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‘Made in China’ watches gain domestic popularity

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If it was not before, China is now the world’s most important market for Swiss watches. Figures from the Federation of the Swiss Watch Industry (FHS) show exports of Swiss watches to China in August were up by almost half year-on-year and accounted for 15.7 per cent of the global total, relegating the US to second place.

But while the Chinese continue to lap up Swiss watches, they have little love for their own watchmaking culture. China is by a distance the world’s largest watch producer in terms of volume. According to the FHS, China exported 664.3m watches last year, compared with Switzerland’s 20.6m. But while the average export price of a Swiss watch was just under $1,000, Chinese watches left the country at a paltry $4 a piece.

Chinese watch industry insiders admit there are problems with the quality and perception of their products. “Our watches, especially luxury watches, lag behind the old watch powers in many aspects, such as design, manufacturing and brand influence,” says Zhang Hongguang, chairman of the China Horologe Association.

The CHA, based in Beijing and founded in 1985, says there are more than 200 “major active brands” in China, including Fiyta, which supplied Chinese astronaut Zhai Zhigang with the watch he wore on the country’s first successful spacewalk in 2008. The association also says Seagull, a company based in Tianjin and founded in 1955, makes 5.2m mechanical movements a year, the biggest total globally.

Peacock P501-1 Tourbillon

Fiyta Clover automatic

Chinese collectors show little interest in these brands. “Modern Chinese watches are not something that interests me,” says Daniel Sum, who in 2017 co-founded the Shanghai Watch Gang, a watch enthusiast group. But there are signs that is changing. During the pandemic, guochao, the Chinese trend for products designed in China, has gathered pace. “There’s a fatigue with western brands,” says Robin Tallendier, a French Sinophile whose Hong Kong-based watch company Atelier Wen openly makes mechanical watches in China and decorates them with Chinese cultural symbols.

“The crisis has accelerated the trend of national pride and the trend of domestic consumption. Growing local pride and growing local consumption of local goods are going to help the emergence of local high-end luxury brands with a domestic identity.”

Mr Zhang agrees. “The added value of high-end imported watches is mainly in the brand,” he says. “And the pursuit of those watches is a manifestation of the immaturity of consumer behaviour. I am convinced that this is a temporary phenomenon and that rational consumption will become the mainstream.”

But there is still a long way to go. Mr Tallendier admits it has been hard to find customers in China. “Our results were not as good as outside mainland China,” he says, adding that most of the 600 sales he has made since Atelier Wen’s 2018 launch were to non-Chinese. “Chinese people do still crave western watches, but ‘Made in China’ is getting a foothold.”

Atelier Wen – Porcelain Odyssey, Hao Red Edition © Atelier Wen

Age plays a part. Guochao is particularly pronounced among younger Chinese. “More and more young Chinese people like watches made in China, especially those with Chinese cultural connotations or Chinese craftsmanship,” says Li Wei, head of the domestic horologe department at the CHA.

“The current goal is to develop the domestic market,” says GuiLin Hou, general manager of the Dandong Peacock Watch Factory, which is part of the Fosun group and one of China’s largest watch manufacturers. “The Chinese market is large enough that there are enough opportunities. Chinese young people work hard and have a strong pursuit of a happy life. This is an inexhaustible driving force for China’s development.”

China’s independent scene is also on the march. Shenzhen-based Lin Yong Hua taught himself watchmaking and produced his first watch in 2006. In 2019, he was invited to become a member of Switzerland’s prestigious Académie Horlogère des Créateurs Indépendants, or AHCI, which counts celebrated watchmakers François-Paul Journe and Philippe Dufour among its 29 members.

“Most Chinese are willing to believe in Chinese brands, so I have confidence in the development of Chinese watchmaking,” says Mr Lin, who hand-crafts about 20 watches a year under the dial name LYH. “Once, we only looked at production numbers, but now Chinese brands are turning their eyes to the improvement of technology, together with the promotion of the brands themselves.”

Domestic appreciation of China’s independents is growing. “These brands are slowly developing,” says Mr Sum of the Shanghai Watch Gang. “I’ve seen quality significantly improve over the years and I would consider a piece in the future.”

No one is expecting the shift to happen quickly, though. “It will take time to change people’s perception of Chinese watches,” says Mr Li of the CHA. “But with the improvement of the quality of Chinese manufacturing and the research and promotion of history, I believe that there will be major changes in the future.”

Mr Zhang of the CHA believes the Chinese will one day think of Chinese watches as being in the same league as Swiss pieces. “The Chinese watch industry continues to work hard to improve craftsmanship, upgrade manufacturing, create original designs, accelerate equipment updates and provide consumers with high-end watches,” he says. “Chinese people will love Chinese-made watches like Swiss watches, and domestic high-end brand-name watches will sooner or later become mainstream in the watch market in my country.”



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Petrobras/Bolsonaro: bossa boots | Financial Times

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“Brazil is not for beginners.” Composer Tom Jobim’s remark about his homeland stands as a warning to gung-ho foreign investors. Shares in Petrobras have fallen almost a fifth since President Jair Bolsonaro said he would replace the widely respected chief executive of the oil giant.

Firebrand Bolsonaro campaigned on a free-market platform. Now he is reverting to the interventionism of leftist predecessors. It is the latest reminder that a country with huge potential has big political and social problems.

Bolsonaro reacted to fuel protests by pushing for a retired army general to supplant chief executive Roberto Castello Branco, who had refused to lower prices. This is politically advantageous but economically short-sighted.

Fourth-quarter ebitda beat expectations at R$60bn (US$11bn), announced late on Wednesday, a 47 per cent increase on the previous quarter. This partly reflected the reversal of a R$13bn charge for healthcare costs. Investors now have to factor the cost of possible fuel subsidies into forecasts. The last time Petrobras was leaned on, it set the company back about R$60bn (US$24bn at the time). That equates to 40 per cent of forecast ebitda for 2021.

At just over 8 times forward earnings, shares trade at a sharp discount to global peers. Forcing Petrobras to cut fuel prices will make sales of underperforming assets harder to pull off and debt reduction less certain. Bidders may fear the obligation to cap prices will apply to them too.

A booming local stock market, rock bottom interest rates and low levels of foreign debt are giving Bolsonaro scope to spend his way out of the Covid-19 crisis. But the economy remains precarious. Public debt stands at 90 per cent of gross domestic product. The real — at R$5.40 per US dollar — remains near record lows. Brazil’s credit is rated junk by big agencies.

Rising developed market yields will make financings costlier for developing nations such as Brazil. So will high-handed treatment of minority investors. It sends a dire signal when a government with an economic stake of just over a third uses its voting majority to deliver a boardroom coup.

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South Africa’s economy is ‘dangerously overstretched’, officials warn

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South Africa is pushing ahead with plans to shore up its precarious public finances as officials warn the economy is “dangerously overstretched” despite the recent boom in commodity prices.

Finance minister Tito Mboweni hailed “significant improvement” as he delivered the annual budget on Wednesday and said that state debts that will hit 80 per cent of GDP this year will peak below 90 per cent by 2025, lower than initially feared.

But Mboweni warned that President Cyril Ramaphosa’s government was not “swimming in cash” despite a major recent tax windfall. The Treasury now expects to collect almost 100bn rand ($6.8bn) more tax than expected this year after a surge in earnings for miners. This compares with a projected overall tax shortfall of more than 200bn rand. Still, the finance minister made clear that spending cutbacks would be necessary.

“Continuing on the path of fiscal consolidation during the economic fallout was a difficult decision. However, on this, we are resolute,” Mboweni said. “We remain adamant that fiscal prudence is the best way forward. We cannot allow our economy to have feet of clay.”

The pandemic has hit South Africa hardest on the continent, with 1.5m cases recorded despite a tough lockdown. An intense second wave is receding and the first vaccinations of health workers started this month. More than 10bn rand will be allocated to vaccines over the next two years, Mboweni said.

‘We remain adamant that fiscal prudence is the best way forward’ – South African finance minister Tito Mboweni © Sumaya Hisham/Reuters

Even before the pandemic’s economic hit, a decade of stagnant growth, corruption and bailouts for indebted state companies such as the Eskom electricity monopoly rotted away what was once a prudent fiscus compared with its emerging market peers. 

Government spending has grown four per cent a year since 2008, versus 1.5 per cent annual growth in real GDP. The country’s credit rating was cut to junk status last year. Despite this year’s cash boost, the state expects to borrow well over 500bn rand per year over the next few years. The cost to service state debts is set to rise from 232bn rand this year to 338bn rand by 2023, or about 20 cents of every rand in tax.

The fiscal belt-tightening will have implications for South Africa’s spending on health and social services. On Wednesday Mboweni announced below-inflation increases in the social grants that form a safety net for millions of South Africans. “We are actually seeing, for the first time that I can recall, cuts in the social welfare budget,” said Geordin Hill-Lewis, Mboweni’s shadow in the opposition Democratic Alliance.

The finance minister is also facing a battle with union allies of the ruling African National Congress over a plan to cap growth in public sector wages. South Africa lost 1.4m jobs over the past year, according to statistics released this week. The jobless rate — including those discouraged from looking for work — was nearly 43 per cent in the closing months of 2020.

The South African treasury expects the economy to rebound 3.3 per cent this year, after a 7.2 per cent drop last year, and to expand 2.2 per cent and 1.6 per cent next year and in 2023 — growth rates that are widely seen as too low in the long run to sustain healthy public finances.

“The key challenges for South Africa do however persist, clever funding decisions aside,” Razia Khan, chief Middle East and Africa economist for Standard Chartered, said. “Weak structural growth and the Eskom debt overhang must still be addressed.” 



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Turkey’s Uighurs fear betrayal over Chinese vaccines and trade

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For five days this month, Jevlan Shirmemmet and other Uighur activists protested outside the Chinese embassy in Ankara, where they demanded to know the whereabouts of missing family members in China’s Xinjiang province. But on the sixth day, Turkish police stepped in.

They prevented the activists from gathering outside the diplomatic mission, positioned themselves outside their hotel and accompanied them wherever they went.

The stand-off reflects the difficult balancing act that Turkey, which is home to tens of thousands of exiled Uighurs, must perform with Beijing, not least because it wants closer ties and investment and is reliant on China for supplies of coronavirus vaccines.

President Recep Tayyip Erdogan, who casts himself as a champion of oppressed Muslims around the world, has in the past been a vocal critic of China’s actions in Xinjiang, the north-western region where the Chinese Communist party has interned more than 1m Uighurs, Kazakhs and other Muslims.

“On the one hand, Turkey wants to stand up for us, we know that, we feel it,” said Shirmemmet, 29, whose mother has been detained in Xinjiang since early 2018. “But they aren’t able to. We feel like their hands are tied.”

Jevlan Shirmemmet’s mother has been detained in the Chinese province of Xinjiang since early 2018
Jevlan Shirmemmet protesting in Ankara. His mother has been detained in the Chinese province of Xinjiang since early 2018 © Jevlan Shirmemmet

Analysts say that the plight of China’s Uighurs poses a problem for Erdogan, who is seeking alternative global partners at a time when relations with the west are deeply strained. “They are Muslims, they are Turks, and Turkish voters are sensitive about the issue,” said A Merthan Dundar, director of the Asia-Pacific Research Centre at Ankara University. “The government cannot establish very close relations with China. But it doesn’t want to cut all ties.”

In years past, Erdogan was one of the most outspoken global Muslim leaders concerning the plight of Uighurs, who are seen in Turkey as part of a broader global family of Turkic peoples whose rights Ankara has a responsibility to defend.

But opposition parties have accused Erdogan’s government of toning down its criticism to avoid upsetting Beijing. “Europe and America have spoken out against the oppression of our Uighur brothers in China . . . But there is still not a sound from Ankara,” Meral Aksener, leader of the opposition IYI party, said last month. Turkish officials insist that they continue to raise their concerns with Beijing behind closed doors.

Some figures in Erdogan’s government have advocated for stronger ties with Beijing in order to lure Chinese capital at a time when foreign direct investment from western countries has dwindled.

Investment so far has been limited, with the value of Chinese investment in Turkey standing at $1.2bn in 2019 in terms of equity capital, according to central bank data, compared with more than $100bn from Europe.

A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab
A woman in eastern Turkey receives the CoronaVac vaccine. Turkey has ordered 100m doses of the Chinese-made jab © Chris McGrath/Getty

Ankara is eager for more. The country’s sovereign wealth fund has been courting Chinese investment, and plans to open an office in China in the first half of this year. Ankara also has a swap agreement with China’s central bank that helped to boost the appearance of Turkey’s depleted foreign currency reserves by an estimated $2bn. 

The pandemic has added an extra complexity to the relationship. While Turkey has struggled to procure European-made vaccines, it has a deal in place for 100m doses of the CoronaVac jab made by Chinese drugmaker Sinovac Biotech. Delays to the shipments in December coincided with a decision by China’s parliament to ratify an extradition treaty between the two countries. Turkey has yet to ratify it.

Yildirim Kaya, a member of parliament from the opposition Republican People’s party, said that the ratification of the treaty by Beijing had created “a great deal of panic among Uighur Turks who have escaped from China to Turkey”. In a set of questions posed to the Turkish health minister, he demanded to know if Ankara had faced pressure to ratify the deal to speed up the delivery of the vaccines. Turkish foreign minister Mevlut Cavusoglu reacted angrily to such suggestions. “We don’t use Uighurs for political purposes,” he said. “We defend their human rights.”

Analysts are also sceptical that China would use the vaccine, of which Turkey has already administered 6.2m doses, as such crude leverage. Ceren Ergenc, an associate professor of China studies at Xi’an Jiaotong-Liverpool University in Suzhou, believes it is more likely that Ankara was doing Beijing a favour by signing a deal for a vaccine that had yet to be approved in China — and that still has question marks over its efficacy.

“It happened at a moment when China needed not necessarily the money but the prestige in the international system about the credibility of its vaccines,” she said. “There’s a kind of indebtedness or reciprocity — Turkey still needs financial support from China so it did this act of buying the Chinese vaccine that had at the time not yet undergone all phases of testing.”

In response to questions from the Financial Times, the Chinese embassy in Ankara said the recent protests had sought to “smear” China and that their actions had threatened the safety of the diplomatic mission. It strongly rejected the notion that it had used Turkey’s need for vaccine doses as political leverage as “absolutely unfounded conjecture and malicious misinterpretation”.

Still, the episode has left many members of the Uighur diaspora feeling deeply nervous about their place in Turkey. “China sees us as criminals,” said Mirzehmet Ilyasoglu, who joined this month’s Ankara protests to demand information about his missing brother, brother-in-law and four friends. “We hope that this [extradition] agreement won’t come before parliament, but if it is signed then our concern will grow.”



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