The global economic slowdown is taking its toll in Asia, which has also proved it is not immune to financial scandal. Premier Wen Jiabao of China promised action on jobs, as profits fell on Macau casinos and Louis Vuitton sought to entice wealthy Asian shoppers with unique luxury goods. And in South Korea, four banks were being investigated on charges that they rigged interest rates on CDs.
Reuters reported China’s leader saying Wednesday, “Currently and in the future, China’s employment situation will become more complex and more severe. The task of promoting full employment will be very heavy and we must make greater efforts to achieve it.”
The possibility of job cuts looms as small and midsized exporters face up to falling demand around the world. Fewer exports translate to fewer jobs, and China fears that growing unemployment will lead to social unrest—something Beijing wants to avoid, particularly since it is about to change leadership for the first time in 10 years.
With second-quarter economic growth slowing to 7.6%—barely above the government’s 7.5% target for the whole year—the quarter is the weakest since Q1 2009, when 20 million jobs disappeared in just a few months as the economic crisis took hold.
In his remarks, which came after a Tuesday parliamentary meeting, Wen said, “We need to maintain steady and relatively fast economic growth to help create jobs.” The meeting found that the country’s economic growth is not dependable and that funds must be invested to boost growth even as waste is cut.
Wen directed governmental offices at all levels to put job creation at the top of their priorities in the creation of economic plans. He also said they should create more jobs as urbanization and economic restructuring are carried out.
Even the wealthy in Asia are apparently feeling the pinch as Bloomberg reported that high-stakes gamers cut their losses in Macau casinos. Revenues for June in the “Monte Carlo of the Orient” came in at 12%, according to the Gaming Inspection and Coordination Bureau, lower than the 15% predicted in an analyst survey.
That, combined with lower revenues in Nevada, caused Steve Wynn’s Wynn Resorts to miss analyst estimates for Q2 results. In a Tuesday conference call, Wynn said that casino operators have boosted discounts against slower growth in the Chinese gambling market. He was quoted saying, “Competition has made everyone sharpen their knives.”
Other businesses are also “sharpening their knives” to woo the increasingly sophisticated wealthy in Asia. Reuters reported Wednesday that luxury handbag label Louis Vuitton, a brand of Moet Hennesy Louis Vuitton (LVMH), is opening a maison in Shanghai on Saturday—a shop that, while it will be the brand’s largest China store, will also be exclusive. The store will have an invitation-only private floor for top spenders and offer one-of-a-kind and custom designs in everything from shoes and handbags to carrying cases for tea and mah-jongg sets. Only last month Louis Vuitton was derided in another report as being outgrown by the Chinese luxury market, which is seen as making the transition from aspirational luxury to absolute luxury—a distinction requiring more discernment.
“In the past, it was just a checklist,” Vincent Liu said in the report. Liu, partner at Boston Consulting Group, explained, “If you were one of the top five brands out of some magazine, you found that people in China just checked the checklist and bought according to the list. Going forward, people will be more selective. They know what and where and when to use what brands and products.”
Shaun Rein, managing director of China Market Research Group, was quoted saying, “The truly wealthy, the real millionaires, they will not want to buy LV Louis Vuitton or Gucci because they are too commonplace. Rich people are getting richer and they want exclusiveness and more self-indulgence.”
Vuitton’s timing may be off. Spending on luxuries, aspirational or absolute, is not as robust as it has been with the slowing of the Chinese economy. Even iconic Burberry said last week that its sales were down because of weakness in China.
Economic woes are not the only thing Asia is sharing with the rest of the world. Financial scandals are apparently becoming more common as well. Reuters reported Wednesday that South Korea’s Fair Trade Commission (FTC) was conducting inspections of the country’s top four local commercial banks for suspected collusion in rate setting on three-month CDs.
Kookmin Bank, Woori Bank, Shinhan Bank and Hana Bank are suspected of conspiring to rig the rates, even though CDs are being phased out as benchmarks for loans linked to them.
In a report, Taurus Investment analyst Andy Lee was quoted saying, “If the investigation finds collusion, there will be significant fines. Even if there was no collusion, it’s highly likely that the government’s motive behind the investigation is to lower household lending rates by inducing a fall in CD rates.”
Seoul analysts have said that the investigation is aimed at local banks and the interest rates on loans to households that are heavily leveraged. The rates in question are used in many different types of transactions, such as home equity loans, and analysts said that the rates have not reflected recent market rate declines; this has helped lenders’ bottom lines.