10 percent growth in China — for Hermès

Access Archive
Jeremy Goldkorn

Dear Access member,

China’s big spenders are doing just fine, it seems, and that’s what we focus on in our top story today.

Thanks to everyone who took part in our Slack chat with Oma Lee this week. We’ll archive the chat, post a PDF transcript tomorrow, and keep you posted about the next guest as soon as we confirm.

—Jeremy Goldkorn, Editor-in-Chief

1. China’s luxury consumers are alive and well and buying Birkins

Downturn? What downturn? So might the CEO of French luxury house Hermès ask. The manufacturer of the famous Birkin handbag ($10,000 to $300,000 a pop) released quarterly results, showing the fastest revenue growth in more than four years, much of it attributed to Chinese consumers. From the Hermès quarterly report:

Asia excluding Japan (+17%) achieved an outstanding performance, with extremely good sales growth driven by mainland China and two-digits growth in all other countries of the area. The Group benefited from the success of the store extensions completed in 2018, in particular on the Shanghai IFC and Singapore Marina Bay Sands. A new store opened in Phuket Floresta, Thailand, in March. Hermès is continuing the roll-out of the new digital platform in Asia, launched in China last October.

Bloomberg calls (porous paywall) Hermès’s positive news from China “another sign that the world’s largest luxury market is holding up.” A previous sign came earlier in April, when LVMH reported 11 percent growth year-over-year for the first quarter of 2019 after previously pointing to “enduring demand” in China.

Also on Chinese consumers, but a younger demographic: The future of shopping is already happening in China (porous paywall) is a Bloomberg article by Daniela Wei and Shelly Banjo on the shopping habits of smartphone-native Chinese Gen Z (aka post-2000s, for whom “traditional retail and ecommerce hold little interest”).

When Shanghai university student Milky Guan buys cosmetics, she isn’t impressed by beauty stores and big name brands. Instead, the 20-year-old relies on a Chinese social media shopping website called Xiaohongshu, or Little Red Book, to figure out what’s hot and what’s not. On Xiaohongshu — a startup that’s part e-commerce portal and part social media platform — Guan follows a popular online beauty influencer who teaches her fans how to apply makeup. During a recent livestream demonstration by the blogger, Guan snapped up four different cosmetic products within minutes — simply clicking on links embedded in the video.

Guan is among the millions of shoppers born after 1996, known as Generation Z, who are starting to upend China’s sprawling retail industry. They’ve been raised on mobile devices, and social media isn’t just where they spend time — it’s where they spend cash.

2. Living in a world of Chinese technology

The world is slowly realizing that it is no longer possible to shut out Chinese technology. Two examples from articles published today, in the South China Morning Post and IEEE Spectrum, respectively:

The Chinese state-owned tech company supplying signal-boosting laser amplifiers to the world’s largest financial centers / SCMP

Shenzhen-listed Accelink Technologies Corporation, a company based in Wuhan, Hubei province, was formerly the Ministry of Posts and Telecommunications’ Research Institute for Solid-state Components. It has supplied signal-boosting laser amplifiers to some of the world’s largest financial centers for nearly a decade, according to a report seen by the South China Morning Post.

How the U.S. can prepare to live in China’s 5G world / IEEE Spectrum

[T]he most eye-catching recommendation is that the U.S. military must face facts: It has to learn to operate in a “post-Western” wireless ecosystem dominated by Chinese companies and assume that all network infrastructure will ultimately become vulnerable to cyberattacks. “Zero-trust” networks with multiple security checks before gaining access to information will need to become the Pentagon’s modus operandi. All military networks will need both added resiliency and added layers of redundancy.

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Our whole team really appreciates your support as Access members. Please chat with us on our Slack channel or contact me anytime at jeremy@thechinaproject.com.

—Jeremy Goldkorn, Editor-in-Chief

BUSINESS AND TECHNOLOGY:

“Selling IPO shares was easy before,” said Liu, whose client, a maker of high-end equipment, is seeking an IPO on Shanghai’s new Science & Technology Innovation board, which is due to launch as early as June. “Now, you need to find interested investors and talk about the future of the company, and the industry. It’s time-consuming and costly.”

“We can forgive your politics and focus on your technical contributions as long as you don’t do something unforgivable, like speaking to the press.”

This was the parting advice given to me during my exit interview from Google after spending a month internally arguing, resignation letter in hand, for the company to clarify its ethical red lines around Project Dragonfly, the effort to modify Search to meet the censorship and surveillance demands of the Chinese Communist Party.

SCIENCE, HEALTH, AND THE ENVIRONMENT:

Noncommunicable diseases (NCDs) now claim more than 85 percent of mortality in the country. Cancer alone accounts for 23 percent of the deaths in China. In 2015, China had an estimated 4.3 million new cancer cases and 2.8 million deaths from cancer, compared to nine hundred thousand cancer patients and seven hundred thousand cancer-caused deaths in the early 1970s.  

  • Swine fever vaccine
    Spread of deadly pig virus in China hastens vaccine research / Nature
    “Scientists in China are ramping up efforts to study the virus that causes African swine fever and produce a vaccine.”

  • Illegal fishing
    China ranked worst country in new illegal fishing index / China Dialogue
    “An index launched in February this year scores countries according to their degree of exposure to and quality of response toward illegal, unreported and unregulated fishing. China received the worst score out of 152 coastal states assessed worldwide.”

  • Air pollution
    China’s efforts to cut pollution in Beijing may make it worse overall / New Scientist
    “Chinese officials are moving highly polluting industries to other regions, but Bin Chen of Beijing Normal University and colleagues found this will actually lead to more air pollution overall because of lower environmental standards and less efficient technologies in these regions.”

POLITICS AND CURRENT AFFAIRS:

Beijing has expressed irritation previously when the US sent warships through the Taiwan Strait, a key international waterway, but has not described such passages as illegal.

“This would be new language,” said Alexander Huang, an expert on the Chinese military at Tamkang University in Taipei and a former senior government official working on cross-Strait relations.

The government will look into the issue of subsidies from China and whether such developments are linked to Beijing’s ongoing efforts to influence Taiwan’s political scene, the Mainland Affairs Council (MAC) said Thursday…The statement came after Apple Daily reported Monday that a subsidiary of Taiwan-based Want Want Holdings Ltd., in China, Want Want China Holdings Ltd., has received up to 477 million Chinese yuan ($71 million) in subsidies from the Chinese government between 2017-2018.

Want Want is a food company that was founded in 1962 in Taiwan by tycoon Tsai Eng-meng (蔡衍明 Cài Yǎnmíng). It expanded its business operations into China in the 1990s, setting up plants across the country…The food company also operates several media outlets in Taiwan, including the China Times newspaper, China Television (CTV) and CTi TV.

It is now beyond doubt that China is undertaking a program of mass incarceration of the Uyghur population of its northwestern province of Xinjiang (which many Uyghurs refer to as East Turkestan) in a region-wide network of detention and “re-education” centers…

[There are] parallels between the manner in which Beijing has sought to justify its actions to domestic and international audiences, and those of the Soviet and Nazi regimes.

Vyachslav Molotov, one of Stalin’s key lieutenants, stated publicly in March 1931 that forced labor “was good for criminals, for it accustoms them to labor and makes them useful members of society.” …[German concentration] camps “were sold to the German people as reformatory establishments rather like penitentiaries for offending adolescents in 1950s America, where the public were told fresh air, exercise and skills training were on offer to discipline social deviants who could then be returned to the society.”

SOCIETY AND CULTURE:

  • Jewish refugees in 1930s–1940s Shanghai
    The secret history of the Jews from Shanghai / NYT (porous paywall)
    “A small but important trail of refugees fleeing the Nazis took an unusual detour through China. A new exhibit in Brooklyn marks the journey.”

  • The world’s oldest bomb?
    Archeologists find remains of earliest bomb / Xinhua
    “Chinese archeologists have unearthed a 700-year-old remnant of an iron bomb from a Song Dynasty (960-1279) defense structure in southwest China’s Chongqing Municipality. They believe it is the earliest remains of a bomb found in China and even in the world.”

VIDEO ON SUPCHINA

Yu Bao on data protection, blockchain, and the role of Shenzhen in China

Yu Bao, a member of the UNESCAP Task Force on Digital Economy, has more than 15 years of experience in innovation incubation and investment in China’s technology sector. We spoke with him in New York City in April to learn about his insights into the current development of blockchain technology in China, data protection in the country, and Shenzhen’s advantages compared with those of Silicon Valley in the tech sector.

SINICA PODCAST NETWORK

Sinica Podcast: An American Futurist in China: Alvin Toffler and Reform & Opening

This week on Sinica, China-watching wunderkind Julian Gewirtz joins Kaiser and Jeremy to chat about his recent paper on the American futurist Alvin Toffler (author of Future Shock and The Third Wave), who found a surprisingly receptive audience in the China of the early 1980s. His ideas on the role of technology in modernization were widely embraced by leaders of China’s reform movement — including both Dèng Xiǎopíng 邓小平 and his right-hand man, Zhào Zǐyáng 赵紫阳. Julian describes how Toffler came to the attention of the reformers, and discusses the lasting impact of his influence.

Jeremy Goldkorn worked in China for 20 years as an editor and entrepreneur. He is editor-in-chief of The China Project, and co-founder of the Sinica Podcast. Read more

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