China’s Rich Are Different: They Don’t Buy Superyachts

(Bloomberg Businessweek) -- There’s a method to selling a superyacht, and for Hong Kong boat broker Eric Noyel, it hasn’t been working. At least not with the Chinese.

You start, of course, with a very big boat. It doesn’t have to be the yacht you’re trying to unload. One evening in January, Noyel uses a 79-foot vessel he partly owns to wow would-be buyers. Then, like he did, you line up a few deep-pocketed prospects, including, in this case, the handler of the rare Chinese-born mogul who already owns a yacht and is said to be in the market for something bigger. Finally, you pile on the extravagances. Noyel’s team at Asia Marine Yacht Services Ltd. recruited a harpist to pluck gentle melodies during a seven-course meal prepared by an onboard chef, along with a French sommelier to suggest wine pairings. But the night didn’t end in a sale.

Finding takers for even a modest-size superyacht has proved almost impossible in China. There are only three known Chinese owners of the top 200 biggest yachts tracked by publisher Boat International Media Ltd. China has minted more billionaires in the past decade than any other country, and they know how to spend as well as any Russian oligarch or Silicon Valley startup founder. They’ve bought the private art collections, sports teams, and golf courses expected of the billionaire class. But not big boats. Noyel isn’t even sure if Chinese billionaires know what to do with one. “There are only a few who properly use their boats in Asia to tour globally and autonomously,” he says—in case there was a question about what one is supposed to do with one’s superyacht.

Any yacht that measures at least 24 meters (79 feet) and has a professional crew is considered a superyacht, but that’s modest by the standards of those who dock in Monaco or Capri. Oracle Corp. Chairman Larry Ellison has a basketball court on his 288-foot craft—and a motorboat ready to retrieve balls that bounce overboard. British investor Joe Lewis hangs a $70 million Francis Bacon triptych aboard his 321-foot yacht. Prices can range wildly, from a few million bucks for a smaller used rig to as high as $400 million, the value given to a Russian oligarch’s yacht in a divorce battle.

Less than a decade ago, China’s rich looked poised to join the armada of the 1%. In 2010 a new yacht fair, Hainan Rendez-Vous, started in Sanya, China’s St-Tropez. In 2012 the China Cruise & Yacht Industry Association predicted there would be 100,000 luxury vessels in China by 2020; at the time, there were only 3,000 yachts of any size there. “They were playing golf and buying luxury goods more than they are now,” says Delphine Lignières, chief executive officer of China Rendez-Vous, which runs the boat show in Sanya. “There was this aspiration for this lifestyle of traveling and seeing the world.” But she says China’s yachting ambitions were suppressed as a side effect of an anticorruption campaign.

The yacht merchants failed to foresee the rise of Xi Jinping, who took over as Communist Party general secretary in 2012. He unleashed a sweep against corruption and conspicuous consumption. More than 100,000 party cadres were disciplined, and high-level officials were cut off from luxury hotels and extravagant dinners. It wasn’t a great time for anyone to be seen buying the ultimate toy. State media turned the scenes of opulence posted on social media by yacht show attendees into headlines. Global Times, a subsidiary of Communist Party mouthpiece People’s Daily, wrote about alleged prostitution linked to a few attendees of the yacht fair. “It’s almost a crime to flaunt one’s wealth in such a public way,” the newspaper wrote, noting that 200 million Chinese citizens live in poverty.

Gordon Hui, chairman of Sunseeker Asia Ltd., who’s been selling boats in the region since the early 2000s, says he’s shuttered three dealerships in China since the Rendez-Vous blowup and hasn’t sold a yacht for use in China since 2015. He still sells to mainland customers for delivery outside the country.

Superyachts are nothing if not conspicuous purchases for wealthy Chinese. “If they buy a house in the U.S. or jewelry, nobody knows,” says Fang Yuan, CEO of Heysea Yachts Group Ltd., which operates a shipyard near Zhuhai on China’s southern coast and sells to retail customers. “But if you buy a yacht, you can’t hide that. It’s so big, and it’s there on the water.”

Keeping a yacht in China can be a nightmare for other reasons. The mainland’s coastal metropolises lack repair yards, equipment suppliers, and the rest of the costly support network that private yachts require. Few large marina slips exist, so anyone considering a luxury boat would have to think about docking it in Hong Kong, Singapore, or Phuket, Thailand. Some Chinese owners keep their ships as far away as the Mediterranean.

Since 2015, China has restricted the number of people aboard yachts to 12, including crew, regardless of a boat’s length. Because it takes six people to man even the smallest superyacht, that severely limits the kind of party one can throw. (China also slaps on import duties of 44% and a domestic sales tax of 36.5%.)

And that’s if owners can even round up a competent crew. “In France a boat captain can remove your tooth or extract your appendix,” says Noyel, a Frenchman who made his fortune in Shanghai in manufacturing. “In China, it’s like a bus driver.” The boating culture just isn’t there yet, he says. In the short term, he’s more bullish on Southeast Asia, where politics aren’t as fraught. He has offices in Indonesia, the Philippines, Singapore, Thailand, and Vietnam. Asia Marine teamed up with global yachting company Fraser in Asia last year and sold its first two superyachts under the deal.

The Chinese coastline itself is a tricky place for boating. In the north, runoff from pesticides, chemical fertilizers, and industrial effluents pollutes maritime waters. Qingdao, which hosted the sailing competition at the 2008 Summer Olympics, is also known for an annual green algae invasion. In the south, with its subtropical climate, straying from shore in the heavily patrolled South China Sea can result in an unplanned inspection by uniformed officers. China has been staking its claim to these disputed waters by dredging up gravel and depositing it on coral reefs to create artificial islands, which it then stocks with troops and weapons.

Billionaire He Xiaopeng keeps his 86-footer in Hong Kong. However, he says Xpeng Motors, his electric car startup, leaves him no time to sail. “I just used it once last year,” he says. “My friends use it more than I do.” Still, He says he dreams of trading up to an explorer yacht built for long-distance cruising, like the kind the late Microsoft Corp. co-founder Paul Allen used to hunt for a sunken ship.

His situation isn’t unusual. “Once, a year after delivery, I visited one boat, and they still had the plastic cover on the mattress—so no one slept there for a year! It’s unbelievable,” says Fang, of Heysea Yachts. It turns out that yacht owners in China are more likely to host friends below deck for an afternoon of mao-tai and mahjong, then return to shore by nightfall. Manufacturers are figuring this out. Italian builder Ferretti SpA, which was acquired by Shandong Heavy Industry Group-Weichai Group in 2012, introduced a line of boats called Tai He Ban, where most of the sleeping space is eliminated to make room for banquet tables and air-conditioned karaoke lounges.

One of the few billionaires to take delivery of a superyacht in China is Wang Jianlin, who moored a 95-foot one in a marina his group owned in Qingdao. He ordered it after his company, Dalian Wanda Group, purchased 92% of British boatmaker Sunseeker in 2013. But last year Wang sold the craft and the marina. Chinese conglomerate HNA Group Co., under pressure from China’s government to unwind a debt-fueled acquisition spree, kept a 161-footer available for charters out of Hainan Island. The ship was sold off in January.

At the sales dinner in January, Noyel’s team presides over a debate on the finer details of conspicuous consumption among a Silicon Valley techie, a hedge fund manager, and the handler, who works for a secretive Hong Kong-based magnate. The adviser gives an inventory of his client’s acquisitive habits—60 cars and a few yachts, including one built in the Netherlands. The sommelier fills the glasses.

The next step in Noyel’s playbook is to get potential buyers on a charter cruise, where they can savor the floating life in Monaco or Mykonos. “Within three years things will totally change,” says Shao Huiliang, manager of Pride Mega Yachts, a brand owned by a China International Marine Containers Group Co. unit. Pride recently listed its 290-foot Illusion Plus, the biggest Chinese-made yacht ever. The price: $145 million.

Shao is one of many optimists in China’s yachting scene, with hopes kept alive by the occasional yacht sale, such as the 86-footer that Simpson Marine sold in March, or the promise of new government-backed marina projects in Hainan and Zhuhai. Still, none of those marinas are big enough for the Illusion Plus. And Shao isn’t necessarily counting on a Chinese client. He keeps the ship tied up near Monaco.

To contact the editor responsible for this story: Pat Regnier at pregnier3@bloomberg.net, Aaron Rutkoff

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