Curious Capitalist

Why They Build Mega Yachts in Central China — an Economic Mystery Story

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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.

24 comments
TomInShanghai
TomInShanghai

He's right about the Chinese, they believe foreign is always better than domestic.  Pretty much the opposite of Japan which despises anything foreign....

Beersheva
Beersheva

Why they build mega yachts in Central China? Greed.

RichLazzara
RichLazzara

Interesting comments.  The Chinese are not producing many/any yachts in comparison to total volume.  Dozens of start up "companies" have attempted to start the production in China with grand promises.  It doesnt work and perhaps it will never work 

1. Quality is sub par

2. Stigma of Built in China is hard to overcome 

3. Actual cost advantages aren't as great as initially perceived. May cost lest per hour for labor but it takes much longer to produce same thing as more experienced builders

Also as for the comment on Lloyds being there to certify quality, thats not what they do. They certify certain building parameters are met. Speaks nothing to quality.  Example would be a $12,000 KIA and a $120,000 BMW are both certified by the Government as crash worthy.  However based on that alone no one would therefore deduce that they are the same quality cars. 

Keep the faith, yacht manufacturing in the USA is still alive and only getting stronger. 

tuula.salonen
tuula.salonen

@RichLazzara Both KIA and BMW do serve their purpose though - you would not want, or be able to even, buy and operate a car not certified to be roadworthy. 

szhazlett
szhazlett like.author.displayName 1 Like

I could never buy a yacht built by workers paid a slave wage.   

LuwianMemories
LuwianMemories

@szhazlett 

So-called "living wage" is different country by country, and even region by region within large countries such as China or US. Also, the people they are employing will be doing highly skilled labor - they even mentioned hiring college graduates. Thus, unless assembly line workers in coastal factories, these people will be paid a much higher wage.

xlene10
xlene10 like.author.displayName 1 Like

The article is saying that an AMERICAN company DYNASTY is contributing to the local economy (of another country) by training a workforce that will eventually be able to deploy those higher-end skills across many industries. Good job Governor Scott, in a country where we build and have the biggest and best carriers and battleships built and maintained by AMERICANS. WHY NOT TRAIN US KEEP THE JOBS HERE. PEOPLE TIME TO BOYCOTT DYNASTY AND ALL IT'S BUSINESS.......


 

traderjim7
traderjim7 like.author.displayName like.author.displayName 2 Like

You say that we have the biggest and best carriers and battleships built and maintained by Americans.  Don't speak too soon.  The Pentagon just ordered a bunch of helicopters for the US military that will be made in Russia by Russian companies.There is a big Boeing helicopter plant just outside Philadelphia.  I don't know why they can't be made there.  You have more people than just Governor Scott to be mad at.

Mike_H
Mike_H like.author.displayName 1 Like

Good, now the super rich can get sick from all the same crap that they pawn on us.

LuwianMemories
LuwianMemories

@Mike_H

They have Lloyd Register in Wuhan right next to the plant to certify the quality of their products.

slowstarter
slowstarter like.author.displayName 1 Like

That's all well and good, but if I had the money for a mega yacht I sure as hell wouldn't pony up for one made in China. Does it come complete with lead based paint? Having said that, they're probably aiming primarily for the domestic Chinese market.

LuwianMemories
LuwianMemories

@slowstarter 

Did you read the article? The person they interviewed said that these products are much easier to sell to Westerners than Chinese because the Chinese want foreign made products since they value them more. As a result, all of their clients so far have been Westerners. Also, they have Lloyd Register in Wuhan right near the plant to certify the quality of their products.

ockmed
ockmed

Ummm...the USA, why didn't they look at the USA to make their big boats?  The article says the chinese have never made mega-yachts, can't use that as an excuse.  Can't say we never made them here before.  Why does our nation get overlooked by our own manufactures?

HarlonKatz
HarlonKatz

@ockmed For this type of job, probably because China does not have unions. 

postingonline42
postingonline42 like.author.displayName 1 Like

@ockmed it says so right here: "workers whose hourly rates are a fraction of those in Europe and lower even than those in China’s more developed coastal areas." 

Remember this next time they talk about raising the minimum wage again.

traderjim7
traderjim7 like.author.displayName 1 Like

The minimum wage has nothing to do with it.  If they were made in a first world country, they would not be employing the skilled craftsmen needed to construct such vessels for anything near minimum wage.  The industrialized countries cannot compete with workers who can live on a bowl of rice and a dollar or two a day.

mrxcol
mrxcol

@traderjim7 Actually they don't work for "bowls of rice": it's a simple as that China has a much lower cost of living.  With $1000 a month you can live as rich (in some towns). Maybe they don't make enough to travel the world an pay in USD but they have enough to live very well in their own country.

HazeAndDrizzle
HazeAndDrizzle like.author.displayName like.author.displayName like.author.displayName 3 Like

We are assigning ourselves to the dust bin of history.

duduong
duduong like.author.displayName like.author.displayName like.author.displayName like.author.displayName 4 Like

Chinese labor is by far not the cheapest. Vietnam, Indonesia, India, Bangladesh or most of Africa can all be cheaper by large multiples.

Chinese labor advantage is in offering the best value. Their workers are just as productive and skilled as many in the rich countries, and Chinese infrastructure is world-class as well. It is the combination of high productivity, low cost, good infrastructure and little corruption that lures foreign business to set up shops.

bobsim142
bobsim142

@duduong You are correct. Is that a reason to move all manufacturing abroad and kill you own manufacturing base. In so doing killing it's economy, its middle class and creating the next super power ie China. The big criticism of American foreign policy is that they always operate in their own self interest wether legal or illegal. One would think that Western leaders would be smart enough to realize that allowing international corporations to operate unfettered globally while they decimate western economies would rate above invading Iraq for more unnecessary oil. As an example, if GE decided to move to Idaho because they could pay $5 a day, no environment laws, 6 day 11 hour workweeks, there would be  an outcry. But when they do exactly that in China, all is OK. America worships at the altar of pure capitalism which only benefits the 1% mega-rich corps. Western countries used to be exactly like China with child labor and no rights for workers. After 100 years of painstakingly reducing working hours, increasing pay, outlawing many nasty practises, the richest middle class in history was created. Enter China and the American global corps had finally found a way around those pesky regulations.