China’s rich buying up yacht companies

Wealthy Chinese may not be buying many big yachts. But they are buying up big yacht companies.

Two of the world’s top yacht companies were taken over by Chinese companies this year, leading many yachtmakers to see China more as a competitor than the market of the future.

This summer, Dalian Wanda Group, the China-based property giant, acquired control of British yacht-maker Sunseeker International for around $500 million. Sunseeker is famous for making the speedboat that appeared in the James Bond film “Quantum of Solace.” Dalian Wanda is controlled by Wang Jianlin, an outspoken billionaire who owns a Sunseeker yacht.

Dalian Wanda said the deal “further enhances our position in the global luxury, entertainment and tourism market.”

The deal followed an even more high-profile purchase of a controlling stake in Ferretti Group—one of the largest and most revered yacht brands in the world—by Shandong Heavy Industry Group-Weichai Group, which makes bulldozers and tractors. The deal was valued at around $230 million.

The question with both deals is whether the new buyers will move production to China and compete with lower-cost products. Both companies insist they are buying the brands for their prestige and history and that they would never damage the brands by moving production.

 

Simon Dawson | Bloomberg | Getty Images

A yacht made by Sunseeker International.

In an interview, Ferretti CEO Ferruccio Rossi said the company will never build Ferretti-brand yachts in China. But he doesn’t rule out creating a separate brand, with smaller yachts, that could be built in China for its domestic market.

“The market in China is big, and there is a space for every brand in every position,” Rossi said. “Maybe we will develop specific brands and boats for the domestic market, maybe we will do it when the market will be big enough. At the same time, we will keep the Ferretti-built product at the top-end made in Italy.”

He said, Ferretti is like Ferrari, a brand that depends on its Italian production and heritage.

According to Rossi, the Chinese purchase of Ferretti will help the company better understand China’s yacht market and its customers. He said that wealthy Chinese use yachts more for private business meetings and building “guanxi”—personal relationships and influence—rather than partying on the water with friends and family.

As a result, Ferretti and its brands have started building boats with meeting areas and a large dining area rather than Jacuzzis, sun decks and bars. Rather than bedrooms, a Chinese buyer prefers karaoke rooms and an area for gambling or cards.

“They are really looking for a status symbol,” he said. “They are looking for something where they can meet with people. It’s much more about public relations to share rather than about private utilization, as it is in the Western world.”

He added that “a boat is a fantastic place to build up a strong personal relationship because you’re in a very comfortable environment, very soft, very private. You can have this time. Nobody will disturb you.”

The company expects Asia to account for up to one third of its sales in five years, up from 10 percent today, he said. Yacht companies need to be more patient, he added.

“China has a different flow of time compared to [the] Western world,” he said. “You need to be there. You need to deal with clients. Maybe right now the number isn’t what you expect for a market that big, but don’t be too rash about that. Prepare the ground and the benefits will arrive.”

By CNBC’s Robert Frank. Follow him on Twitter@robtfrank

China has the youngest billionaires

China may not have the most billionaires, but it does have the youngest.

According to a report from Wealth-X and UBS, China’s 157 billionaires have an average age of 53 years old. That’s nine years younger than the global average.

China has the second-highest number of billionaires in the world after the U.S., which has 515. And China has added 10 new billionaires over the past year.

Still, China’s billionaires have come under fire recently for their wealth and power. The government recently charged one of its top billionaires, venture capitalist and human rights supporter Wang Gongquan, with “assembling a crowd to disrupt order.”

Chinese-American entrepreneur and blogger Charles Xue was arrested in August, and last year Xu Ming, once the country’s eighth richest man, was arrested and charged with fraud.

 

One study found that 17 percent of the billionaires on the Hurun Rich List—China’s version of the Forbes list—wind up in court or prison.

By CNBC’s Robert Frank. Follow him on Twitter@robtfrank

 

 

China’s rich fleeing the country—with their fortunes

It’s one of the largest and most rapid wealth migrations of our time: hundreds of billions of dollars, and waves of millionaires flowing out of China to overseas destinations.

According to WealthInsight, the Chinese wealthy now have about $658 billion stashed in offshore assets. Boston Consulting Group puts the number lower, at around $450 billion, but says offshore investments are expected to double in the next three years.

A study from Bain Consulting found that half of China’s ultrawealthy—those with $16 million or more in wealth—now have investments overseas.

And it’s not just the money that’s exiting the country. The wealthy are increasingly following their money overseas.

A study by Hurun and Bank of China found that more than half of China’s millionaires are considering emigrating or have already taken steps to move overseas.

Many experts say that the wealthy are moving to protect their wealth, their health and their families. With China increasingly cracking down on ill-gotten gains and corruption, many of the politically connected wealthy are looking for safer havens abroad.

They are also looking for better environments for their children—with better schools and cleaner air.

“Whether it is the perceived political instability or perhaps lack of educational opportunities, or pollution in the urban environments there, when you put those altogether … and you mix that with the wealth that’s present in China now, it really makes sense that there are folks there looking to explore these opportunities,” said Peter Joseph of the Association to Invest in the USA, which represents investor-visa programs in the U.S.

Some say the capital flight and millionaire migration are normal consequences of rising wealth. Oliver Williams, of WealthInsight, said that the Chinese wealthy have about 13 percent of their wealth overseas—below the global average of 20 percent to 30 percent.

Still, much of China’s offshore wealth is moved illegally or in the shadow economy. China maintains a closed capital account and Chinese citizens are generally not permitted to move more than $50,000 out of the country. So reliable data on exactly how much money is moving out remains unclear.

But the global buying spree by wealthy Chinese suggests the numbers may be far higher than reported. Wealthy Chinese buyers purchased more than $8 billion worth of residential real estate in the U.S. in the 12 months ended in March, according to the National Association of Realtors. China’s share of foreign-purchased residential real estate has jumped 50 percent since 2011.

One of China’s richest women, Zhang Xin of developer SOHO China, recently bought a townhouse in Manhattan for $26 million, according to reports.

China’s wealthy also are pouring money into collectibles and art. Billionaire Wang Jianlin and his company Dalian Wanda last month bought a Picasso at a Christie’s auction for $28 million. Bidding from Chinese buyers was strong throughout the auctions, according to dealers and gallerists.

It’s also going to wine and diamonds. Diamond dealers say more than half of today’s collectible diamonds are going to Chinese buyers. And on Saturday, the world’s most expensive case of wine—1978 Romanée-Conti—sold in Hong Kong for $476,000.

—By CNBC’s Robert Frank.