A shoe, a song and the promise of the West

December 16, 2011

I found myself at Selfridges this week, specifically in what the London retailer says is the world’s largest shoe department.

Slightly dazed by cornucopia of women’s shoes on slick display, I was roused only when the haze of muzak wafting over the PA system was suddenly dispersed by the jaunty strains of the Chinese New Year ditty ‘Gongxi Gongxi’.

A 1946 composition from Shanghai, the song has gone from classic to kitsch, evolving to become the most popular festive song in the Chinese-speaking world. Its ubiquity rests on the many — for me at least — teeth-grindingly cloying versions played all over shops and markets in Asia. (Click here for example and don’t say I didn’t warn you)

I was somewhat surprised by the song’s appearance in the British retail icon — not least because it’s still some ways off the Year of the Dragon. But then looking at the shoppers around me it all made sense.

Mainland Chinese travellers spent some £200 million on Bond Street last year. That’s a 155 percent surge from 2009, according to an association of luxury retailers in the London thoroughfare.

Never mind that these products are largely assembled back in their home country, Chinese tourists buy their designer bags on Bond Street and elsewhere in Europe to avoid China’s luxury sales tax. More importantly, these status-conscious buyers have the assurance that they are not being sold knock-offs — a risk rampant in a country notorious for its lack of regard for intellectual property.

Those reasons are similar to those that drive the wealthy elite in many emerging economies to London, a city that Goldman Sach’s Jim O’Neil has dubbed the “BRIC capital of the world“.

Whether it’s handbags or homes, the well-heeled from Brazil, Russia, India, China and other rapidly growing economies are drawn to the city because it promises rule of law and regulatory predictability. For all the hype about GDP growth rates, many emerging economies remain hobbled by corruption, weak regulatory frameworks as well as social and political instability.

This is why many investors prefer to gain exposure to emerging economies via U.S. and European companies rather than buying directly into Chinese or Russian firms where doubts remain over corporate governance. It may be why emerging shares this year have underperformed their developed counterparts even with all the anxiety about recession and sovereign debt in the West.

Chinese tourists buying made-in-China swag on Oxford Street may sound incongruous but many investors are essentially in the same proxy trade.

Amid the gloom one sees in the press about Western economic decline, it’s worth thinking about those Chinese shoppers in Selfridges. They may hold a much less pessimistic view.

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Shoes, that’s interesting. It’s one of the booming industries for internal consumption in China. The Chinese shoes, once super cheap and sold at every corner in China Towns around the world, is now shifting from being an export good to a fine product for local consumers, who are getting pickier than ever. The pace of change encompasses manufacturing and design functions as well, because after years of Western shoe companies coming around and setting up sweatshops in southern China, the locals have smarten up and stole all the tricks(and bought the machinery) of the trade. Wanna see an example? Just go on Taobao.

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