January 28, 2004

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One big advantage of living in Hong Kong compared to Australia is The Economist magazine arrives on a Friday, rather than a Monday. Despite it's name it's actually a darn fine current-affairs magazine. So when Chinese New Year meant my delivery was delayed until Monday, I was not happy.

Nevertheless an interesting article about something close to my heart in this week's edition: fake watches. I'm not sure if the link works without subscription so I've reproduced the article in the extended entry.

The main gist is something interesting about China - despite the proliferation of fake everything there is huge demand for the "real" thing. Quality is an issue but is not as great as you imagine. Let's stick with the article's example of watches. At the end of the day a watch's main function is to tell the time. They are also fashion items, an indicator of wealth. The fakes manage to do their job well - they tell the time and look pretty close (sometimes scarily close) to the real thing.

I've had many compliments on my watch and jokes about how much I'm overpaid (hang on, maybe they weren't joking). But it seems the overwhelming desire of most people is to buy the real thing as soon as they can. Hong Kong is the home of conspicious consumption. Telling people what you paid and where you bought it is more important than the item itself. The more ostentatious the display of wealth the better. Cars, watches, clothes. Poeple spend a fortune on these, even though they are (sometimes) prepared to live in tiny flats.

But somewhere in the back of my mind is the moral dimension. Fakes are effectively a form of stealing. The original creator goes through the effort and expense of designing, manufacturing, marketing and selling the product only to have it ripped off in a matter of weeks and selling at a fraction of the price. There are rationalisations - just look at the fuss over "free" music over Napster, Kazaa and the like. These fakes may stimulate demand for the real thing. People who buy the fakes may never buy the real thing. But let's face it, just like taking songs for free of the net or fake DVDs, these fake watches are just wrong.

But gee it looks nice of my wrist.

SELLING genuine watches in China might sound like a tough challenge. The country is one of the biggest and best producers of fakes, including reproductions of expensive foreign watches that sell for a tiny fraction of the price of the real thing.

Given China's awful record on the protection of intellectual-property rights, you might expect foreign luxury brands to stay well away. Yet Swiss exports of watches to China are growing fast, to nearly $150m last year. Last week, Omega, part of Switzerland's Swatch Group, opened its first “flagship store” in downtown Beijing.

A few kilometres east of the luxury hotel in the city centre where the Omega shop is located, hawkers in Beijing's famous Silk Alley display trays crammed with fake watches. A man's Speedmaster Broad Arrow, a type that costs more than 100,000 yuan ($12,000) at the new Omega shop, goes for less than $80 in fake form. Yet Kevin Rollenhagen, the head of Omega's operations in mainland China and Hong Kong, says he does not believe Chinese are natural consumers of fake products “if they can afford the real thing.”

Statistics and anecdotal evidence suggest that he may be right, at least when it comes to expensive watches. While many Chinese do buy fakes, they are generally not among Omega's target customers—the very rich. One of the most telling signs of Chinese demand for the genuine article can be found in Hong Kong, where Omega officials say that some 50% of sales are to visitors from the Chinese mainland. As Omega watches cost more than $1,000, those buyers must be members of a wealthy elite who still think the watches display their owner's status, despite the prevalence of replicas.

Omega opened its first mainland store not in one of the booming coastal cities but in Shenyang, capital of Liaoning Province in the decaying industrial north-east. The region may be struggling, but there is still money around, much of it in the hands of officials. One of the region's biggest corruption cases involved Shenyang's then mayor, Mu Suixin, who was noticed by a Hong Kong reporter wearing an expensive imported watch that was far beyond what he should have been able to afford on a mayor's salary. Investigators reportedly found more than 150 genuine Rolexes stashed away at Mr Mu's home.

Mr Rollenhagen says that Omega's sales in China are growing by about 15% a year. The country is among the ten biggest markets for the brand. True, the rate of growth is “slowing down a bit” as China lowers import barriers (easing the entry of rival brands and other luxury goods) and urban Chinese spend more on formerly state-provided necessities such as healthcare and housing. National pride stopped Omega winning rights to be the official watch of China's first spaceman, who orbited the earth last year. That honour went to a Chinese brand, Fiyta. As for fakes, there is no sign yet that the pirates in Silk Alley are running out of time.

posted by Simon on 01.28.04 at 11:45 AM in the


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Fake Watches
Excerpt: Simon beat me to this one because I still haven't had time to read this week's Economist - that's the problem when it arrives on a Monday and you have to work for a living. He has noticed this story
Weblog: OrdinaryGweilo.com
Tracked: January 29, 2004 09:52 PM


The article is available to non-subscribers - there's a symbol that identifies articles that aren't.

I disagree with your conclusion, and I'll be following up on this when I have the time. I think I need to get a job in a bank so that I can spend more time on my blog.

posted by: Chris on 01.28.04 at 11:15 PM [permalink]

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