I’m always being told about "booms" and "revolutions" in China – apparently we’ve had a coffee boom, an ice cream boom and a cigar boom, not to mention wine and whisky revolutions. Someone tried to convince me the other day there’s about to be a donut revolution – heaven forbid! All this talk of booms and revolutions can be a bit overblown. Take brewpubs. There are a few around, but according to one analyst I spoke to recently the brewpub revolution in China is already over. I agree – most of the small crop of brewpubs that opened swiftly failed. Some blame it on a lack of sophistication in the beer market. Nonsense – it’s charging RMB50+ (US$7.30) a pint. A brewpub I visit regularly in Dalian is packed nightly with excellent beer at less than RMB10 a pint. There’s no shortage of drinkers, but the idea that a microbrew is somehow worth five times as much as a regular beer is decidedly non-revolutionary.
Are exports recovering? The evidence seems to be inconclusive at the moment but, I’d suggest, leaning in a positive direction. The purchasing managers’ index hit a 12-month high of 54.0 in August, which means that new orders to factories expanded at the fastest pace in 14 months. But how much of this recovery is export related? It appears new export orders broke into expansion territory in June for the first time since July 2008, though only just. A continued and gradual improvement in export growth it may be, but it’s not enough to restore orders to pre-summer 2008 levels.
A second question is whether or not this is a "dead cat bounce," that is to say, a decline followed by a moderate and temporary rise before falling again. Even a dead cat will bounce if it falls from a great height, but the fundamental fact of it being dead doesn’t change! The truth is that whether or not Chinese exports are akin to a deceased feline bouncing are largely dependent on Western consumer sentiment. There are various indicators on this but the proof will be in the pudding. We’ll have to wait and see how spending shapes up as we reach the peak spending Christmas period.
You may soon be able to holiday at a luxury ski resort in China. One developer I spent time with recently is planning one – "China’s Aspen" and "Dongbei’s Switzerland" were both titles of PowerPoint slides that had some unsure whether to invest or just giggle. Plenty of restaurants, shops and saunas planned, as well as a bunch of chairlifts – everything, in fact, except ski slopes. When we asked where they might go the developer told us not to worry – this was a Chinese ski resort and the likelihood of anyone actually skiing when restaurants and shopping were available was judged minimal!
The high-end hotel chains are increasingly looking to expand into inland cities. They realize that as they open new tier two and three locations the bulk of the business will be local Chinese rather than foreign businesspeople. So how do you work out which of China’s numerous inland cities have enough high spenders? Commission high-priced research? Call in the international consultants to charge you telephone number fees? A friend of mine in charge of location scouting for a leading international hotel brand doesn’t bother with any of that. He has a three-step evaluation process: i) Does the city have a Louis Vuitton store and other luxury shops? ii) Are property prices rising? and iii) What’s the average tip at the karaoke bars local businessmen patronize? It’s a simple formula – a RMB200 (US$29.30) tip indicates that the city is borderline ready for a major high end hotel; RMB200-400 means perhaps and; RMB400+ means build a hotel as quick as you can and cash in fast.
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