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China Observations

Sino Sports Stocks & Shocks

September 2012

The share price of China's well-known local sportswear group, Li-Ning (founded in 1990), declined after the company had reported disappointing earnings and warned that it could post a loss for this year as inventories piled up and marketing costs rose. The stock price has more than halved in recent months and is lagging a gain in the benchmark Hang Seng Index. Backed by private equity firms, the Chinese sportswear firm posted a lower than expected 85 percent slide in first-half net profits.


Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

Adding on to the shock, this month Li-Ning has closed its only shop in Hong Kong to focus on its mainland business. The Hong Kong shop was set up in 2009 under a two-year leasing contract by the leading mainland sports brand. Challenges in management, demand differentiation and dominance from established global sports brands have hindered the development of the company in overseas markets.

The almost 20 billion US dollars Chinese sporting goods market had been a bright spot for companies such as Nike and Adidas, but slowing economic growth in the country and bloated inventories are taking a toll on bottom lines.

china-girls-team china-team



The weak earnings of Li-Ning came as a surprise to many and hit investors' confidence on the overall sportswear market. A decrease in profit margins and cutting back store networks are seen to be the norm in the future and that could drive investors away from the sector.

Analysts and investors believe that Li-Ning will aggressively do one or more of the following: reduce wholesale orders for fall of 2012 and even first half of 2013, increase inventory buyback, close non-performing stores and make short-term operational adjustments in preparation for long-term growth.

All these efforts will make earnings highly uncertain during this transition process. Like other local sportswear groups, Li-Ning is cutting back on new store openings after rapid expansion that followed the 2008 Beijing Olympics.

Backed by Singapore sovereign fund GIC and US private equity fund TPG, Li-Ning had a network of 7,303 retail outlets in China at the end of June this year, a net drop of 952 outlets from the end of 2011. It said its gross profit margin was 44.2 percent in the period, compared with 47.3 percent a year ago.

The company's inventories of finished goods swelled to 1.25 billion yuan as of December 2011, up from 872 million a year earlier, weighing on its growth prospects. It replaced its chief executive in July and said founder and Olympic gymnast Li Ning and executive vice-chairman Kim Jin-Goon, who is a managing director at TPG, will lead the firm during the search for a new CEO after the departure of Zhang Zhiyong.


While the 2008 Games were in Beijing, it was the London Olympics that provided a mature opportunity for athletic wear names, both international and domestic, to brand-build in the China market. We have already witnessed the success Li-Ning with its "make a change" campaign. But what about other Chinese brands like 361°, Peak, Anta and Xtep? A few had a smashing time in London. Most agree that no other brand had a better Olympics than Anta.

Founded in Fujian in 1994 as NTA (Fujian) Shoes Industry Co., Ltd, Anta (literally translated as “peaceful step”) has slowly built itself into a China powerhouse, opening its first retail outlet in Beijing in 2001. By 2004 it had stores in all provinces, and by 2012, it had 7,807 stores in China, about the same as Li-Ning, and turned a gross profit through the first six months of this year of 1.64 billion yuan (264.5 million US dollars). Anta was listed on the Hong Kong Stock Exchange in 2007.
china-gym china-sports-school


Anta sponsors athletes including NBA's Mengke Bateer and superstar Kevin Garnett, and served as the official brand of the Chinese Basketball Association and China Table Tennis Super League. Unlike Li-Ning, Anta is little known outside China. But domestically, according to the China General Chamber of Commerce and the China National Commercial Information Centre, Anta has ranked first in sportswear market share for the last 11 years. But 2011 was the first time Anta's stock overtook Li-Ning's in earnings per share. 

In fact, Anta has at times even needled Li-Ning. In 2011, Anta produced a retro version of the "plum blossom" uniforms worn in 1984 by China's first-ever Olympic team. The release, Anta said, commemorated China's first gold medal, won by Xu Haifeng. Of course, in China, 1984 is far better remembered for the six medals (three gold) won by Li-Ning founder Li Ning.
The 2012 Olympics offered a huge opportunity for Anta; the right to be the official partner was a landslide victory, with Anta outbidding Adidas and Li-Ning. During the Olympics, it was impossible to turn anywhere in China without spotting the Anta logo, thanks to its partnership with the Olympic team and other retailers. For example, throughout the Games, McDonald's store employees all wore Anta-branded Olympic shirts.
While Team China's athletes wore jerseys by Nike, Li-Ning and other brands, every time a Chinese athlete received a medal, Anta was onscreen: their jackets worn to the podium were Anta's. In China, these medal ceremonies were on repeat for two weeks straight. As the official partner of the Chinese Olympic Committee, Anta also benefitted from numerous special Anta-themed events at the committee's London headquarters.


Even better for Anta, the athletes repeatedly posted photos of themselves on microblog Weibo wearing Anta's "Dragon" jacket, giving Anta further publicity. This bodes well for Anta which posts almost 30% year-on-year growth with a turnover of 4.45 billion yuan. Anta may exceed the expected gross income of Li-Ning this year and is likely to become the market leader in the domestic sports products industry for the first time. In order to relieve the burden of high labour costs, Anta has built factories further inland in Anhui and Henan, while fewer new stores will slow the rate of growth.

china-girl-sports china-sports-montage


Internationalization is no longer a priority because the home market is declining and increasingly competitive, while international businesses including those in Hong Kong are still in an exploratory phase, with cost and risk control measures. At present the strategy for Li-Ning is to focus on the domestic market, and this perhaps becomes an opportunity for other sports brands.

Be good. Be well.


Food Safety, Hydroponics & Organic Life in China

July 2012

Food safety issues in China are spurring the growth of organic farms. Venture capitalists and foreign brands are also finding their way into the new farming industry as demand, both within China and for the export market, increases. Analysts say the transition from small-scale farms to large-scale intensive farming will boost accountability for food safety. From a portfolio perspective, China, agriculture and new energy are certainly long-term growth opportunities as concern over food safety and quality become key concerns with China's growing affluence.

Lanz Chan, Ph.D. 
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

But since China issued tougher regulations on organic farms in March this year, 60 percent of farms were stripped of their "organic" label. The reasons they did not make the mark include the use of pesticides and chemicals found in the soil and fertilizers.

For the vast majority of human history, agriculture can be described as organic; only during the 20th century was a large supply of new synthetic chemicals introduced to the food supply. The organic farming movement arose in the 1940s in response to the industrialization of agriculture known as the Green Revolution.

 org-veg     brin


Organic farming agricultural technique excludes or strictly limits the use of manufactured fertilizers, pesticides, plant growth regulators and genetically modified organisms. It relies instead on techniques such as crop rotation, biological pest control and “green manure”. Organic foods are not processed using irradiation, industrial solvents or chemical additives.

Organic farms are expensive. The largest one in Shanghai costs 40 US million dollars to build according to reports. To boost productivity, it uses a digital intelligent system to monitor water level, temperature, humidity and other factors.

Demand for organic vegetables in China is primarily driven by the need for safe food. Only a small percentage of people currently choose it as a low carbon, environmentally friendly option. China's organic produce currently makes up less than one percent of market share, compared to about 10 percent in more advanced countries. Hence there is huge market potential for growth in China.

Venture capitalists investing in bigger, better and more organized farms will hasten the demise of smaller, individual farms which are difficult to regulate. China's production standards and efficiency are still a huge distance compared to other countries. But the bigger the difference, the bigger is the growth potential. If the company you invest in becomes a market leader, you will definitely reap huge returns.


Singapore-owned Mahota farm invested some 50 million yuan into a demonstration farm, promoting new farming methods. Emulating nature, they do multi-cropping and crop rotation to create biodiversity. Without the use of chemical additives or pesticides, nature is left to sort itself out. Light is used to attract pests, and at a research and development center, staff are replicating the bacteria that kill pests and spraying the formula onto leaves and soil.

At the heart of the farm, 20,000 pigs are reared for their manure. Pig manure is separated and liquid manure, which is rich in nitrogen, is used for watering the plants. Solid manure is made into compost to grow crops, which in turn make up the bulk of the pigs' feed. To reuse the resources and the waste to convert that into resources to make sure that there is a close-loop system.


The establishment of the State Council Food Safety Committee in January 2010, and the creation of the State Food Safety Evaluation Center last year points to the fact that the State Council has attached great importance to food safety.

Farmers will not be allowed to label their products "organic transition food", which has been used to denote food that was better than ordinary but not as good as organic. The new regulations will also set the acceptable level of pesticide residue at zero. The previous standard allows "one-20th of that found in ordinary food".

Organic food circulating in the market has been packed with a new unified label in China, and can now be tracked by a unique identification number, thanks to a new regulation that took effect in March this year. The regulation, rolled out by the Certification and Accreditation Administration of China, stipulates that labels on even the smallest packages of all organic products should include an organic certification sign, organic code and name or sign of the certification authority as of July 1, 2012.

tomato org-ppl


Customers can get any organic product verified on, the official online system for organic products, by the code considered as the ID of organic products.

Organic food is not just about safety. The core ideas are sustainable land use and reduced use of outside energy. Lohao is one of a number of organic food growers and retailers with stores and outlets across China. It sales revenue increased by about 30 percent over last year and the growth rate is expected to be maintained for the next few years. It opened a directly managed store in Shanghai in March 2012.

Compared with ordinary food, organic selections are more expensive, often costing three times or more. For instance, a cabbage weighing about 1 kilogram is sold for about 30 yuan at Yimutian organic farm in the Chongming district of Shanghai. The price of an ordinary cabbage is about 5 yuan in an ordinary Shanghai market.

Eyeing the tremendous business opportunities in the market, companies have rushed into the organic food sector in search of bigger profits. Media reports suggest that some 345 companies obtained certification from the China Organic Food Certification Center (COFCC) in 2010, an increase of about 18 percent on 2009.

Cities such as Beijing and Shanghai, where people are believed to be more educated and more disposable income, have been targeted by organic food suppliers. Currently, it is easy for householders to find food labeled organic in stores, supermarkets and online shops in big cities.

China is expected to become the world's fourth largest organic food consumer in five years, with organic food accounting for 1.5 percent of the whole domestic food market, and the cultivated area of organic food and its annual yield will enjoy an increase of 20 to 30 percent every year within the next decade according to reports.

Meanwhile, there is also a growing demand for organic food produced in China, such as tea, rice and walnut oil, from the global market. In 2010, the global organic food market reached an output value of 100 billion US dollars, with around one percent of the products coming from China. It is estimated that by the end of 2015, the share will rise to five percent or more.

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Living an organic life means more than eating organically. From diapers to cosmetics to cotton towels, everything is up for grabs in the organic world. Organic is a natural lifestyle, and it is not necessarily related only to better health. The movement for clean and nutritious food, and a healthy and sustainable environment have led to higher yielding and eco-friendly farming methods such as hydroponics.

Hydroponics and vertical farming methods are increasingly being adapted around the world for food production since no soil is needed, which means vast land parcels are not required. Other advantages include that the water stays in the system and can be reused, thus lowering water costs. The nutrition levels are also controlled in entirety, lowering nutrition costs. Plus no nutrition pollution is released into the environment because of the controlled system. Pests and diseases are easier to get rid of than in soil because of the container's mobility and hence making it easier to harvest. There is no pesticide damage to crops translating to more stable and higher yields, resulting in higher efficiency.

Today, hydroponics is an established branch of agronomy. Progress has been rapid, and results obtained in various countries have proven it to be thoroughly practical and to possess very definite advantages over conventional methods of horticulture.

Opportunities abound here and perhaps one day we can all say that we are living organically.

Be good. Be well.


Green Technologies Development in China

12 May 2012

With China's explosive growth, pollution and excessive energy consumption have become serious environmental problems. The development of clean and new energy technologies will experience growing demand as industries face imminent rising costs and additional pressure on available resources. Recent evidence of some green tech companies' sales numbers have shown that the green trend is proliferating, albeit slowly.

Lanz Chan, Ph.D. 
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

The demand is out of necessity, to reduce the pollutive factors in the environment and to reduce the stress on resources while increasing the quality of life in China.

Today's breakthroughs are a good start, but the best has yet to come. From at-home hydrogen fueling stations to toxic-waste-eating trees, a look at the most promising solutions of tomorrow tell us that practicability and ease of implementation are critical success factors.

 tianjin-ecocity     tianjin_eco_city_2

                                                                                  Views of Tianjin Eco-City

Global warming, energy shortages, over fishing, pollution – are no longer problems that cannot be solved; indeed, the human race has solutions already with today's technology. Futuristic projects promise to make the world greener, while making entrepreneurs some greenback.

Alternative energy sources and green technology derivatives abound, like smart electricity grids, ocean-going robots, and floating environmental sensors. Then there is the alternative-energy home fueling station that could jump-start the long-awaited hydrogen economy.

In the 12th China Five-Year Plan till 2015, China has an opportunity to implement low-carbon strategies and approaches, ranging from innovations to increased efficiency in existing industries, and to better management of the growth of cities. This will also make its future cities more sustainable, more efficient, more competitive and more livable.

Innovations such as the home hydrogen fueling station, is about the size of a filing cabinet and runs on electricity generated by standard-issue rooftop solar panels. The first version of the home fueling station is expected to produce enough hydrogen to give your car a range of some 160 kilometers without emitting a molecule of planet-warming greenhouse gas. That is enough juice for running suburban errands or powering fleets of urban delivery trucks. The solar-fired fuel-station-in-a-box leapfrogs obstacles to the much-hyped hydrogen economy. One of which is the multibillion-dollar expense of building national networks of pipelines and fuel stations.

 china-wind-1     green-tech-showroom
                                                            Wind Farm and Green Technology Showroom in China


A huge area in both industries and households is in waste heat recovery or heat harvesting. Imagine a home that channels all heat produced from air-conditioning compressors or refrigerator heat to generate electricity and to heat water or produce steam. This potentially reduces energy consumption by 90% and brings about a cooler environment. Soon, any heat source can be transformed into electricity and stored efficiently with sophisticated thermoelectric nano-materials.

Then there is the autonomous ocean robots and sonic water purifier. The sci-fi solution for an age-old problem of polluted rivers that leaves people without access to clean water, is to beam ultrasound waves into polluted water, blowing up the cellular walls and carbon bonds of contaminants.

By embarking on a low-carbon growth path, China's cities can help reach the country's targets for reducing the energy and carbon intensity of its economy, and become more livable, efficient, competitive, and ultimately sustainable. China aims to achieve its 12th Five-Year Plan target to reduce 17 percent of carbon intensity and is addressing the problems head-on and with a proper framework for actions.

china-ecocity-1      china-led

                                       View of Green City and Energy-Saving Lights along highway in China

China is moving to make green building a centerpiece of its energy plan. 30% of new construction in China will be energy efficient by 2020, as informed by the Ministry of Housing and Urban-Rural Development.

China wants its building sector energy consumption ratio to be closer to that of developed countries and plans to provide incentives for green buildings, raise industry standards and foster development of related industries; similar to markets such as Singapore and Macau.

Vice Premier Li Keqiang says 75% of the country's buildings are not efficient and are in need of renovation and there are plans to invest about $800 billion in energy-saving and environmental protection projects, noting that urbanization is the most pressing environmental need in China. He visited Europe recently asking for greater relaxation of policies on exporting high-end technology.

Making green buildings a centerpiece for efficiency efforts will create incentives for green materials and clean energy, driving those industries forward. Buildings are responsible for half of China's steel consumption and 60% of cement consumption - and is on track to account for a third of total energy consumption by 2020.

To achieve low-carbon growth, a World Bank report suggests that cities will need to act on multiple fronts. Actions affecting land-use and spatial development are among the most critical because carbon emissions are closely connected to the urban form.

Spatial development has also very strong 'locked-in' effects: once cities grow and define their urban form it is almost impossible to retrofit them because the built environment is largely irreversible and very costly to modify.

As part of growing cities, cities need energy-efficient buildings and industries; a transport system that offers alternatives to automobiles; and a shift to efficient management of water, wastewater, and solid waste. And cities need to incorporate responses to climate change in their planning, investment decisions, and emergency-preparedness plans.

china-solar      china-green-farmer-wind

                                                    Solar Farm and Wind Farm in the backyard of a Chinese farmer

According to the World Bank report, the five key actions that form the overarching framework for low-carbon city development are:

  • Set the right indicators to encourage low-carbon growth;
  • Complement administrative measures with market-based approaches and tools;
  • Break the current link between land use, city financing and urban sprawl;
  • Encourage more inter-sectoral and inter-jurisdictional cooperation; and
  • Balance climate change mitigation and adaptation measures.

The central government has set clear targets to reduce the carbon intensity of the economy; and by strengthening key complementary actions on the land and municipal finance agenda, while facilitating coordination across different governmental entities, city governments will be empowered to effectively implement low-carbon action plans. Along the way, these efforts will most certainly give the green tech job market a boost while making China a clean, healthy and sustainable home for all.

Be good. Be well.


Chinese Luxury Symbolism

19 March 2012

With Prada's listing on the Hong Kong Stock Exchange in mid-2011, the heightened awareness of luxury symbolism in Greater China has never been stronger. China is now the second largest luxury market next to Japan and is expected to lead within two years. Besides haute couture, the Chinese embrace jewelry and diamonds as status symbols. Hong Kong is now the main regional hub for diamond wholesalers and most major players have offices in the city.

Lanz Chan, Ph.D.
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

According to sources, demand forecasts for luxury goods and travel from Greater Chinese is to account for 45% of global sales by 2020, up from 15% today. With an estimated annual growth rate of 23%, China will become the world’s largest domestic market for luxury goods, worth 100 billion US dollars or almost 1% of the country’s total GDP.

One of the logical reasons to the growth other than the sheer volume of people is that the one-child policy has over the years created a value system among these millions of only children that is more self-indulgent than the more communal ways of their predecessors. As a consequence, these new Chinese consumers are no longer content to be one of the crowd, and luxury goods provide self-expression. Besides, China has a long history in the appreciation of luxuries – jade, gold, silk, Chinese white wine and even tea.

Two years ago, a one carat internally flawless diamond costs approximately 19,000 US dollars. Now in this leap year, the price is 29,000 per carat – a good indicator that the continuous love affair with diamonds is set for escalation.

Recent findings also reveal that in China, younger customers know exactly what they want and are more sophisticated, as most have studied abroad or are well traveled. At the top end of the market pyramid, there has also been a distinct evolution towards buying colored diamonds. Tastes of the ultra-rich are shifting from white diamonds to fancy colored diamonds as consumers seek rare pieces.



Insatiable Chinese shoppers.

It is the perception of beauty that is constantly changing on mainland China. A portion of luxury buyers are also becoming pragmatic consumers compared to the group of impulse buyers. Designs and perceptions are certainly key factors in building a luxury brand. Luxury is a constantly evolving concept. The word is used to define an inessential but desirable item or a state of extreme comfort or indulgence.

What sets luxury brands apart is that they command a premium without clear functional advantages over their counterparts. Yet consumers are willing to pay the significant price difference because they have a unique set of characteristics including premium quality, craftsmanship, recognition, exclusivity and reputation.

Affluent Chinese are traveling abroad in record numbers to purchase luxury goods. They are willing to pay for flights because the price of luxury goods is typically one third higher on mainland China due to exorbitant tariffs. During this year’s Spring Festival, Chinese travelers spent 7.2 billion US dollars abroad on luxury goods, according to the World Luxury Association, which is an increase of 29% from 5.6 billion US dollars in 2011.

Unique to China is the large number of relatively young multi-millionaires, far younger than their foreign counterparts. This spells opportunities for brands using new technologies to interact with a younger generation.

Mainland Chinese millionaires are on average 15 years younger than their overseas peers. The number of individuals with more than 1 billion yuan has increased at an annual rate of 50% from 24 in 2000 to 1,363 in 2010 according to Hurun lists, the Chinese equivalent of Forbes lists. Accordingly, success or wealth and fame or social standing are highly regarded in Chinese culture and displaying this through watches, apparel, jewelry, cars and wines garner respect. As is being treated like a VIP; wealthy Chinese expect to be acknowledged through personalized service and custom products.

The value of sales in the world luxury goods market are expected to rise to more than 250 billion US dollars this year, up 8 percent from last year, and the Chinese luxury market is expected to grow 35 percent.



China's glitz and glamor.

Chinese customers are aspirational. They become increasingly wealthy and their propensity to consume is mounting by the day. They are also constantly exposed to international tastes and brand heritage.

Hence, China’s growing affluent consumer segment has been attracting worldwide luxury brands. Gucci, Louis Vuitton and many other top brands have started tapping into the Chinese markets in the early nineties, long before it started generating revenues. And quite rightly so, as more than 300,000 Chinese now have a networth of more than 1 million US dollars. The mainland’s millionaires control about 530 billion US dollars in assets and more than 170 million Chinese can afford to buy products of top-tier brands. Indeed, it seems clear now that the Chinese luxury consumer market, which did not even exist a mere 20 years ago, is on the path to dominate the top-end retail sector.

Digital marketing and building online sales architectures are being combined with the in-store experience. A survey found that nearly 70 percent of respondents said they search online for information on luxury brands at least once a month, while 30 percent do so more than once a week. While official brand websites are often used as the first point of call for specific product information, celebrity blogs and other micro blogs also play an important role when building a brand image in China.

It may seem premature, but China’s luxury market is already making its way into affordable luxury items. This trend to meet the needs of the growing middle and upper middle class consumers is creating opportunities for a larger number of brands, both domestic and overseas.

Without doubt, luxury goods are status symbols, but the Chinese rich are not just spending on themselves but also purchasing gifts for friends and family. Survey evidence identifies cultural and social differences that will contribute to the rapid growth of the luxury goods sector by Chinese consumers.

The luxury market in China is largely male-dominated and the culture of gift-giving for business reasons account for a substantial stake. It is estimated that nearly 20% of Chinese consumers buy luxury goods such as handbags, clothing, watches and jewelry as the most popular gift items. This gift and seasonality effect is particularly prominent especially during the Chinese Lunar New Year in January to February.



Chinese extravaganza: Gucci Shanghai flagship store and one of enumerous car shows.

China’s spurring growth of aspirational consumers is carving a niche market that is under the top price points, but significantly above the price of median products. This is not only driven by the rise in disposable incomes but also by the craving demand to buy quality, to convey an appearance of exquisite, and the desire to portray oneself of being worldly. This category of consumers are perhaps trendsetters, and are creating a new segment by purchasing non-traditional or alternative, but high quality products, which is opening up new opportunities for small and mid-sized foreign companies to enter China.

Be good. Be well.

Poetic Yangshuo: Protecting Paradise

25 January 2012

The welcoming of the Dragon year was overwhelmed by a visit to one of the most awe-inspiring parts of China. It was literally like walking into a Chinese painting the moment you arrive in downtown Yangshuo. The atmosphere was intoxicating, surreal and ideal for one seeking inspiration for creativity and perhaps for self-reflection. Yangshuo is located in Guilin (meaning Osmanthus forest), and this was the chosen name because of the abundance of fragrant Osmanthus trees in the region.

Lanz Chan, Ph.D.
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

As part of the clean up in China, one of the green regulations, which took effect in early January, was adopted to protect the 437-kilometer Lijiang (Li river) in South China’s Guangxi autonomous region at Yangshuo, in line with sustainability as one of the key foci in the 12th five-year plan.

Each year, some 30 million tourists visit Guilin contributing 20 billion yuan ($3.2 billion) in revenue. The Guilin mountains and surrounding area are one of the most ethereal spots for poets and artists in the world, with limestone caves and incredible rock formations in various shapes and artforms all along the Lijiang.



Banks of Li river (left) and West Street of downtown Yangshuo (right).

The green rules, which ban fishing, private rafting and restaurants along key sections of the river, are expected to set an example of guarding over-exploited resources in China. The government is pledging to compensate residents along one of China’s most scenic rivers whose livelihoods have been affected by the new rules to save the sacred waterway.

One of the effects of the new rules requires villagers to sign contracts with licensed companies to offer rafting services. Under the contracts they must raise the price of the service. From about 35 yuan (about $6), tourists now have to fork out more than 90 yuan (about $15) for a ticket. Apparently part of the government's tourism revenue will be given to Yangshuo county residents so those who have sacrified their income for the protection of the Lijiang will also get a share.

The government is also encouraging residents to develop industries that are friendly to the environment. According to a report by the Legislative Affairs Office last year, violations of environmental laws – such as wastewater pollution, sand quarrying and illegal logging – were rampant along some sections of the river, prompting the government to propose and approve the regulations.

But residents said that the new rules are reducing their incomes. Some used to be able to earn 300 yuan a day carrying tourists on their raft. There were more than 600 rafts owned by villagers on the river each day during the peak season.

All the rafts along the river were privately owned before, and it was not safe enough for tourists. Accidents during peak season were not rare and there was no entity that could take on responsibility or provide passenger insurance. Now, every one of the rafters are required to register with a licensed company and are limited by the number of passengers each raft can carry. It is in the tourists' interest in the long run for regulators to step in.



Li river and back of 20 yuan note.

Perhaps it is a small price to pay to salvage one of nature's most magical landscapes. The tree-covered limestone hills are one of China’s most storied wonders. They appear in countless Chinese scroll paintings, poems and even on the back of the 20-yuan note. Around 9 million local tourists visit every year, and the advent of new international five-star hotels, like the Shangri-la and Sheraton, is encouraging more overseas visitors to add Guilin to the traditional itinerary of places such as Beijing’s Forbidden City or the Great Wall.

Where progress is measured in concrete and cutting-edge infrastructure, Guilin seems blissful not to play catch-up. And thank goodness because it is the pictureque mountains and rivers that have for centuries defined the city.

Not only has the captivating city long been the subject of numerous watercolour works, it is also rich in history, most notably as a southern outpost of China’s earliest Qin Dynasty.



One of many caves and lake views in Guilin.

Everywhere you look, you see majestic hills rising out and stretching into the horizon. It’s no wonder that Zhang Yimou (a very famous Chinese film director) was moved to create the Impression Liu Sanjie show, an extravaganza of music and light set outdoors in Yangshuo, based on a woman with a beautiful voice who lived in Guilin. The show with a cast of about 500, which Zhang created back in 2004, has become a staple for tourists, with tickets snapped up almost every night. Zhang was the man who spearheaded the opening and closing ceremonies of the Beijing Olympics.



Beer Fish (above) - The region’s famous dish - made with carp from the Li river and sauteed in the local Liquan brew.

Former US President Bill Clinton famously visited one of the Guilin parks and a boulder commemorates the spot where he stood to deliver a speech about environmentalism in 1998.



Heaven is a place on earth given the right policies to protect our environment, sustaining a paradise milieu for now and generations to come. I sincerely wish all of you a healthy and happy Dragon year and may mother nature stay beautiful as always..

Be good, be well.

Made in Shanghai

29 November 2011, Tuesday

It was the second time in China that Harvard Business School had conducted an executive education program which I attended in Shanghai in early November. It was hosted at the Shangri-la hotel and at the Harvard Center at HSBC building of the Shanghai International Financial Centre in Pudong, next to IFC mall. It was indeed a great learning experience. Some of the attendees that I met were the President of Tsingtao Beer as well as the Chief Marketing Officer of Tencent Group and among other heads of industry.

Lanz Chan, Ph.D.
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

The program was enlightening in many aspects. One of the key topics was on global luxury branding. Does China have a global luxury brand and how will you know when a brand has achieved global status? Is Shanghai Tang a global luxury brand? These were some of the questions that were broached and discussed.

China has vast opportunities in every discipline. Creating a brand that symbolizes excellence in a certain field that the world recognizes and accepts is an ultimate goal of many corporations. The brand Tsingtao, I am certain, is known by the world, as a mass China beer brand, with German roots, that has distribution networks worldwide.

To capture the global audience, a Made in China product apparently does not steer well if we are developing a luxury brand for China. But Made in Shanghai could bode well for luxury consumer perceptions. Shanghai has been considered by many as a cosmopolitan of glitzy glamour and lights. This is evidenced by the high fashion labels studded within IFC mall and major shopping complexes. Not only filled with exciting times, Shanghai embodies the epitome in lifestyle.



Pictures of Nightlife in Shanghai Pudong (left) and Shanghai Hooters (right)

Chinese consumers have a myriad of choices. This is exemplified in the media. The gazillions of commercials are mind-boggling. Just this week, the Chinese government has decided to ban all advertisements during 45-minute TV serials. Hunan TV was also told to stop producing its popular girl singing competition Super Girl, equivalent to Amercan Idol, for reasons including that it was perhaps not culturally in-line. The statements included pursuing a new direction of socially and morally responsible media content.

On one of the days in Shanghai, a friend of mine set the rendezvous restaurant venue at the Hooters just around the corner from Shangri-la. To my surprise, I discovered that there are two Hooters in Shanghai, one in Pudong and the other in Hongqiao. I ate the all-familiar buffalo wings, chicken salad and onion soup for lunch. If I recall, I believe my last visit to Hooters was like five years ago in Singapore. Shanghai has never been as spectacular.

Among my favourite nightcap destinations in Shanghai is the Mint club on the 24th floor of the building along Fuzhou road. Voted as the best club in Shanghai last year, once you enter the club, you are greeted with a 17-meter long fish tank that is home to more than 20 reef-tip white sharks. It was awesome.

In my five nights in Shanghai, on the itinerary was to take a walk along the bund with some friends that I met through the latest hype in mini-messaging, or called Weixin, which is a new platform by Tencent that supports QQ users. It's a communication system that allows easy voice-messaging with one touch on your mobile phone and you could search for people who use it in a one-kilometre radius and start chatting. Friends or strangers, it is perhaps a cool tool that has potential in bringing society closer. When was the last time you spoke to your neighbour?



Pictures of Mint Club (left) and Shanghai Bund (right)

The advent of a new generation of more intimate ties and community dialogue has arrived. The power of vicinity-marketing by restaurants and retail shops to consumers within a kilometre radius is indeed a new area of innovation. Reaching out and starting a conversation with someone nearby has never been that easy before. The next message beep on your phone as you walk along the street nearby Hooters could be a bargain that you cannot resist! Be friendly and say hi to your neighbours.

Be good, be well.

Anecdotes from Beijing: Subways & Real Estate

28 October 2011, Friday

Being on roadshows and business travels stimulate the adventure in most of us. And since my last blog, I visited a few cities and among them was Beijing, to attend the 6th Annual Funds Forum held at the Intercontinental Hotel, as both a delegate and speaker. Two colleagues of mine also attended the forum, which was graced by fund managers, representatives of financial institutions, private funds and service providers in Greater China, who were mostly new acquaintances and counterparts, some whom I have met at previous conferences. During this 5-day trip, I expended concerted effort to visit selected places, like a mini-adventure, to seek the ultimate Beijing experience. It has been some time since my last visit, and this time around, it was indeed fruitful and fulfilling.

The forum offered interesting insights. Given that China's economy will expand at slightly above 9 percent this year, compared to 10.4 percent last year, but still about six times the pace of the U.S. and the Eurozone, according to IMF estimates. It seems that this year will be a soft-landing for China as we are only two months away from Christmas.

Lanz Chan, Ph.D.
Galaxy Asset Management This e-mail address is being protected from spambots. You need JavaScript enabled to view it

 But the effects of the slowdown have been supported by the government especialy in the real estate sector. China's real estate sales have dried up in many cities during its annual Golden Week holiday in the first week of October, which is treated as a proxy for performance, despite cheaper property prices, signalling perhaps a turning point of the property market squeeze. A central bank survey in mid-September revealed that more than 75 percent of Chinese urban residents thought property prices were too high, and 38 percent expected them to keep rising this year, but albeit at a slower rate. The policies by the government to rein in inflation have been felt.



Pictures of Houhai Lake (left) and Downtown CBD (right) in Beijing.

To get a better grasp of the Beijing market, one night after the forum, we headed out to explore and the taxi queue was long outside the hotel, plus there were no taxis in sight. So we decided to take the subway to Houhai Lake in central Beijing to soak up the sights and sounds, and of course to look for some dinner and drinks. We walked an easy ten minutes to the nearest subway station but it was so packed, since it was during the after office peak hour. But certainly the subway was much faster than to wait for a taxi and to get stuck in traffic. It was also obvious that the subway station needed a new facelift and retrofit. The wall claddings were old and perhaps unsightly to many, and the potential to implant the arts and culture into the subway station is an opportunity for aspiring artists. I could imagine Beijing with subway stations decorated with colorful walls of art, adding a touch of awe to the city's urban public transport real estate.

China has a cultural propensity towards property over other investments because there are few options available to most citizens, which means opportunities to create new products in the marketplace as the government liberalizes. The central bank has tightened monetary policy and choked off funding avenues to developers across the country, but just this month decided to buy up stocks, though not in great amounts, of the big four banks for stabilizing the markets and perhaps to send a signal. The liquidity pressure and tightening credit conditions will result in subdued prices over the next months, but the flight to quality and value is still so strong. Astute investors could possibly and will sniff out undervalued assets during this period of adjustment.

Some have optimism that Beijing is willing to limit the economic slowdown. And some believe that the government is not trying to kill the market, but is aware that some pain is needed to be felt to moderate the growth in prices, to control speculation, and to appease mass consumers.

Evidence shows that apartment sales in Beijing dropped about 23 percent from a year ago during the Golden Week according to statistics released by the Beijing Real Estate Association. The total number of residential apartments sold in Beijing in the period was 1,039, including 908 newly built units and 131 second-hand units. The figure also represented a 62-percent decline from the same period in September.

sanlitun a


Pictures of Sanlitun Village (both left and right) in Beijing.

This year the average price of a residential apartment in Beijing was about 13,800 yuan per square meter (circa USD200 per square feet), a 6.5 percent decrease compared to the average price of 14,800 yuan per square meter (circa USD215 per square feet) in 2010. This means an average 1,500 square feet apartment would cost about USD300,000 in Beijing today. Beijing was not the only city to experience a downturn in housing sales. Daily housing sales in Shanghai stood at an average of 100 units during the holiday week, while in the cities of Guangzhou and Hangzhou, daily sales figures remained in the double-digits.

China Vanke, the country’s biggest developer by market capitalization, reported that third-quarter profit rose 32 percent as it focused on sales to serious home buyers as the government intensified curbs aimed at speculators. Vanke projects target mainly buyers for own occupancy, so the impact of policies on Vanke is relatively less.

On one of the other nights in Beijing, we decided to visit Sanlitun village, which was an area glittered with bars, restaurants and cafeterias. It was a colorful sight. There were small eateries in back lanes and bars that were jam-packed with teenagers and young adults. The crowds were out to have fun and to consume, perhaps an indication of a potential boost in retail sales.

Data shows that the world’s second-largest economy sees growth in industrial production and retail sales in this quarter, indicating momentum in the world’s fastest-growing major economy is being sustained. As reported in Bloomberg, a preliminary reading of a Chinese manufacturing index released this week was the highest in the past five months, indicating that the slowdown may be stabilizing.

Our visit to Beijing was highly value-added, since it was also filled with intermittent excitement due to some pub-hopping as well as experiencing a popular foot massage chain store, where we discussed and deliberated on our objectives in Beijing. Be good, be well.



Auction Economics : New Record or Bursting Bubble?

18 September 2011, Sunday

From what has been reported, China apparently is the most important driver of the art market today according to Bloomberg and other sources. Wealthy Chinese buyers are fueling the growth in demand – with Chinese billionaires as the most active in the auction market.

Some say that the recent world record prices in the art market are an indication of unsustainable economic conditions and that China could be in the middle of an asset bubble that is about to burst.

Lanz Chan, Ph.D.
Galaxy Asset Management
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Just slightly over the past twelve months, starting in May 2010, the art world was shocked by a Chinese buyer paying a record 106 million dollars for a Picasso. In November 2010, an 18th-century vase from the Qianlong period, which had been found in a dusty old attic in the UK, was purchased at the Bainbridge auction for more than 70 million dollars by a buyer from China, setting an all-time high for a Chinese antique.



Qing vase (left) fetched USD32m in Hong Kong in Oct 2010. Qing vase (right) fetched a record USD70m in London in Nov 2010.



Sotheby's NYSE stock price (left) at a high of circa $55 in April 2011, today it is at $38. Shanghai Composite Index (right) lags Sotheby's stock price, signalling imminent fall in China's stock markets. Source: Agora Financial.

According to recent history, one of the largest asset bubbles that ever formed was during the late 1980s in Japan. The bursting of the Japanese Bubble might have seemed eminent at that time when examined via the art market. The highest price ever paid for van Gogh's Sunflowers in that era was in 1987 by a Japanese buyer for almost 40 million dollars, four times the previous record for a painting. The Japanese art craze culminated and along with her asset markets, when Ryoei Saito, chairman of Daishowa Paper Manufacturing, paid 82 million dollars for van Gogh’s Portrait of Dr. Gachet and over 78 million dollars for Renoir’s Le Moulin de la Galette in May 1990.

The Japan experience suggests that the massive Chinese influence on the art market is an indicator of a forthcoming slowdown in China. Prudent investors would take great pride in selling at world record prices, and not buying. Breaking world record art prices is indeed a spectacular reflection of excessiveness, triggering warning alarms.

According to BCG, more than 1 million millionaires live in China, placing China in third place for millionaire households, just behind the 5 million in the U.S. and Japan's 1.5 million. This partially explains why the Chinese antiques trade has an annual value of more than 10 billion dollars, with China overtaking the U.S. as the largest auction market for fine art since 2010.

More “evidence” has been reported. In May 2010, a bidder believed to be Chinese payed over 106 million dollars for Nude, Green Leaves, and Bust -- the most ever paid for a Picasso. In Oct 2010, five bottles of Chateau Lafite 1869 were sold at Sotheby's for 230,000 dollars per bottle at thirty times their pre-auction estimate, again to Chinese buyers.

China's skyrocketing in the auction world is certainly a signal of enormous wealth, but as history has revealed, periods of record-bidding are perhaps bubble predictors, as the newfound rich spend with exponential extravagance, setting all-time highs and increasing the possibilities of a riskier marketplace.

Be good, be well.


Wealth, Philanthropy & the QQ Life

3 September 2011, Saturday

The past couple of weeks has been hectic as I was preparing for a conference for a Shanghai-based commercial bank that has plans to build its private banking presence in all of China. Apparently, the bankers that attended the conference had difficulty understanding the nuances of priority banking (mostly called VIP service in China), wealth management (surprisingly equivalent to financial or wealth planning in China) and private banking (which is commonly referred to as wealth management in global banks).

In one of the lectures, I talked about the setting up of trusts and foundations for the purpose of charity and philanthropy as a solution for clients that have requirements for succession and legacy issues, plus the societal responsibility of helping those in need. In fact, this is not common in China, as I found out.

In October of 2010, Bill Gates and Warren Buffett made a trip to China to encourage philanthropy among China’s super rich but were sadly turned down. Many of the super-rich did not want to meet with Gates & Buffett, because of their unwillingness to give away part of their wealth and participate in philanthropy.

Media then hotly debated about this and queried about where was China's philanthropic spirit. But China is not completely devoid of philanthropists. Jet Li, a super famous actor, has for some years been very active in seeing his charity, the One Foundation, succeed. Guangdong province recently had one of its richest citizens, Yu Pengnian, commit all of his wealth, US 1.2 billion dollars, to charity. And there were the few who did pledge to come alongside Gates and Buffett. But these examples are the exceptions, not the norm.


Lanz Chan, Ph.D.
Galaxy Asset Management
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Estimated China wealth distribution in 2010 (above) by Forbes. Numbers in green represent total number of high-networth individuals in each region (in 10,000 denomination).

Perhaps there is a broader implication. The Chinese have always been savers and the hoarding culture for a rainy day has been engraved in their roots since time immemorial from generations ago. Also, the pride in possessing familial wealth represents power and authority in society, that transform into valuable heirlooms, bequeathments and hereditary titles. Not forgetting that China has a deep-rooted history in imperialism and an agrarian society, where social status is based on household wealth. So giving to others is really not at the top of their priority list of the things to do.

But China is ever transforming. When companies are formed to “do charity by doing trade”, instead of “doing charity while doing trade”, they are termed for-profit social enterprises. The ability for Chinese pragmatism to shine yet again is to accept a for-profit solution to social problems. Organizations can build a profit center that powers a not-for-profit objective. The for-profit social initiative could form part of a company such as a department or special project. And who says only the rich should donate. Everyone has a part to play in corporate social responsibility (CSR).


Official statistics show China's charitable donations exceeded 100 billion yuan in 2010. There are now more than 440,000 social organizations in China. They employ about 200,000 professionals and 50 million registered volunteers. In the latest news, charity organizations will be placed under the direct supervision of the Department of Social Welfare and Charity Promotion under the Ministry of Civil Affairs in an effort to rebuild public trust after a scandal involving the Red Cross Society of China earlier this year.

But setting the stage for mass philanthropy is the Tencent Group that is known for providing outstanding technologies and services through their QQ platform. Less known, however, is the fact that the company is also active in social development projects. In recent years, Tencent has extensively cooperated with a range of social organizations and institutions, and has made contributions to many social and community projects.

Tencent has created a Foundation and states as a mission that “in the Internet Age—an age of interactions and interrelations—we are committed to leveraging the internet to engage the public in philanthropy. We want to transform traditional philanthropy in order for it to have a more sustainable, profound, and broad impact.”



QQ internet space (above) offers online farming activities in an attractive interface that the young in China can relate to, which has become a powerful force in attracting donations for charity.

Tencent has build a comprehensive web-based interactive philanthropy platform and launched programs including an internet-based disaster relief action program and a Monthly Donation Plan. Both of these programs have impacted hundreds of millions of “netizens” across China.

Their philanthropy 2.0 model depends on public participation to drive philanthropy. The model uses a web-based platform that enables charitable organizations and projects and volunteers to connect with beneficiaries, internet users and the public. The goal is to release the power of compassion on the internet by engaging the public and facilitating their participation in driving a new era of philanthropy.

The Tencent Foundation, as of 2011, has engaged more than 50 million net users who have donated through various platforms, raising over 500 million yuan. This amount is increasing every second, and so is the number of “netizens” participating in charity overall.

The efforts by Tencent encourages a culture of regular donations, rather than irregular disaster-driven donations. Users are encouraged to pay 10 yuan every month to support charitable initiatives. The company then sends reports via email and instant messages to users to ensure transparency. As of mid-2011, there were more than 500,000 people who have subscribed to the plan.

Tencent is leading by example in what seems to be the trend for Chinese companies to engage in community and responsible giving. which should also be encouraged in the private banking arena and without doubt, begins from education, especially educating Chinese bankers.

Be good, be well.

Shenzhen Universiade 2011 : Security First, Prosperity & Generosity

15 August 2011, Monday

This is the week of the world's second largest multi-sports event – the Universiade (university plus olympiad) or world university games 2011. While the first games in 1923 was held in Paris, this is China's third time hosting the event. The first was in Beijing in 2001 for the summer games and in 2009, it was Harbin for the winter games. And now Summer Universiade 2011 is held this week in Shenzhen. I was in Shenzhen these past days for work and I capitalized on the opportunity to meet up with my ex-classmate who is currently the deputy head of human resources for the Universiade in Shenzhen, a position he has held for the past two years. It was in the afternoon that he arrived at the hotel to pick me up in his official Universiade car, which allowed us to visit restricted areas of the games that were in practice sessions. I caught a glimpse of how the venues were setup. The message sent was clear -- “security first”.

Lanz Chan, Ph.D.
Galaxy Asset Management
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Dameisha beach volleyball practice, Shenzhen (left); Miss Etiquettes at World University Games 2011, Shenzhen (right)

Our first stop was the Dameisha beach which is located in the Yantian district, famous for the seafood, the Minsk World (aircraft carrier) and many other attractions. Dameisha beach is the larger of the two beaches along the bay, the smaller one being Xiaomeisha. My buddy drove into the section of the restricted area next to the beach volleyball court and we were greeted by friendly security staff. Everything was going on as planned. We were also warmly welcomed by the rehearsals of the enchanting Miss Etiquettes with their mesmerizing smiles, which was one of our favorite parts of the visit. We particularly appreciated the design of their dresses, which interestingly, exemplified the hallmark of Chinoiserie.



Security check at sports stadium, Shenzhen (left); Yantian seafood street, Shenzhen (right).

China has outdone herself this time beyond the tight security measures. Security guards were courteous while maintaining order and the general atmosphere of Shenzhen was one of prosperity and wealth, rapid development, opening-up, and generosity – giving visitors a spectacular experience, with a sense that China's economy is on a concerted and continued path of globalization.

Dusk had fallen and my friend and I then headed to the renown seafood street at Yantian. Other friends came to join us. We selected our live seafood from the area next to the sea and the chef cooked every dish to our liking. We guzzled down scrumptiously broiled shrimps with chilli and soya dip, succulent clams with wine sauce, delectable spicy crabs, freshly steamed fish with onion garnish, and other savory and exotic dishes that were too many to mention. It was simply mouth-watering. We then ended the night off with an hour of traditional foot massage at a boutiquish place that served a variety of herbal teas. The smorgasbord of organic flavors, sights and sounds of this mega city was exhilarating.

Be good, be well.

Consumerism – From Chinese Tea to Coffee?

28 July 2011, Thursday

A nation's consumer culture evolves over time. This is evidenced by my recent observations of coffee consumption in China. The habits of my mainland Chinese counterparts have slowly included a dosage of coffee a day. Coffee is addictive as we all know. Coffee culture has inevitably picked up here as we witness the proliferation of coffee chains such as Starbucks. Obviously, the timing has been right.

The Chinese in Guangdong generally love to “chi-zao-cha” which literally means to “eat morning tea”. This actually means to go for breakfast and have servings of dim sum, tea, noodles, etc. Increasingly, the pattern to consume coffee is growing, especially among the younger affluent crowd. Is this part of China consumerism where the Chinese are influenced by western consumption trends? I decided to make a trip to Starbucks in Zhuhai where I currently reside.


Lanz Chan, Ph.D. 
Galaxy Asset Management
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I arrived at what apparently was the largest Starbucks outlet when it opened a year ago, according to the manager at the Starbucks at Zobon Art Hotel, which has since been superceded by China's currently biggest Starbucks in Xiamen that opened its doors in December 2010. Starbucks was packed with people seemingly from all walks of life. Walking through the shop, two young adults started waving at me. They were my ex-students and they were there sipping their favourite coffee beverage and not surprisingly, studying for an exam. They say that outlets such as Starbucks provide a conducive environment -- an alternative place for them to rendezvous, plug into their MP3 players and bury themselves in their books. It was cool to study in Starbucks. On a closer look around, I noticed that many patrons were there with laptops in hand, tapping into the free wireless internet access.



Starbucks at Zobon Art Hotel, Zhuhai (left) and at Duty-Free Mall, Zhuhai (right).

The manager also mentioned that there are two outlets in Zhuhai -- part of Starbucks' expansion strategy in second-tier cities. The plan is for more outlets to be opened in China, to tap into the growth in demand for the ultimate coffee experience. Starbucks currently has 458 outlets in the whole of the mainland with the first outlet in Beijing in 1999 (excludes Hong Kong, Macau and Taiwan). The target is to triple the number of stores by 2015.

While Tea was discovered in the 10th century B.C. in China, coffee originated from Ethiopia in the 15th century, 2500 years apart in their genesis! Is coffee culture a phenomenon in China? Some say it is the innate desire of consumers to acquire high quality goods and services in greater amounts, where consumers increasingly seek the ultimate customer experience, fulfilling their innermost vibes of well-being, and consumerism. Be good, be well.

Photo credits: Dreamstime


Casino Tourism impact on Property Prices

13 July 2011, Wednesday

Welcome to the inaugural Galaxy blog on China insights. In this first issue, we take a peek at Macau – the ultimate destination for gaming entertainment to say the least. With half a million people, Macau is located in the hottest hotspot of the world, enclaved in the Pearl River Delta region, the world's largest metropolitan area, with a potential hinterland of 50 million people within 1 hour of travel and 100 million within 2 hours. I moved to Macau in 2006 to lecture at the Macau University of Science and Technology located just across from the Venetian, separated by the prominent roundabout where the Cotai Strip begins.

Lanz Chan, Ph.D.
Galaxy Asset Management
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Macau has come a long way. With 2 million visitors per month, total betting value soared 58 percent to 23.5 billion US dollars last year. This is more than four times the 5.8 billion gambled in Vegas. I remember peering out of the window while giving a lecture in the classrooms and students would say that they were highly anticipating for construction to complete so that we could go on an excursion of glitz and glamour. A year later in 2007, the Venetian opened its doors. It was off to a great start, and the gaming floors started filling up, but the same could not be said for the malls. I walked through Venetian almost every week in its first year of operations and the shopping hallways were almost always empty. But just like everything else, good things take time to build. If you offer the best-in-class experience in the right locale, you must believe that business will flourish. People just need time to react and make plans to visit.



Venetian Macau now (left) and in 2006 (right).


Come 2011, Venetian has been fully operational for four years now, and much has changed. The malls are now almost always busy. Plus, the Chinese government fully supports Macau in their 12th Five-Year Plan - for Macau to develop into a world leisure centre with complete amenities, offering something for everyone.

Increasingly noticeable is that the transport network in Macau is facing pressure. Roads are increasingly congested and buses are crowded during peak hours. I just had dinner two nights ago with my ex-classmate who is now a representative of the Macau Trade and Investment Promotion Institute. He mentioned that, while the plans for the 21 light-rail stations have been approved, there are still many issues to resolve – many local residents will be affected by the construction of the train stations. Apparently, construction will begin sometime this year in two phases and is to complete within four years. When the train system that links Guangzhou to the Macau-Zhuhai Gongbei border is fully up and running within the next one to two years, this will potentially open further floodgates of gamblers to Macau, hastening border and transport efficiency improvements to cope with the rush of tourists. Furthermore, the HK-Macau-Zhuhai bridge slated to complete in 2015 is another driver of growth.

Prior to the influx of new casinos, the value of property transactions peaked in November 2001. Since the Sands by Sheldon Adelson had started operations in 2004 – the first to break the Stanley Ho monopoly in the gambling mecca – property prices climbed and peaked in January 2008. Prices then plummeted due to the global credit crunch, bottoming out in January 2009 and since have continued to rise to the current all-time high, which is about three times the values 6 years ago, and more than double current property prices in Zhuhai (next and landlocked to Macau).

Macau's growth has also been partially due to the use of corporate funds in the MICE industry, where expenses can reduce taxes. But MICE hasn't really taken off for a variety of reasons, including the lack of direct flights from key cities and perhaps a shortage of good event planners. There are also not that many conventions in Asia and there is fierce competition to host them.



Venetian Macau front entrance view (left) and shopping gallery gondola waterway (right).


In a recent research report, results have revealed that growth in gaming revenues in Macau had contributed to growth in real estate prices by more than 25 percent, while the growth in tourist arrivals explain the changes in real estate values by up to 15 percent. Given that about 90%  of corporate income is attributable to gaming revenue, compared to 50% in Vegas, there is perhaps room for growth in non-gaming revenue, albeit at a slower rate.



Macau-Zhuhai Gongbei border top view (left) and underground view (right).


What does all this signify for Macau? There is certainly enormous growth potential for tourist arrivals and revenues, hence real estate values. In the meantime, I look forward to our trip to China Rouge, a club in the new Galaxy Macau, for a display of what they describe as Shanghai's 1930s decadence. Be good. Be well.


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