Luxury goods
Million dollar mastiffs
Xi Jinping’s crackdown on corruption is hitting Chinese luxury-peddlers harder than foreign ones
CHEN BINQI grows and sells abalone, a delicious kind of mollusc, in Dongshan, a seaside resort in the southern province of Fujian. He says that from 2010 to 2012 the price never dropped below 50 yuan ($7.7) for 500 grams on tomb-sweeping day, a public holiday and one of the busiest days for tourists. In 2013 it fell to 40 yuan, which meant most breeders were selling below cost. “Now it’s down to 30-something, which is unbearable.”
In the neighbouring province of Guangdong, Lin Gongxi has been carving jade for 50 years in Jieyang, China’s jade capital. When business was good, he told Southern Metropolis Daily, he used to go to bed at 2am and get up at 6am. Now he often has no work for eight days out of ten. Half the shops at Jieyang’s jade-trading centre are empty. Rents have fallen by three-quarters.
In Beijing’s Panjiayuan market, Wang Lin sells copies of Ming and Qing dynasty carved furniture. Same story. Businesspeople used to order ten-piece suites of office furniture; he sold them as fast as his carpenters could make them, sometimes faster (there was a waiting list). Now, prices have halved and he “can shift maybe a couple of chairs out of ten”.
China is the world’s biggest market for luxury goods, accounting (by some measures) for half of all luxury spending. The slowdown in the growth of China’s economy and household incomes is usually seen as bad for rich-country purveyors of luxuries such as perfumes, golf clubs, art and the like. Which it is: LVMH, a producer of champagne and handbags, recently closed three shops in China, while Christie’s annual auction of Asian 20th-century and contemporary art in Hong Kong earned only HK$508m ($66m) in November, down from HK$935m in 2013.
But the woes of Western vanitymongers are trifling compared with those of their Chinese counterparts. Prices of jade and Tibetan mastiffs, for example, have dropped by half or more. Hundreds of businesses have gone bust. This owes as much to politics as economics.
That doggy in the window
Take Tibetan mastiffs, a breed of enormous sheep-guarding dog (one is pictured above, on sale). These were the must-have status symbol for China’s new billionaires in the late 2000s. Three years ago ordinary Tibetan mastiffs could fetch around $20,000. Now they sell for a tenth of that. Earlier this year an animal-welfare group rescued 20 abandoned mastiffs from the back of a lorry, which was taking them to a slaughterhouse to be sold for leather and meat—for a mere $5 each.Tibetan mastiffs were a fad for plutocrats, usually bought as status-enhancing guard dogs. But demand for most other Chinese luxuries depends on a culture of gift-giving. Every transaction must be marked by a present: jade, tea, a meal. One billionaire, Hong Weihua, even paid for a delegation of officials from his hometown to visit America (quite legally).
Since 2013 the anti-corruption campaign of Xi Jinping, China’s president, has made conspicuous consumption politically suspect and reined in the practice of lavishing gifts on officials. Tea used to be a favourite present, especially Pu’er, a fermented and aged variety from the south-western province of Yunnan. The price of top-of-the-line Golden tea from the Tae tea company, the world’s largest Pu’er maker, fell from 917 yuan per 357 grams in March 2014 to 512 yuan, before rallying a bit (see chart). The president of the Yunnan Tea Association told the Kunming Daily that, after a boom and bust, the tea business was entering “a new normal” (a term popularised by Mr Xi, who uses it to describe slower growth of the economy as a whole). This means lower prices and more modest sales.
The abalone business shows that it is Mr Xi’s rule against “extravagant eating and drinking”, rather than a lack of cash, that lies behind the luxury squeeze. Mr Chen, the seafood-dealer in Fujian, says abalone is not especially pricey, but because it is seen as a luxury “sales took a big hit”. Of the breeders he knows, 40% quit during 2013 and 2014.
At the top end of the mastiff business, it is not so bleak. In 2011 a coal baron is said to have paid 10m yuan ($1.5m) for Big Splash, a Tibetan mastiff puppy. In 2014 a property developer paid 12m yuan for a dog, making it the world’s most expensive canine. Han Lianming, a mastiff breeder near Beijing, says the market for such finest-quality dogs still looks good. “Someone offered me 20m yuan for that one. It was crazy,” he says contentedly, pointing to a vast ball of russet fur and teeth that is lumbering around the courtyard (the deal did not come off). A select few millionaires appear immune to the anti-corruption campaign and unfazed by dog-breeders’ efforts during the boom years to boost supply by crossbreeding. This diminished the rarity-value of mastiffs, but it also produced some highly sought-after specimens.
The jade market, however, has little good news to report. Yu Ming, the director of the jade committee of the China Traditional Culture Promotion Council, a state-run body, says that though sales at big auction houses are holding up, the retail business is plummeting. In big cities such as Beijing they have fallen by 10-20%. In second- and third-tier cities (such as provincial capitals), he says, sales are down by 40-50%. In 2013 there was a spike in the price of raw jade from neighbouring Myanmar, when political violence briefly disrupted supplies. Mr Yu says many thought the conflict would lead to higher prices in China. But to everyone’s surprise the retail price actually fell. “There just isn’t that big a market any more,” he laments.
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Global Coverage ~ Unique Analysis
What Tibetan Mastiffs Tell Us About the Chinese Art Market1
The Economist explains what’s going on with China’s luxury market by way of reference to Xi Jiping’s anti-corruption campaign. The main issue, as it relates to the art market, is that China’s culture of gift-giving has been impacted far more than its conspicuous consumption.
So many of the expensive presents that were once offered as part of doing business in China are being discouraged. For the art market, this affects the middle of the market and the trafficking in fakes as a medium for bribes but not the very top end where works are prized trophies.
The Economist uses the market for Tibetan Mastiff’s to illustrate the issue:
At the top end of the mastiff business, it is not so bleak. In 2011 a coal baron is said to have paid 10m yuan ($1.5m) for Big Splash, a Tibetan mastiff puppy. In 2014 a property developer paid 12m yuan for a dog, making it the world’s most expensive canine. Han Lianming, a mastiff breeder near Beijing, says the market for such finest-quality dogs still looks good. “Someone offered me 20m yuan for that one. It was crazy,” he says contentedly, pointing to a vast ball of russet fur and teeth that is lumbering around the courtyard (the deal did not come off). A select few millionaires appear immune to the anti-corruption campaign and unfazed by dog-breeders’ efforts during the boom years to boost supply by crossbreeding. This diminished the rarity-value of mastiffs, but it also produced some highly sought-after specimens.
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