The most liberalized areas of China have become a magnet for the purveyors of ostentatious luxury items:
The Chinese may have an age-old reputation as great savers, but China’s young people are now making up for generations of lost spending time.
Compared with the austere youth of China’s older generations, who went through the turmoil of the Cultural Revolution and strove to build savings in a nation without a social safety net, the young, raised in an unprecedentedly wealthy China, are spending freely.
[. . .]
As the world’s fastest growing luxury market, China’s appetite for high-end Western branded goods is fast becoming insatiable, with predictions by Boston Consulting Group suggesting that within five years, 29 percent of global luxury product consumption will come from China. And while European and US luxury sales are making a slow recovery after the global financial crisis, China—relatively untouched and still optimistic—remains the most important market for luxury retailers. Indeed, this was the theme behind last year’s 5th Annual China Luxury Summit, which was given the grandiose subtitle of ‘China Luxury Market: An Oasis of Hope and Possibility’.
China as the deus ex machina of the luxury world is a concept familiar to European retailers. Last Saturday, for example, the Italian luxury brand Prada staged its first fashion show in Beijing. Like French cosmetics and perfume brand L’Occitane, which listed in Hong Kong last year, Prada is expected to have an initial public offering in Hong Kong.
No need to reiterate that this is only a phenomenon in the urbanized areas of China: the vast majority of Chinese consumers are unable to access the fast growing markets and still live to a large extent under the direct control of the party.
General Motors has emerged from bankruptcy and taken initial steps to repay its federal bailout money — two good bits of news, although the taxpayer remains on the hook for many billions of dollars extended to GM. Specialty electric-car maker Tesla Motors also had a successful initial public offering and is being celebrated as some kind of testament to the entrepreneurial spirit. For Tesla, this is pure PR.
The other absurd vehicle in development is the Terrafugia flying car, which just won exemption from a federal airworthiness safety standard. Surely you will feel secure when a flying car exempted from safety standards buzzes your neighborhood, especially when you learn that another federal waiver means the pilot needs only 20 hours of experience before he or she takes off. Maryland, my state, requires 60 hours behind the wheel before receiving a driver’s license. But fly after 20 hours? Hey, wheels up! Surely few of these accidents-looking-for-a-place-to-happen will sell on the free market. So — scan the horizon for a bailout. The Terrafugia company just got a piece of a $65 million military contract to research a flying Jeep-like thing; don’t hold your breath. If patriotism is the last refuge of scoundrels, defense contracting is the last refuge of bad business plans.
Wine experts usually explain price movements by supply-side factors such as the effects of the weather and age, but research by Serhan Cevik and Tahsin Saadi Sedik, economists at the IMF, finds that supply has only a small impact on prices. Instead, fast economic growth in emerging economies has been much more important in recent years — as is the case for oil and other commodity prices.
