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    Demand for platinum does surge even despite the crisis

    Güven Sak, PhD19 December 2009 - Okunma Sayısı: 1187

     

    According to a recent story in the British Financial Times, the answer for the statement above is quite simple: Because the number of weddings in China rises. Let us see why? If you wonder whether China will grow rapidly or did the crisis come to an end yet, please keep reading.

    As you might remember, around the end of June I wrote a commentary on Referans daily reading China cannot switch from savings to consumption and thus global economy cannot be easily recovered unless the bride shortage comes to an end ( http://www.referansgazetesi.com/haber.aspx?HBR_KOD=125045 ).  As a result of the single-child policy China started to implement in 1970s, ratio of newborn boys to newborn girls rose to 1.20. That is, per a hundred girls, 120 boys were born. This was a result of the cultural desire to conceive baby boys. In the rest of the world where no compulsory birth policy is implemented, the sex ratio was 106 baby boys per 100 baby girls. Therefore, the mentioned rate for Turkey, for instance, was 1.06. Under such circumstances, a bride shortage occurred. To solve this problem, families saved money. In order to pay the bride price (cai li) and buy a better house, families had to start saving right after the boy is born. This was an interesting subject of analysis for both public finance textbooks and contemporary economic analysis. For instance, a quite interesting article by Shang-Jin Wei was published by National Buraeu of Economic Research (http://www.nber.org/papers/w15093). To be honest this was the end of the story for me. But it appears that it is not over yet.

    After these, another story was published in the Financial Times around the end of November. It was a rainy day in London just after I left Moctezuma exhibit in British Museum. Global platinum prices were solid as in China, platinum wedding rings were popular now. Chinese, who traditionally prefer to wear red wedding dresses, now preferred to wear white, the color of funerals. Young brides wanted platinum rings to go with the white gown. Therefore, world platinum demand surged despite the crisis. You say "You gotta be kidding me!" right? This is what I said when I first read the story. But after some search, look what I found.

    In fact, 2009 should not have been a favorable year for word platinum demand. However, the "Platinum 2009" report by Johnson and Mathey did not talk about such a plunge. Platinum started the year at $934. In September, when the report was published, it surged to $1237. Drop in demand for platinum resulting from the plunge in automotive industry was around 33 percent. This fall reached to 45.7 percent for Europe. The contraction in chemicals and electronics industry was around 31.7 percent. Nonetheless, demand of the jewelry sector rose by 79.5 percent 70 percent of which came from China. Wedding industry in China was highly important and was rapidly growing.

    So, do you think why this is important? I do. First, in the United States of America, around 2 million couples wedded per year. In China, however, 11 million weddings were expected to take place this year. In China, there was no regulatory authority for weddings in the past. Now, they have such authority as well as a giant industry. Second, number of weddings rise by 10 percent per year while the spending on weddings rises by 20 percent. Chinese not only save, but also spend well when it comes to weddings of their children. This is what figures suggest.

    Then, we cannot simply rely on the high savings rates seen in the past and conclude at bride shortage right away. We have to look forward, think the age of those young Chinese, and try to estimate when they will wed in order to reach economic results from societal customs. So, we should also examine the population structure of China.

    I guess the question is clear: Why does the wedding industry grow rapidly? Late 1950s and early 1960s signal the newborn boom in China. This resembles the trend in the West. When things go on track, human beings start reproduction. Is not this what they call the basic instinct? As figures prove, both the West and the East of the world seem to be influenced by the same trends. Single child policy is thus implemented in such a climate in the early 1970s.We can consider the youngsters that are to wed now as the first products of the single child policy. The families have saved back then so that their sons can get married. Of course saving is the only option if the credit system is not developed. Children of the newborn boom period are now wedding. As a result, number of weddings booms. This is the first point. Second, as obvious as it is, it is also the time to spend the money saved to wed the boys which were the fruit of the single-child policy. Here, a third conclusion can also be reached. What does the rapid rise in expensive weddings in the midst of the global crisis indicate? Is it the indicator of the perception which reads "We can neither do something nor establish a business.  So let's get married and live down together!" Or does it signal wishful thinking about the future? Given that wedding is not an instantaneous decision, it seems that the current developments in China must be monitored closely.

    Thus, we have a correction to make. Chinese people are currently spending what they had saved as a result of the single-child policy. As the children grew up to a marriageable age, number of weddings has boomed. And this affects, for instance, world's demand for platinum. Thus, the future of the world is secured.

    What is the issue then? The issue is to decide whether this boom in the number of weddings is a result of the fact that nine and infinity are denoted almost in the same way in Chinese or we need to grow hopes about 2010? This is the question of the day.

    The conclusion we must reach in response to the question is also obvious: Entrepreneurship is hard.

    I wish you all a good weekend.

     

    This commentary was published in Referans daily on 19.12.2009

     

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