Saturday, February 09, 2013

Millionaires In China? Sure-- And Billionaires. They've Become More Like The U.S. Lately


When I was president of Reprise I was based in Los Angeles, but also had offices in New York and London and I was in NY so frequently that I had a home away from home there-- the Palace Hotel down the street from our office. I actually arrived late one night-- just after midnight-- on 9/11... yes that 9/11. Needless to say that was a miserable week to be in NYC and the hotel workers-- who mostly lived in the outer boroughs-- couldn't get in to work. The hotel sort of came to a grinding halt.

My Palace home was in a semi-separate part of the hotel called The Towers and because I was a frequent guest I had a really special arrangement with the hotel. They were also grateful that we would often have big name divas-- Cher, Stevie Nicks, Enya-- stay in their exclusive triplex suite, which they also gave us a "deal" on... $9,000 a night. What a deal! One of the other guests that week of 9/11 was Michael Jackson and he was staying in one of those suites. The Royal Plaza Suite at the Plaza Hotel charged three times as much and the Ty Warner Penthouse at the Four Seasons... four times as much. That one was designed by Warner, Peter Marino and I.M. Pei-- and if you stay there, you get your own butler, personal trainer, therapist and chauffeur. What's not to like?

Recently the St. Regis joined that club of over-the-top suites. They have a joint project with Bentley (the car company) for the Bentley Suite-- at $9,500 a night. St. Regis General Manager, Paul Nash: "This isn't your father's hotel anymore. We are keeping things relevant." The suite was designed by Bentley and it includes the use of the 2013 Bentley Mulsanne (with a chauffeur), although you're not allowed to take it where poor people live. The suite has a custom sleigh bed made from the classic Bentley burled wood.

Who stays in $9,500 a night suites? Well... divas, of course. But are there that many? And then their are the top-of-the-food-chain corporate bosses and the nouveau riche from places like Russia, Guinea-Bissau and China. Yes, there are multimillionaires, even billionaires, in China these post-Mao days.
There were 7,905 multimillionaires in China at the end of 2011, an increase of 41% compared to 2007 - but how are they distributed across the country? WealthInsight, specialists in data on high net worth individuals, have released the latest figures showing those with net assets of more than US$30m. A combined total of 2,346 live in Beijing and Shanghai, equivalent to three in every ten of China's multimillionaires. Chongqing has seen the biggest growth rate, with 78% more multimillionaires in 2011 than four years earlier.
And Wikipedia lists 10 Chinese businesspeople with net worths of at least $4 billion each, Zong Qinghou of Wahaha being on the top of that heap with a net worth of $10 billion. Altogether though China is second only to the U.S. for number of billionaires. They have 100. Last year Forbes reported there were 1,226 billionaires in the world, up from 1,210 in 2011. Carlos Slim was the billionairest ($69 billion) and Bill Gates was #2 ($61 billion). As of 2007, the richest 800 people in China had an average net worth of $562 million. There is well-documented evidence that the children of famous Maoist revolutionary cadres, such as late patriarch Deng Xiaoping, ex-president Jiang Zemin, ex-premiers Li Peng and Zhu Rongji, President Hu and Premier Wen Jiabao, are successful entrepreneurs. According to liberal economist Luo Tianhao, a researcher at the Beijing-based Changjiang Business School, red families, meaning those of top cadres, figured prominently among the country’s affluent clans. These business clans boast deep political and economic capital, Luo said. He added that due to their political connections, these families do particularly well in trade, energy and infrastructure, which are sectors that are still wholly or partially controlled by the state. Take, for example, the Li Peng clan. Li’s wife and two children have been active in the energy sector since the 1990s. Son Li Xiaoping is the former chairman of China Huaneng, an energy conglomerate; and daughter Li Xiaolin is the CEO of mammoth China Power International Development. A suite at the St. Regis wouldn't put any of these folks out. And China has plenty of overpriced luxury hotels of its own. The government is starting to crack down on "official extravagance," worried that it may stoke social unrest.
Shanghai's Hotel Industry Association is, you would think, naturally a conservative kind of organisation.

It represents more than 50 five-star hotels, which cater for the city's rich and powerful elite.

The association's president, Huang Tiemin, is himself a top hotelier and a card-carrying member of the Communist Party.

He seems a very unlikely person to throw discretion to the wind and turn on some of his highest profile and highest spending clients-- but listen to this.

"It is astonishing. Unbelievable," he says of the dining habits of Shanghai's government officials.

"It is very normal to have a banquet with over 10 courses. Some have 15 to 20. I've seen one where there were so many dishes they had to be stacked three-high."

And he disapproves not just of the large quantity of food consumed but its superior quality too.

"Shark fin, abalone, bird's nest and other very expensive foods can very often be found in banquets funded with public money."

Warming to the theme, he adds; "Sometimes the cost of the alcohol is even higher than the food."

It is a picture of publicly-funded gluttony and extravagance that a few months ago would have been very hard to glean from one so well connected.

But something has changed and in China it is suddenly the political fashion to denounce the high-spending habits of the country's public servants.

It was Xi Jinping, the new Communist Party chief, who started it. When the new leadership took over in November last year, one of the first acts was to issue a list of prohibitions.

No more spending public money on banquets. No more official gift-giving. No more using official cars on public holidays.

It has not been done on a whim. Such is the level of anger in China about corruption, privilege and abuse of power that the Communist Party openly admits that it threatens its hold on power.

...[T]his is primarily about party survival, not an exercise in reform for its own sake.

If anyone has any doubt about that, they only have to read the reported comments from a leaked speech that Xi Jinping gave two months ago, shortly after coming to power.

In it he apparently laments the collapse of Soviet communism and warns that China will never move towards the "universal values of the West."

But whatever the reasons behind the new-found government frugality, many are hoping that it will be long-lasting.

Corruption is a political and social challenge for China, but it has also been a drag on the economy.
Last year some highly-connected political families in China threatened to sue the NY Times for exposing the wealth inside the ruling clans. They hysterically denied all the reports and the NY Times suffered an intense cyber attack from China. This is a very sensitive matter of state in China, which is still, technically, a "communist" country. So last week, China announced a ban on radio and TV advertisements which encourage extravagant gift-giving, which, they claim, encourage incorrect values.
The move is part of a government campaign to crack down on corruption and extravagance.

Expensive watches, gold coins and liquor are among the items affected, said the Xinhua news agency.

The giving of gifts, often to gain favour with officials, is common during lunar new year, which begins next week.

But China's TV watchdog, the State Administration of Radio, Film and Television (Sarft), said that adverts on some channels had been encouraging people to give luxury items.

This, it said, had promoted "incorrect values" and encouraged a bad social ethos, Xinhua reports.

It quoted a Sarft official as saying that the move was in response to repeated calls by the authorities for people to practise thrift and shun extravagance and waste.

New Communist party leader Xi Jinping has repeatedly stressed the need to tackle corruption and has banned displays of extravagance at party and army functions.

The new restrictions coincide with a pledge by the government to tackle the growing and politically sensitive gap between rich and poor in the country.

Its plan includes raising the minimum wage to 40% of average urban salaries by 2015.

The government says that the reforms are necessary to make income distribution fairer. Correspondents say the move reflects Communist party concern that growing inequalities could threaten political stability.
Perhaps less symbolically but more fundamentally, China is also tackling a growing U.S.-style income gap by raising the minimum wage. They don't have a Republican Party yet to predict the end of the world and threaten to disrupt the economy and the government if the minimum wage is increased. In China the ruling class can, basically, just decree it.
The minimum wage would increase to 40% of average urban salaries by 2015.

State-owned firms would also need to give a greater share of their profits to the government, which it said it would use to fund social security.

The widening wealth gap in China has stoked concerns over its impact on political and social stability.

China's Gini coefficient, which is a gauge of income disparity in a country, rose to 0.474 in 2012, higher than the 0.4 level analysts often cite as a threshold for potential social unrest.

...Other proposals announced in the plan include steps to boost incomes of farmers; improving the health care system; increasing supply of affordable housing; a ceiling on salaries of senior management at state-owned firms and strengthening tax regulations.

China's robust economic expansion in recent years has seen income levels rise, especially in urban areas, giving rise to an affluent middle class.

However, there have been concerns that China economic rise has not benefited everyone, with many people in rural areas still living below the poverty line.

According to the People's Daily, almost 128 million people in rural areas were defined as poor, or having an annual per capita income of less than 2300 yuan ($368; £235) in 2011.

The widening wealth gap has resulted in growing calls for government action.

Analysts have long said that rising income levels in rural areas are key not only to social stability but also to China's efforts to boost domestic consumption and sustain long term economic growth.

China has been trying to stoke domestic demand in an attempt to rebalance its economy and to offset a decline in demand for its exports, which have been hurt by a slowdown in key markets such as the US and Europe.

The cabinet said its latest plan was targeted at lifting as many as 80 million people out of poverty by 2015.

It added that it would work towards doubling the average real income of both rural and urban residents by 2020, from the 2010 levels.

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At 11:00 AM, Blogger Dennis Jernberg said...

Interesting that whereas the Soviet (and later Russian) Communist Party collapsed, leaving Russia a conservative backwater yet again, its Chinese counterpart become itself a corporation: Chinese Communist Party (Holdings) Limited. It's got to be the world's largest company since it, well, owns an entire country. That's what the Gang Of Plunderers wants to turn America into, of course.


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