China Consumer

Gift culture

Chinese New Year offers billion dollar opportunity for pawnbrokers

Gift culture

You have excellent taste, madam

If someone gives you a gift, you should come up with something in return, goes the Chinese proverb. And the tradition of “li shang wang lai”, or reciprocity, was being widely applied during the Lunar New Year last month.

Traditionally gifts come from the older generation at family dinners, typically giving money to youngerrelatives. Usually it takes the form of cash stuffed into a red envelope (known as hong bao in mainland China, but as lai see in Hong Kong). But when giving to non-family members, the choice of present can vary considerably.

In recent years cigarettes, fine wine and handbags have become increasingly popular. Gold (coins, jewellery and even small bars) is also becoming a gift of choice.

Gold shipments from Hong Kong to China, which analysts use as a proxy for all imports of the precious metal, totalled 102 tonnes in November 2011, a 20% increase from October and a nearly sixfold increase from November 2010. Media reports suggest that much of that was driven by sales to retail customers. Much of that was bought specifically with Lunar New Year gifts in mind.

Inevitably, other presents are bought for business associates or government officials (which is lawful until the gifts being given exceed a certain value).

So what do those in positions of “influence” do when they are given a sackload of cigarettes or a crate of alcohol they don’t want to consume?

Cash them in, says the Economic Observer.

Pawnshops are especially busy during and immediately after the Lunar New Year, as all sorts of the more valuable presents are taken to be exchanged for cash. Pawnbrokers put out signs offering to “Buy cigarettes and alcohol” (two perennial favourites) while more tech-savvy operators have LED screens displaying their latest sale and purchase offers.

Watches and jewellery have also been reaching the pawnshop shelves with increasing regularity. Among all the luxury goods, watches remain the most common item, especially the famous Swiss ones, says Kai Xin, a manager of a pawnshop in Beijing.

According to dealers, Moutai, which soared in price last year, was another popular item to give and then sell (see WiC134). Pawnshop managers say they generally offer 30% below the retail price of the merchandise, depending on the value of the products. Their margins are higher for items like fine wine, where they might offer 50% of the market price depending on the vintage year.

Another pawnshop manager, Xu, who runs a secondary market for ‘unwanted’ gifts in Nanjing, is expecting a busy season. He told Yangtse Evening News that branded goods are the easiest to resell. That’s because unlike expensive tea or jade, they are easier to value.

“Most of my clients are relatives of the gift recipients, and usually are women,” Xu adds, adding that men are often too embarrassed to visit pawnshops (or if they are government officials, perhaps keen not to be seen trading in lots of lavish and hard to explain items).

Another feature of China’s gift-giving culture is that it’s often a one-way street in terms of the immediate exchange of presents. Business gifts particularly are often given in expectation of a future benefit, suggests the Economic Observer. Unlike other parts of the world, the giving of gifts can also be counter-cyclical – the worse the business environment gets, the more the need to maintain an existing relationship or cultivate a new one.

No wonder, perhaps, that statistics released by the China Gift Industry Research Institute suggest that the Chinese spent Rmb505.5 billion ($80 billion) buying gifts last year.

For the pawnbrokers, that means a lot of items waiting to be cashed in.

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