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A new dawn: Inside China's rising superyacht market

A new dawn: Inside China's rising superyacht market

China emerged as the great new hope for superyachting after the 2008 crash. One spectacular false dawn later, could it finally be taking off?

If 1421 was the zenith of China’s long yachting history, when legendary eunuch admiral Zheng He purportedly led his “treasure fleet” of hundreds of junks around the world (in the process, according to one historical account, discovering America 70 years before Columbus), 2013 could be considered the nadir. For that was when President Xi Jinping – only months into office – began a crackdown on “tigers and flies”, a euphemism for those government officials and businessmen (the genres blur in China) whose greed and corruption had begun to stir public anger.

Part of his anti-corruption crusade was an eye-watering 44 per cent import tax on luxury goods and a clampdown on lavish hospitalities and personal spending. Ostentatious symbols of wealth – fast cars, lavish banquets, his-and-hers diamond-studded Rolexes, Learjet jaunts, $20,000 gift-wrapped bottles of Rémy Martin and 50-year-old Moutai rice wine, and, of course, superyachts – became highly conspicuous and drew the wrath of the Communist Party’s Central Commission for Discipline Inspection.

“We must uphold the fighting of tigers and flies at the same time, resolutely investigating law-breaking cases of leading officials and also earnestly resolving the unhealthy tendencies and corruption problems which happen all around people,” Xi said at the time. Dozens have been investigated, arrested and jailed, including top ministers – so many the Qincheng maximum security prison in Beijing for disgraced senior Communist Party officials ran out of cells last year, according to credible reports. Orders for status-symbol trappings dropped off a cliff; Western luxury retailers and manufacturers saw exports nosedive.

The yacht market was especially devastated. It’s far harder to hide a superyacht than a diamond ring or a Porsche, after all. Prior to the crackdown, China’s boating sector had been inching its way towards some kind of momentum after its once illustrious sailing heritage, having been all but erased along with much of the country’s four millennia of history during Chairman Mao Zedong’s Cultural Revolution, was resurrected for the 2008 Beijing Olympics.

A new hope

Then the financial crisis struck the West, and China, with its seemingly armour-plated economy and near-double-digit growth, emerged as the great Eastern hope for leading yacht brands. Into the Chinese market sailed an international fleet of brokers and builders. The 14,500-kilometre coastline, stretching from the Bohai Gulf in the chilly north to the Gulf of Tonkin in the tropical south, was eyed as a prime playground for China’s new billionaire class, which grew to 338 individuals in 2017, according to data company Wealth-X. Estimates put the number of millionaires in the country at more than 1.5 million. China was about to go boating again.

Exhibitions were hastily organised, rendezvous booked and property developers broke ground on scores of prestige marinas, charging top-dollar membership and mooring fees, many starting at ¥1 million (£110,000) a year. Local boatyards followed, laying keels of copied foreign and home-grown designs, some in joint ventures with overseas shipyards, many without.

The image-conscious Chinese super-rich responded in kind and started buying foreign-branded trophy boats at up to three times the market price, and moored them in the expensive marinas. Cost was not an issue. What mattered was so-called “face” or mianzi: the projection, and protection, of one’s reputation and social standing. In the West we call it ego.

A 2012 report by the China Cruise & Yacht Industry Association found that there were 3,000 yachts of all sizes in China, and estimated that this figure would rise to 100,000 by 2020, in a market worth €10 billion. The international boating industry was washed along by this giddy, irrational wave of hyperbole. Across the board, orders for smaller superyachts went from zero – zoom! – skywards.

Local yards benefited. After years of being ignored by the domestic market, in 2010 Chinese yard Heysea received eight orders for its 82 model before it had even finished the mould. A year after the financial crash in the West, meanwhile, China recorded sales of ¥4.15 billion (£450 million), according to local media reports. “After 2008, the yacht market took off because the West’s financial crisis had negligible impact in China,” says Sunseeker Asia’s Gordon Hui from his office in Hong Kong. Jona Kan, from Australian yard SilverYachts, adds that demand suddenly grew for superyacht dayboats on which Chinese businesspeople could entertain clients.

But Icarus had flown too close to the sun. Within a couple of years, the world’s financial woes started to penetrate China’s economic model. Jobs were slashed and inflation was on the rise. Yet for the wealthy Communist Party cadres and their tycoon chums, it was business as usual. The restive masses looked expectantly – and threateningly – to Beijing to bring such conspicuous consumption to heel. President Xi responded with a dragnet that claimed scores of high-profile scalps, sending the message loud and clear: in-your-face luxury would no longer be tolerated.

Brokers’ phones stopped ringing, builders’ order books took a hit and showrooms became wastelands. All of those contacted by Boat International for this article echoed almost verbatim the sentiment expressed by Sunseeker’s Hui: “After more than three years of the anti-graft policy, the Chinese boating market has come to a halt, with a 95 per cent drop-off in sales. It has been all but dead since 2015.”

Sunseeker, bought in 2013 by China’s fourth-richest man, Wang Jianlin, has closed two of its three dealerships in mainland China. At one point, China accounted for 15 per cent of Sunseeker’s global sales. “Now it’s less than five per cent,” says Hui. Several Chinese yacht builders have gone bankrupt as hefty value added tax and duties on imported parts such as engines rendered operations unviable. Marinas have battened down the hatches, slashing their prices by half to avoid the fate of Xiangshan Yacht Club in Fujian province; billed as Asia’s largest marina when it opened, it went bust in 2014.

Yet to solely blame the anti-corruption drive and the global financial crash for China’s slumbering boating market is misguided. Prior to Xi’s clean-up, there had been attempts to build a culture of private boating after the former leader Deng Xiaoping launched economic reforms in 1981. But those attempts failed, says Hong Kong-based yacht broker Mike Simpson, of Simpson Marine, one of the region’s biggest boat dealers. Simpson agreed the import tax on foreign boats has had a near fatal impact, but he says there were already major hurdles to developing the fledgling market. “We have to remember China is relatively new to boating,” says Simpson, who set up his company in Hong Kong in 1983. “It’s been developing in fits and starts. An obvious curb on its development has been the import ban on second-hand boats, which was there before the luxury goods tax.”

He adds: “The last two to three years have been pretty desperate. I don’t think anyone has made money. Everyone’s been spending money just to stay in business in China over the past few years.”

Culture

The lack of a boating culture is also commonly cited as one reason that’s holding back the Chinese market. In the West, yachting is all about relaxing fun in the sun, a weekend jaunt from one marina to a secluded cove or island, or for sailing boat owners, the thrill of stealing an opponent’s wind during a regatta. In China, owning a yacht has been all about the optics, or “face”, and viewed by the public as the exclusive preserve of the ultra-rich. But even among this demographic, interest is limited. According to Wealth-X, just two per cent of all Chinese UHNW individuals own or even have an interest in yachting, compared to 6.7 per cent globally.

“The perception among the Chinese is that boating is for the very wealthy,” says Rocky Wang, chief representative of Burgess in China. “Many Chinese have yet to grasp what boating is all about. Boating culture remains in its very early stages. Yachting is very new to them. Those Chinese who think about buying yachts continue to do so with mainly a business objective in mind. Buyers are business owners, investors and entrepreneurs, who use the yachts as dayboats to entertain, rarely overnighting on board.”

Of the 200 yachts in the southern boom city of Shenzhen, where Deng Xiaoping launched China’s opening up and reforms half a century ago, about 70 per cent never leave the yacht club. Instead, they serve as venues to host wealthy clients and government officials; one pontoon legend has it that some boats were bought without engines because their owners never entertained the idea of going to sea.

In China, building a $30 million marina with a plush clubhouse and spa is the easy part. Not so easy is attracting the essential supplemental services: repair yards and chandlers, navigation aids, charts, a coastguard service willing to assist the stranded sailor, sail training schools and so on. A lack of trained Chinese crew is also a major problem. In China there are an estimated 60,000 sailors, mostly of school age, attending small sailing centres and learning in dinghies. Crews experienced enough to handle a 60-metre-plus seagoing vessel are a rarity. “Chinese yacht owners must, therefore, import foreign crews with the expertise to maintain and sail boats, and this comes with visa application headaches,” says Simpson.

Then there is the maddening red tape. China guards its coastal waters like a hawk; try to sail a nautical mile off Qingdao beach or a cable or two up the coast from Sanya and you’ll have patrol boats stuffed to the gunnels with uniformed boarding parties bearing down on you demanding papers; a day’s sail is treated like an invasion or a desperate escape with state secrets.

“It’s true,” concedes William Ward, CEO of the biannual round-the-world Clipper Race, which during its last edition stopped twice in China, in Sanya in the south and Qingdao in the north. “The government protects the inshore waters as it would an inland military installation. It’s overbearing, there’s too much red tape, and you just don’t need that. You need to be able just to hop on your boat, slip your lines and head out for some safe fun and relaxation, just as we can in the UK, or in the Med and everywhere else,” he says.

Then there’s China’s geography. Part of the appeal of cruising is exploring idyllic archipelagos or mooring off a chic seaside town. Only in the south, around the island of Hainan, can you find good cruising with accommodating marinas. Even then, as Ward recently experienced, just heading out for a day’s jaunt demands official clearance to slip your lines, which may or may not be granted.

Little wonder those Chinese who own a superyacht, or are still in the market for one, seek to moor their pride and joy outside China, in places like Thailand, Malaysia, Singapore and Australia, while the ultra-wealthy look to the US and the Med.

The future

Not for the first time, there might be signs of a new dawn appearing for China’s boating market. In April, the Pride Mega Yachts shipyard in Yantai, China, rolled out the spec-built 88.5 metre superyacht Illusion Plus, which later appeared at the Monaco Yacht Show. She’s now listed for sale, asking $145 million. If she sells well, it will be a sign of faith in Chinese yacht building.

Chinese conglomerates are once more seeking to own international superyacht brands. China Zhongwang, the world’s second-largest producer of industrial aluminium extrusion products, recently acquired a controlling interest in Australia’s SilverYachts, which builds high-speed, fuel-efficient superyachts from high-grade aluminium. The yard’s commercial director, Jona Kan, says the boatbuilder will soon announce the acquisition of a shipyard in the Pearl River Delta.

Sunbird, a Chinese conglomerate with five shipyards including a large commercial facility, added IAG Yachts to its varied portfolio in 2015, and turned out to solid reviews the 42.7 metre King Baby, the largest fibreglass motor yacht ever produced in China.

Heysea Yachts, founded in 2007 and one of China’s largest yacht builders, was a new entry in the Boat InternationalGlobal Order Book’s Top 20 builders in 2018 and holds its place in this year’s report. Chairman Allen Leng says the company is seeing more interest from domestic buyers because it is adapting to local tastes, by placing the galley down below and including more living and entertainment space, with fewer cabins. “There is an increased number of Chinese clients who better understand the culture of boating and the lifestyle it offers; that boat ownership is more than having a floating platform for business and to boost one’s image,” says Leng. “More Chinese customers are accepting that China-made yachts offer quality and the same after-sales service as foreign brands. We’re also noticing a demand for smaller yachts, which shows the link between sailing and sport and leisure, and that boating is not just a rich person’s pursuit.”

Horizon Yachts says its product range, including new projects such as the FD series, are proving popular with Chinese clients, who are becoming more sophisticated in their tastes. “For example, a buyer in Shanghai or in Sanya will moor their yacht in a yacht club and let the club manage it. In the past five years, we have delivered a 120ft [36.5 metre] superyacht and 145ft [44.2 metre] superyacht, both to clients in Shanghai,” says Horizon Yachts’ chief marketing officer, Lily Li.

Simpson Marine’s Mike Simpson estimates that around 50 per cent of yachts being bought in China are now locally built. “The standard is improving,” he says. “Sometimes you have to do a double-take when you see yachts coming: you think it’s a well-known foreign brand. Then you look again and it’s actually a locally made boat.”

Sunseeker’s Hui also expresses modest optimism. “I think the market overall is getting better, albeit slowly,” he concedes. “I can say 70 per cent of our 2015 to 2018 customers are mainland Chinese with overseas-listed companies. But their boats are all outside China.”

Grassroots sailing and crew training recently received a much-needed boost. In April, the UK’s then deputy ambassador to China, Martyn Roper, and the president of the Chinese Yachting Association, Qu Chun, signed deals to open three training centres to bring Chinese seamanship up to British standards. The centres will offer the UK’s Royal Yachting Association courses. In the UK, seven per cent of the population goes boating. If the same percentage could be replicated in China, that would mean 80 million people taking confidently to the water.

Simpson says a new initiative called the Greater Bay Area development scheme is seeking to unify nine mainland coastal cities to allow yachts licensed in Hong Kong and Macau to cruise in the good southern cruising areas around Hainan without paying a hefty tax. And there is quiet and determined diplomacy afoot calling for Beijing to relax and standardise coastal regulations. Ward, the Clipper Race CEO, says he has been speaking to officials at city and provincial levels who understand the benefits of rationalising China’s sailing industry and its associated tourist trade. “I have spoken with many officials and they get this point. They understand the [stifling red tape] situation, and they’re passing these concerns up to Beijing, that leisure sailing is a different culture and is good for local and regional business,” he says.

There are signs of a cultural shift, too. At the 2018 Shanghai Boat Show, many of the exhibitors were proposing something different – more accessible yachting, with small fishing boats and cruisers standing cheek by jowl with the bigger craft, says Delphine Lignières, co-founder of the Hainan Rendez-Vous. “Contrary to myth, many Chinese enjoy watersports, including sailing and fishing. What I have seen now is more and more people boating on inland freshwater lakes in smaller-sized boats.

“That’s where I see the market developing this time, with smaller recreational boats being bought for use on lakes, rivers and estuaries. This will help establish a boating culture, and over time, the boats will again get bigger and bigger. And not in such a conspicuous way.”

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