Last week, a case of Chateau Lafite 2009 sold for just under $70,000 in Hong Kong, more than three times the price it would fetch in London.
(On top of that, the wine is still en primeur – it hasn’t even been bottled)
Why would Chinese buyers pay so highly over the market price? Why do they continue to snap up property that seems overvalued and why are many of the companies listed on the new Shenzhen Nasdaq-style market trading at enormous multiples? Why are the gambling tables in Macau taking more money than ever?
(The South China Morning Post reports that casino revenues on the island hit 18.87 billion patacas in October, up 49.8% from last year and a new all time monthly record. Macau is now pulling in four times the monthly haul of Las Vegas)
It’s all to do with inflation. With China’s consumer price index rising at 3.6% there’s simply no point in putting your money in the bank. Even after the latest interest rate rise from the People’s Bank of China, domestic banks are only offering 2.5% interest on deposits. Put your money in the bank and you lose 1.1% of it each year.
There does not appear to be any short term solution either. China’s economy shows no serious signs of slowing down, and the United States is about to start a new round of quantitative easing, diverting more money away from the dollar and into Chinese assets.
According to the Royal Bank of Scotland, capital flows into Asia, excluding Japan, in the first three quarters of 2010 were already higher than in each of the full years since 2004. "Coping with these flows will be difficult," the bank’s economists note drily.
Meanwhile, the higher wages that workers have campaigned for and won, and a reduction in China’s external trade surplus, should keep inflation ticking up.