Piketty, Mao and Wine

 

Today from Bloomberg Business "Hong Kong executive makes $22B and this week loses most of it."

So what is Goldin Financial really worth? In his capacious Hong Kong office, furnished with generous touches of faux Louis XV marble and gold, Pan pauses from a game of solitaire and explains.

“It is important to understand the business behind it,” he says. First, the Hong Kong office tower will start generating cash next year, he says. Second, Pan has notified the stock exchange about plans to inject two massive wine storage facilities located in free trade zones of Tianjin and Guangzhou into the company, whose inventories will steadily increase in value as bottles in the cellars age.

“Goldin Financial wants to be the king of the wine business,” he says.

Third, is a factoring arm, which involves buying receivables from manufacturers at a discount. The business, which Pan describes as low risk and low return, will put the firm “into a different playing field,” he says, once it obtains a license to operate in Shanghai’s free-trade zone.

What's that? Wine ? Storage facilities? I'm  listening.

The anger and trepidation that attach themselves to the US expansion like Remora pale in comparison to the realities of the Chinese credit super cycle. Every day, I negotiate sales of library wine to Asian customers. The stock of late-80s to mid-90s vintages is being hoarded up like copper several years ago. The Government has opened up some licencing in the free trade zones for distribution and  wine shops. Wealthy (on paper) Chinese come to the valley to "Make business with" people like me.

The concept is simple: They want me (and other wine producers) to sell them moderate quantities at significant discount so they can ship it back to themselves and mark it back up. I have come to two understandings from the process:

1. The distrust of  government induced wealth creation runs very deep. The objective is to convert Renminbi into anything else as rapidly as it is acquired.

2. After a generation of Communist price controls the concept of "market price discovery" does not yet exist in "modern" China. (Amazingly, discussing this topic with a younger employee last week, the Millenial admitted he had never heard of "The Little Red Book or Mao !" [ #GIK its available on Amazon] Price is "discovered" in accordance with unspoken deals avoiding tax and government officials. Often, customers demanding deeper discounts bolster their terms with, "I pay cash." An homage to the grey market economy they know as capitalism.

The Bloomberg article is a keeper. This individual's massive wealth swing is not the story. The story is a nation creating a credit induced wealth gap of Grand Canyon proportion. The off-loading of the US credit super-cycle to the East will have far darker consequence than the much feared US Government debt "problem." The Piketty Moment will erupt - someday - over there. Until then? Sure, i make business with you, and I don't care how you pay, the tax is on top!

 

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