This article is the second in Foroohar’s series on Chinese business developments and their effects on the global economy; find the rest of the series here.
It’s tough to feel sorry for billionaires. But even they have taken a hit over the past five years, or so says Brad Bean, the managing director of Dynasty Yachts in Wuhan, China, which is a division of the Miami-based Megayacht Group. Bean is a 35-year veteran of the yacht business, with a specialty in mega yachts — sea monsters that range in length from 50 to 120 m. With the rise in global wealth over the past two decades, the number of mega yachts, which start at about $50 million and top out at around $250 million, has been growing — as have the prices and backlog.
“The order books of traditional yachtmakers in Germany, Italy and the Netherlands are filled for the next several years, and demand means the costs have just become too high,” says Bean. “And so our customers — many of whom have also become somewhat more price-conscious since the financial crisis — started coming to us and asking us to find new building areas.”
Solution: yachts made in China. “It wasn’t the first place we thought of,” says Bean, who is used to people raising an eyebrow at the thought of what may be the world’s most expensive luxury good being manufactured in a country still better known for light fixtures and component electronic parts. Indeed, he looked at setting up production in Poland, Turkey, Russia and a number of other countries before finally settling on Wuhan, a city of 10 million in central China. The inland city, which sits on the Yangtze River, had the advantage of a port that wasn’t vulnerable to tsunamis and workers whose hourly rates are a fraction of those in Europe and lower even than those in China’s more developed coastal areas.
No matter that they’d never built big boats there before. Bean brought in consultants from companies in Europe to manage and train the local labor, and has convinced Lloyd’s Register, which sets international yachtmaking standards, to open a Wuhan office to monitor Dynasty’s new construction and give the Chinese-made boats an international quality seal of approval. “Until we convince people that our boats are just as good as those made in Europe, we have to work harder, and be better,” says Bean.
Of course, even if Dynasty meets quality standards, it has to overcome the notion that there’s something, well, down-market about a mega yacht made in China. Ironically, that may be easier to do in Western markets than in the Chinese home market. There are now more billionaires in Asia than in Europe, according to a Merrill Lynch–Capgemini wealth survey. But there’s a shortage of marinas in mainland China, and, more important, the Chinese still look to the West as the arbiter of luxury taste — superwealthy Chinese are much more likely to want their boat built in Italy than Wuhan.
Bargain-hunting Westerners are an easier sell. “You’d be surprised how exacting billionaires are about price,” says Bean. “Many of them have multiple boats, which they dock in different harbors to use in different seasons. They might want their first yacht to be European, but not mind the second or third being from China,” says Bean, who recently made his first sale to a European and is in the design stage with several other Western clients. “Even in the yacht market, people are looking for value.”
But it’s the Chinese government that may be getting the most value from the new venture. The key economic goal of the ruling party right now is to push China’s economy upmarket — that means encouraging more private businesses in high-end manufacturing and services. No wonder China Exim Bank, a state-owned financial institution chartered to implement state policies in investment and trade, is offering Bean’s clients low-interest loans to encourage business in Wuhan. Students from Wuhan University’s maritime-engineering program are prime hires for Bean, who then trains them to international standards. Meanwhile, the European consultants brought in by Dynasty are teaching low-end-manufacturing workers specialty wood-, metal- and leather-tooling skills. The understanding is that Dynasty is contributing to the local economy by training a workforce that will eventually be able to deploy those higher-end skills across many industries. Even in the yacht industry itself, the potential employer base is growing. Chinese companies recently purchased two Western yachtmakers — Italy’s Ferretti and U.K.-based Sunseeker — a telling example of how luxury consumption, investment and production are moving East.