Corruption curbs crimp luxury market

From China Daily - http://www.chinadaily.com.cn/china/2013-01/17/content_16128533.htm:

Government moves to fight corruption will have some surprising effects, including putting a possible dent in the market for luxury goods, as Wang Wen finds out.

Strict government regulations to ban officials' consumption of luxury items are expected to soften the luxury goods market and change patterns of consumer consumption.

Statistics from the Federation of the Swiss Watch Industry show that Swiss watch exports to the Chinese mainland dropped 27.5 percent year-on-year in September.

A pedestrian walks by a Swiss watch advertisement in downtown Shanghai in September 2011. JingWei / for China Daily

China's demand had been weakening through the year, but September was the worst, followed by another 12.3 percent fall in October, noted Ren Guoqiang, a partner at Roland Berger Strategy Consultants in China, a consulting firm based in Germany.

Ren said government officials, who used to be the main recipients of luxury watches as gifts,were unsure about the future policy environment.

Several government officials who were noticed by the public to own luxury watches were investigated for corruption in 2012. One was the director of the provincial administration of work safety, who wore a Swiss watch when appearing at the site of a highway accident.

Officials are cautious now about receiving gifts, Ren said.

"It hurts the luxury watch business a lot," since more than 25 percent of the luxury items sold on the Chinese mainland were used as gifts.

The government has made a new regulation banning government officials from using public funds to buy luxury items. The regulation was made in July and came into effect in October.

The regulation specifically restricts buying luxury items as gifts, especially products such as men's watches and garments, said Bruno Lannes, a partner of Bain & Co, a consultancy based in the United States.

Bain & Co shows that the yearly sale of luxury watches would fall 5 percent on the Chinese mainland in 2012, whereas in 2011 the figure rose as much as 40 percent.

Domestic distributors were also hit.

"The ban will have an adverse effect on our watch sales," said Sun Xuguang, the operations manager at Sparkle Roll Group Ltd, a Hong Kong-listed luxury dealer of Swiss independent watch brands, including Parmigiani and DeWitt.

Very high-end watches are eye-catching and easily recognized by the public and so will be affected more, Sun added.

The recent ban on public money for luxury goods has had an impact not only on sales, but also on consumer trends.

Buying gifts, which will remain an important part of luxury spending, is moving away from items with logos due to the extensive exposure on social media, said Lannes.

China’s Bridge Collapse: Infrastructure Boom Raises Safety Questions

From: http://world.time.com/2012/08/27/bridge-collapse-in-china-raises-questions-about-safety-of-countrys-road-construction-boom/

On Sunday, 47 people died in two traffic accidents, highlighting the danger of China's overcrowded and poorly maintained roads

OP PHOTO CORPORATION / REX

Four vehicles fell after a section of the Yangmingtan Bridge in Harbin collapsed on Aug. 24, 2012, killing three people and injuring five others

China’s roads are notoriously dangerous. That point was reiterated Sunday as 47 people died in two traffic accidents, including 36 who were killed in Shaanxi province, when a sleeper bus rear-ended a tanker truck loaded with methanol, and another 11 who died in a collision in Sichuan province. The weekend’s road death toll was startling, but the collisions had a grim familiarity: loaded vehicles colliding on rural highways, apparently due to driver negligence, with horrible consequences. Indeed, Monday morning saw yet another crash between a van and a truck that killed at least nine. So perhaps it was understandable that much of the domestic media attention focused on an accident that had a comparatively small death toll but raised the specter of a growing concern on China’s roads: the parlous state of the infrastructure itself.

In the northeastern city of Harbin a bridge ramp collapsed on Friday, killing three and injuring five. The collapse was particularly shocking because the Yangmingtan Bridge was built at a cost of $300 million less than a year ago, raising questions about whether corners were cut in its construction. The bridge failure was blamed on overloaded trucks, but the government is now carrying out a more detailed investigation into the cause. Chinese newspaper editorials and online comments have called for answers as to why the bridge collapsed and who should take responsibility. Harbin officials were forced to deny claims that they couldn’t track down the contractors who built the bridge and said the names would be made public after an official investigation concluded.

The collapse is particularly worrisome because it follows several similar recent infrastructure failures. The Beijing News reports it was at least the seventh bridge to collapse in little over one year. That follows a building boom, driven in part by the economic-stimulus package launched in late 2008. More than a third of the $586 billion package was budgeted for infrastructure development. With a huge population and years of economic growth, China often seems to be bursting at the seams. Its roads, trains and subways are frequently overcrowded, and infrastructure development is sorely needed. The government says it plans to increase the nation’s highway system by 50% from 2 million km in 2008 to 3 million km in 2020. In places like the southern province of Guizhou, China’s poorest region, the stimulus helped the construction of the Baling River Bridge, which shortened the traverse of a river valley from an hour on winding roads to a matter of minutes. Around Beijing, mountain villages now enjoy smooth new highways linking them to the city center. But the Chinese capital’s infrastructure hasn’t aged gracefully. Heavy rainfall in July killed at least 77 people in Beijing — 11 of them drowned as their vehicles were trapped in flooded roadways. Sinkholes have sprouted around the city. Rural highways in the Fangshan district, which was hardest hit by flooding, and the Pinggu district, north of town, still have large sections missing a month after the deluge.

The sudden collapse of the Harbin bridge has raised questions about corruption and possible shortcuts taken in an effort to build so much so quickly. While the risk of crashes on China’s roads is numbingly constant, the fear of road collapses is a new and dramatic worry that likely outstrips the actual danger. “This is the national condition,” Li Chengpeng, a journalist and commentator, wrote on his blog on Monday. “I’ve seen a lot of people are now worried about their safety crossing bridges, wishing each one would have a Spider-Man underneath guarding it.” Similar questions were raised last year about China’s rapid expansion of its high-speed rail network after a crash near the city of Wenzhou killed 40. That accident was blamed on a lightning strike, but the safety of the system as a whole was called into question by the earlier dismissal of the Railway Minister Liu Zhijun for corruption.

The Law of Unintended Consequences strikes again. China spent billions on infrastructure projects after the 2008 global financial crisis to avert slowdown in China.  It seemed to have worked. But less than five years later the cracks (pun intended) are beginning to show in somewhat dramatic and dreadful ways.