Says Reuters: “Under China’s new anti-plastic bag laws, flimsy bags under 0.025 millimeters thick are banned and shopkeepers must charge for carrier bags. Those found breaking the law face fines and could have their goods confiscated.”

I forgot that the ban on free plastic bags had just come into effect. It also appeared to have slipped the mind of the sales girl at the shop I visited yesterday. According to that Reuters article, we were not alone.

Here at China Economic Review, we make every effort to be on top of Shanghai’s dynamic doughnut industry. Well, at least I do.

In fact, we even wrote an article about it that appears in this month’s issue of the magazine. It is, however, available only to subscribers, so for the benefit of China’s doughnut-watching populace, here are some excerpts:

Shanghai could soon be China’s doughnut central. On January 25, Dunkin’ Donuts, the global coffee and donut chain, announced that it would open 11 new stores in the city by the end of 2008. They are to be operated by Mercuries & Associates, which also holds the Dunkin’ franchise in Taiwan. The chain has plans to roll out 100 stores by 2018.

…

Its sole competitor in the doughnut realm will be Mr Donut, operated in Shanghai by Japanese firms Marunjin and Duskin, with six stores in the city.

…

But Mr Donut is not taking Dunkin’s challenge lying down. It plans to open 30 to 50 new stores in and around Shanghai next year.

…

While Dunkin’ and Mr Donut duke it out in Shanghai, the last member of the global doughnut trifecta, Krispy Kreme, is looking to take its heavily-glazed, deep-fried rings to Shenzhen.

“We are negotiating with the franchisor but nothing has materialized yet,” said Jim (Krispy Kreme’s Hong Kong CEO). “Shenzhen is a migrant city, many are from the north, and the people are more receptive to fried products.”

I was spurred to write this post because a colleague had pointed out Shanghaiist’s review of a new doughnut shop in Yu Garden that I had failed to keep informed of. Shanghaiist mentions Dunkin’ Donuts’ mainland expansion plans in its review, and, while I don’t agree with all the points it makes, I hope our article is able to shed some light on Dunkin’ Donuts’ situation, and on Shanghai’s doughnut prospects in general.

On a side note, in the process of researching this story, we also learned that Dunkin’ Donuts and Mr Donut have a long history. Here’s part of the story that didn’t make it into the final version in the magazine:

The two chains have a long, intertwined history. They were both started around the 1950s in New England by two men who were brothers-in-law. William Rosenberg started Dunkin’ Donuts while Harry Winouker created Mr Donut. As time passed and the chains grew, interest in the donut business grew along with it. The companies were bought and split-up by various corporations over the decades.

Dunkin Donuts today operates as a subsidiary of Dunkin’ Brands, which itself is owned by a consortium of private equity heavyweights, including Bain Capital and the Carlyle Group. Mr Donut, meanwhile, also belongs to a corporate owner; Duskin of Osaka, Japan.

We have a corporate brochure from Mr Donut that opens with a large photo of a beaming, mustachioed, Harry Winouker. Could he be the inspiration for Mr Donut’s current logo?

This is the sixth in a series of entries Alfred Romann will post from India in the coming weeks.

Few cities in the world do extremes like Mumbai.

Home to one of the oldest stock exchanges in the world, started by a group of 22 traders under a Banyan tree more than a 150 years ago, Mumbai is a city of high flying finance.

It is also home to the largest urban slum in Asia, the residence of poor migrants and urban dwellers who haven’t yet read the news that India is undergoing an economic boom.

This is not much of a secret. Politicians and businesspeople know the wealth gap is there and they know that closing it will not be easy. Just look at China, where they’ve been working at it for almost 30 years and, despite remarkable progress, it remains an uphill battle.

Mumbai is to Shanghai what Delhi is to Beijing and the similarities between the two pairs are striking.

Both Delhi and Beijing are imposing cities, dusty and generally unwelcoming to the pedestrian. There is green, but it is found in concentrated spots between huge chunks of city. People in both are obsessed with politics.

Mumbai and Shanghai are, on the surface, nicer. They boast trees (well, in parts) and streets that can be walked. Both have cosmopolitan communities, top notch restaurants of every cuisine imaginable and, at least in their architecture, an obvious blend of local and European. (While Shanghai is home to buildings of French, English and Japanese design, the foreign flavor of Mumbai is purely that left behind by the British colonialists.)

The people also come in many varieties. In a single day, it is possible - in fact likely - to meet a fund manager looking to place US$100 million in Asia, a driver hoping to earn 500 rupees for the day (a little more than US$10), a Bollywood star or producer, a Japanese tourist and a street merchant selling juice.

Walk around the semi-circular Bombay Stock Exchange building in downtown Mumbai and the contrasts are even more apparent. Inside, billions are traded every day. Outside, homeless people look for a spot to lie down and sleep covered by old onion sacks.

With some luck and a lot of work, the spread of the world’s second fastest growing economy will reach them soon.

This is the third in a series of entries that Alfred Romann will post from India in the coming weeks.

As India’s middle class grows, it creates new markets for a whole range of consumer goods, from mobile phones to cars.

For manufacturers across the globe, the prospects are bright. After all, there are some 700 million poor people across the country and they are all potential buyers if their incomes grow.

All these people have more pressing problems than when they will buy their first microwave oven but that’s a discussion for another post.

Despite – or maybe because of – widespread poverty, India has incredible opportunities for mass producers like China. Corporations such as Haier are expanding their markets by leaps and bounds powered by growth that is expected to hit close to 10% this year.

However, Haier’s ambitions come up against a deeply-held belief on the streets of Delhi, Mumbai and Hyderabad that Chinese goods are cheap and poorly made.

It is interesting to note what Indians buy as they grow richer.

Market studies by Haier, a successful global supplier of home electronics and white goods, show that the first thing on the shopping list is entertainment, most likely a new or first TV set. Second is a new set of wheels, maybe a scooter. Third, finally, is a refrigerator. Air conditioners are somewhere below, and microwave ovens feature well down the list.

It is an unusual pattern, but one directly linked to one of the biggest challenges facing the country: poor infrastructure. What good is a fridge that only works the few hours a month when the electricity is on?

Better to have a TV and snatch what valuable hours of prime time are available.

A couple of us attended a fascinating and eye-opening talk last night given by Arthur Kroeber of China Economic Quarterly and Paul French of Access Asia.

The seminar, titled “China’s Emerging Middle Class: Miracle or Myth?”, set about deconstructing the numbers published by the Chinese government, as well as the exuberant projections of investment banks, on the size of the “middle class” and the value of the national retail market.

Mr Kroeber made an excellent point when he said that he prefers not to use the term “middle class” when speaking of China, because, as he puts it, “There is no Chinese middle class. It doesn’t exist.” What he means is that the traditional Western idea of a middle-class family, one that might “take the SUV to the mall on Saturday and have dinner at TGI Friday’s,” is a completely unknown entity here. That very family dinner, he points out, would cost the same as the average Chinese family spends on food in an entire month (~US$100).

Instead, Mr Kroeber prefers to divide the citizenry into two categories: “surviving China” and “consuming China”. Out of 1.3 billion people, he contends, about 1.2 billion constitute Surviving China - those who make enough to get by and save for the future, but who, as far as foreign (and to a certain extent, domestic) retailers are concerned, basically don’t count, because they simply don’t have the disposable income to spend at Wal-Mart. The other hundred million or so are well-off enough to spend a bit of discretionary income on fashion items, movie tickets, etc. These are the ones businesses should be focused on selling to.

Overall, both men portrayed the way that the Chinese market is consistently overestimated. Mr French is the author, most recently, of a book on Carl Crow, the original “China hand”, whose own book, 400 Million Customers, exploded the myth of easy fortunes to be made in China back in 1937. Although Mr French did not bring up Carl Crow, those in the audience who know him were certainly making the connection.

RELATED: A shopper’s paradise: Retail industry overview from this month’s CER

Every year at about this time a story pops up in the press cataloging the excesses which newly rich Chinese (usually focusing on Shanghai) indulge in on Valentine’s Day, the holiday fiendishly dreamed up by a secret ruling clique of restaurateurs, florists, greeting card companies and candy magnates (no points for guessing whether I have plans on Wednesday). Here is this year’s edition, which includes the following tidbits:

• One Shanghai banker is buying his sweetheart a RMB40,000 (US$5,100) Cartier watch. “I think it’s a better gift than some 10,000 or 20,000 yuan meal,” he says. (The watch’s price tag is 12 times the average Chinese farmer’s annual earnings, the article adds helpfully.)
• The Shanghai JW Marriott is offering a Valentine’s Day package, which includes a night in one of its poshest suites, for a measly RMB28,888 (US$3,722).
• A US$1,000 wine-and-dine package, including limousine, a romantic dinner, a personal butler and a private concert.

All of which sounds pretty tame, really, considering the sorts of findings that were published last year, which included, you may recall, young couples buying each other the precious and lasting gift of plastic surgery. The article even admits that the numbers aren’t really that huge: The Marriott offered a package last year for RMB188,000 (US$24,224), and the US$1,000 package seems rather quaint next to the aforementioned banker’s estimates of what a normal dinner would cost. Are we seeing a downturn in the Shanghai conspicuous consumption market?

Stock markets in Hong Kong and Shanghai are jumping up and down like a kid on a trampoline.

For the last few days, Hong Kong stocks have taken something of a beating, returning to pre-New Year’s Day levels. Mainland stocks, however, were all the rage on Tuesday, led by China Life’s spectacular A-share listing.

During the first day of business after Christmas and again in the New Year, the Hong Kong Stock Exchange climbed more than 400 points while the Hang Seng Index topped the psychological 20,000 barrier.

On Thursday, the Shanghai Stock Exchange jumped up almost 6% and then dove back to close only 1.5% higher. On Friday, the Hang Seng index continued a drop that started Thursday but, as these words were written, seemed to be hanging in just above the 20,000 mark.

The old story about the Rockefeller scion that pulled out of the market after his shoe-shine boy gave him some stock tips is on everybody’s lips.

Taxi drivers and migrant domestic workers in Hong Kong are now investing on margin, borrowing money to buy stocks and get in on oversubscribed IPOs, one market watcher said.

Meanhiwle, analysts repeat time and again that there is too much liquidity. And, time and again, they follow that up with reassurances that fundamentals are still strong and getting stronger.

Yet, price-to-earnings ratios in Chinese insurance companies’ Hong Kong H-shares, typically an investor favorite, are at stratospheric levels. The stocks may be significantly overvalued but they are not the only ones - telecoms are getting up there and the once undervalued Chinese banks are following suit.

“People in Hong Kong have short memories,” said one acquaintance who follows the markets. “They don’t remember what it’s like to be in a crash.”

Many a trader got a nice surprise on January 2 and many a trader cashed in on January 3, causing the Thursday drop in Hong Kong. Friday was underlined by another drop and a slump in the US caused every market in the region to slump with it. Tuesday, however, things seemed to be back to the green across the region, except in Hong Kong, which started out on a high and closed in a low.

Still, the ride is great for now but, sooner or later, something will happen to bring everybody to their senses. New currency regulations in Thailand? A shock in Mumbai? An unexpected decision in Shanghai? God forbid, an earthquake in Tokyo?

Those who can ride the crash or slump will nervously laugh it off.

Investors who look at buying on margin as a sign of manhood will feel the pain as will the much less capitalized taxi drivers and domestic workers who have caught stock fever and are betting everything they have, and some stuff they don’t, on a fickle and often intractable animal.

And now for something completely different. This in from the Shanghai Daily, via the New York Times:

A factory manager in eastern China has been arrested for using grease from swill, sewage, pesticides and recycled industrial oil to make lard for human consumption, the state news media said Monday.

Wow. In case your stomach isn’t churning yet:

“Some was recycled edible grease, such as oil refined from swill and cooked oil,” [SH Daily] said. “Some was grease rendered from sewage, and some was recycled industrial grease.”

Mmmmmmm. Enjoy your weekend.

ACNielsen has just released a new report analyzing consumer attitudes toward buying a car in China.

Among other things, the report dissected the information sources Chinese consumers rely on when purchasing vehicles. Previous ACNielsen studies had shown the internet is a powerful communication tool for auto marketers, with up to 74% of the online population obtaining car news via the internet.

This report builds the picture further: around 45% of potential buyers consider automotive magazines a good source of information, 34% rate recommendations from existing owners, 26% listen to advertising and 22% think attending an auto show is a good way to pick up purchasing tips.

What surprised me, but probably should not have, is that only 16% considered dealers a good source of information (The media release did not provide a comparative figure for the role of dealerships in the car-selling process in other markets, saying only that they played a “major role”).

We are all familiar with the pigeonholing of car salesmen on the lower rungs of polite society, alongside lawyers, politicians and journalists, but taken with a grain of salt the advice of a car salesman, or any other salesman for that matter, is an important part of my purchasing decisions. I am sure that more than 16% of Westerners would agree, at least in their home markets.

According to Philippe Coquelle, Director of Automotive Research, ACNielsen China, dealerships have an opportunity to play a bigger role in bridging the relationship between the car brand and its buyers.

I agree entirely, but I wonder whether consumers are prepared to listen? Is the low ranking of dealerships in China because the dealers are not trying hard enough, or simply a case of the “Xiangyang market factor” at work, whereby the fear of being sold a lemon builds in direct relation to the salesperson’s efforts.