Monthly Archives: August 2011

Putting A Price On Luxury

Can you put a price on the cachet of a luxury logo? Seems you can and, in Chanel’s case, it is as much as 200 yuan ($31). The Shandong Business News (here, in Chinese) reports that the largest of the luxe-goods maker’s paper carrier bags are selling for that much on the online shopping site Taobao. Shopping bags from Louis Vuitton, Gucci, Hermes, Ferragamo are also in demand from aspirational consumers who can’t afford the haute couture that goes inside the bags but still want to look as if they are shopping at those brands’ stores.

True, this is a phenomenon seen the world over, and as the Shandong Business News notes, the same thing is happening in South Korea with Burberry’s carrier bags. The local twist is that when Prada and Channel introduced transparent bags this summer (so you could see what was inside), what also popped up on Taobao but cheap yellow protective dust bags being promoted as looking like rough silk and an ideal liner for see-through bags. Others then can’t see that you’ve just got a pair of old trainers in your Prada bag–and not a pair of the brand’s expensive, high-fashion shoes.

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Drought In Southwestern China Intensifies

A housewife wash clothes at the dried-up Dongjin Reservior in Huangzhulin Village of Zhaotong City, southwest China's Yunnan Province, Aug. 23, 2011. A lingering drought has withered up almost 220,000 hectares of crops and dried up 15 rivers in Zhaotong, leaving at least 190,000 people and 28,000 livestock short of drinking water.

The drought in southwestern China is getting worse despite some recent rainfall. State media report that more than 12 million people are short of water in Guizhou, Yunnan, Hunan, Sichuan and Chongqing, twice as many as reported a week ago. More than 9 million head of cattle are also short of water, half as many again as last week. Nearly 6 million hectares of crops have been parched as hundreds of reservoirs and rivers have dried up since the drought started in July. The picture above is of what remains of the Dongjin reservoir in Yunnan, taken on Aug. 23. Low water levels have also hit hydropower generation, exacerbating seasonal power shortages.

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Buffett’s Ups and Downs With BYD

As a snapshot of global financial markets’ ups and downs, look no further than U.S. billionaire investor, Warren Buffett. In 2008, he paid $231 million for a 10% stake in BYD Co., China’s largest maker of rechargeable batteries and whose chairman, Wang Chuanfu, nurtured a dream of making electric cars. BYD’s F3 sedan was China’s best-selling marque in 2009 and 2010, but its hybrid F3DM and e6 electric model have not met with similar success and the company has had to delay the U.S. launch of the e6 until 2012. The company’s share price fell by 14% on Tuesday in the wake of a third-quarter profits warning. The value of Buffett’s stake is now down by $2 billion from its peak in October 2009, though still double what he paid for it.

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China Racks Up Another World’s No 1: PC Market

China has for the first time passed the U.S. to become the world’s biggest PC market, according to the latest quarterly shipments estimates by IDC, a U.S. IT market-research firm. Some 18.5 million units, worth $11.9 billion, shipped in China during the second quarter, compared to 17.7 million units, worth $11.7 billion, in the U.S., the firm says. That makes China account for 22% of the global PC market compared to the U.S.’s 21%. (IDC excludes tablets and other handhelds from its count.)

On a full year basis, IDC says, it still expects the U.S. to remain the largest market in 2011, with 73.5 million units forecast to be shipped versus 72.4 million in China. Next year, though, that order could be reversed, IDC predicts.

While this Bystander sees this tipping point as no more than symbolic of a trend that has been forming for some time (and China is already the world’s largest market for a range of products from steel to cars), it does confirm our thought that a Chinese buyer of HP’s PC business that is now up for sale would make sense, a successor to Lenovo’s purchase of IBM’s PC business in 1995.

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China To Get Its First Wine Investment Fund

Ever since the London International Vintners Exchange, more familiarly known as Liv-Ex, got up and running in 1999, wine investment funds have grown in popularity. Now China, as befits a nation whose status-obsessed wealthy are suitably obsessed with buying fine wine, is to get its own, the Financial Times reports. The Dinghong Fund, also known as the DeRouge Fund, plans to raise 1 billion yuan ($156 million) from investors that it will invest in Bordeaux and Burgundy vintages. Minimum initial investment will be for 1 million yuan locked in for five years. (Update: Three-fifths of the fund will be invested in wine and the remaining two-fifths in wine futures; the fund is aiming for a return of 15%.) The fund is co-founded by Ling Zhijun, a Shanghai-based asset manager and oenophile.

Another sign of a Bordeaux bubble?

Footnote: Chinese investors have been active participants in international fine wine investment funds and in funds that invest in a range of investment-grade collectibles from art, to diamonds and rare musical instruments. China Daily recently wrote about Chinese millionaires’ interest in these so-called passion funds. With buyers from China already driving prices at art and fine-wine auctions, this Bystander expects a bull market for investment funds specializing in wine and art.

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Floods And Landslides Hit Hubei

According to Hubei's Office of Flood and Drought Control, the floodwaters have affected 42,000 people in the region

Torrential rains have hit part of Hubei, causing landslides and disrupting road transport. More than 40,000 people across 14 counties in the west of the province have been affected with some 300 homes in the inundated areas being damaged, officials say. One person died after a house collapsed. Another is reported missing. More heavy rain is forecast over the next couple of days, but this is also expected to bring some relief to the drought persisting in southern and southwestern China.

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Beijing Looks To North Korea For Rare Earths

China has found a new source for rare earths, its own exports of which are snarled up in controversial international trade disputes. According to a report in the South Korean paper, JoongAng Ilbo, Beijing struck an agreement with North Korean leader, Kim Jong-il, when he visited China in May, to exchange free fertilizer and heavily discounted grain for access to North Korea’s newly discovered but abundant reserves of rare earths—17 elements critical to high-tech manufacturing of everything from consumer electronics to missiles.

The agreement reportedly covers 200,000 tons of fertilizer and 500,000 tons of corn; the former free and the latter at 50% of world prices. First shipments have already taken place, according to the report, which is based on sources in Beijing. The rare earths will come from  Musan in North Korea’s Hamgyong Province. China will have to supply mining equipment and build roads to the mine, but will get have the extracted rare earths for free and pay world prices for the other half.

North Korea is thought to have some 20 million tonnes of rare earths, perhaps more as the extent of the exploration that has been done is unknown. That would be about the same reserves as Russia has and 40% more than the U.S. China, which produces more than 95% of the world’s rare earths, has reserves estimated at 90 million tonnes.

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