reported last month, citing prices at the Fuzhou Tea Market in southern China.
A key culprit responsible for the cooling investments is tight credit.
Bank loans last month shrank to an estimated 682 billion yuan, from 1.1 trillion yuan in March. This came as banks' ability to lend was curtailed partly by the government's tight monetary policies as well as a 465.6 billion yuan drop in deposits.
Some analysts say nervous companies and individuals have been depositing less yuan and even withdrawing capital from the system as the outlook for the Chinese economy darkens and negative interest rates persist.
Still, there are some bright spots for diehard investors.
After all, Chinese investors are still among the most upbeat in the world about their country's economic prospects, according to a survey by asset management firm Franklin Templeton released on Monday.
Of the 1,000 Chinese polled, 54 per cent are optimistic about China's outlook over the next three years, much higher than the 33 per cent global average who feel that way about their respective countries.
So, some are now looking at jade. Jade prices have spiked 10-fold over the past decade to well over US$3,000 an ounce last year and is expected to rise further this year. 'This year's demand has doubled from last year,' said a representative from Beijing Yu Mei Cui Jade chain company.
Gold is seen as a safe haven too. Chinese people are buying so much of it that they are tipped to become the world's biggest consumers, overtaking India.
China's gold demand bucked the global downtrend by rising over 9 per cent to a record high of 265.7 tonnes in the first quarter from a year ago.
'Further growth in gold consumption is expected in China,' the World Gold Council said in a report last Thursday.
Among the gold hoarders is retiree Li Ruigong, 67, whose latest buying spree during the Labour Day holiday yielded two pendants and a necklace worth 7,000 yuan.
Although she felt the price, at 378 yuan a gram, was rather steep, she still saw it as 'a value- preserving tool, unlike currencies which are devaluing by the day in this current bad economic environment'.
And there are still risk-takers willing to stake their spare funds on an emerging opportunity: cash-strapped developers.
Ms Li Dan, 36, says that she can get 60,000 yuan in interest by lending 300,000 yuan for one year to a small, struggling property builder.
'I can get 25 per cent returns, and it's safe because the developer uses his property as collateral,' said Ms Li, who owns a computer maintenance company in northern Inner Mongolia.
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