2009 Investment in China's real estate as much as than the rest of the world combined?

[nicmakaveli]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

oh,, and of course, people aren't insured here against this sort of event, they usually hire the mob to collect debt.
Even some of the most official companies do that.
Thought it's an interesting fact, given the earlier phrasing.

[GRG55]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Hopefully some will still be able to get out with their assets when the collapse appears imminent; hopefully the borders will stay open and the government won't devalue the currency hugely like they did between 1981 and 1993 (six times).

I've done a bunch of work in Hong Kong. A Chinese friend of mine there said he was in Beijing recently and couldn't believe how many giant wads of cash were floating around. He suspected that it was from illegal activities; my guess is that it was from lots of new debt. He said most Chinese don't like debt--but if you look at the stats, even the distorted ones provided by the Chinese banks and government, they tell a much different story. The country is swimming in debt; the rate of increase in bank lending went up by 2.5X in 2008 alone.

Interesting economy in China.

People buy flats and don't live in them.
They buy cars and don't drive them.
They build skyscrapers and don't rent them out.
They build giant shopping malls that are almost completely unoccupied (such as the South China Mall).
They even build entire cities (like Ordos) that aren't occupied.

Those activities are actually destroying wealth, not building it.

Also, government debt isn't reported, to keep the illusion of the government's hoard of cash alive:

$680B liabilities of local governments at the end of 2008
$350B of new loans in 2009 financed public infrastructure projects guaranteed by local governments
$260B in bonds and guarantees left over from the bank bailout in 2003
$400B in debt guarantees for the big three banks

That's $1.7T total debt, which is on a par with Western countries relative to GDP.

On top of that, GDP growth figures are consistently inflated. Building a skyscraper adds to GDP, even if it remains empty. Yet the associated depreciation costs are not subtracted from GDP. The building continues, though, due to both government dictates (they can force banks to lend) and the huge amount of corruption at all levels.

The country is swimming in overcapacity. They overbuilt based on what ended up being false demand as a result of loose money and excessive debt in the US, and haven't adjusted yet to the reality of the situation.

The recent stimulus package was 14% of GDP -- obviously that level of stimulus can't be repeated too many times without significantly damaging the economy.

Like all bubbles, it strikes me as a game of musical chairs. Some will do well; others will lose their shirts. In fact, I think China may be the biggest bubble of all: with the rampant corruption, random violence, lack of individual rights, etc, it reminds me of what a country would look like if it was run by the mob.

Yep, sure sounds like a bubble doesn't it.

Usually wads of cash means the govt printing presses are running overtime and inflation policies have become just a little "too successful" [I'd bet that most of those rolled up notes are new].

The desire to convert that cash into something, anything...even another unneeded car that gets parked instead of driven...suggests a certain lack of confidence in the future purchasing power of the currency and the government behind it. A few years back a friend of mine told me a story about his Argentine business associate. Correctly anticipating the busting of the peso peg against the US Dollar, among other things he purchased a number of brand new BMWs and moved them into storage at the rural family farm. After the devaluation of the peso, when imported goods were difficult to find, he sold them, thus preserving most of his purchasing power.

Are some Chinese acting on the same expectation, or is it really just a case of too many people with too much money not knowing what to do with it?

[nicmakaveli]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

yep, bubble for sure, bursting though?

I have the utmost respect for what most of the people I call friends here did, most of them from poor rural areas, and just starting out with a a few hundred bucks some years ago.
But I wouldn't give any of them the foresight your friend has, most of these people don't have any education at all and it seems very far stretched that they would be this shrewed.

I would go with the too much cash on hand and starting to enjoy some of their success theory.

[touchring]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Everybody in Shanghai, from small to big, always has one thing on their mind.
Hustle.
It's a whole culture thing. And I'm always surprised how fast they can save up new money again, it's a whole different system with half of the city being enterpreneurs.

This is because there is stability, do you have any friends doing business Urumqi? How's business over there? How's Lhasa?

[bill]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

I'm in Shanghai, i'm in the local on the ground kind of business, we hang around lot's officials, and we did a lot of flipping here.

I actually disagree with one thing, but i'm quite ignorant and don't have any formal education, so please be gentle.

I think china, is way freer in terms of business than it might seem to the outside world.
You can do anything, and that needs the right connections, but you can get to them, you just have to be willing to accept the system and flow with it.

That's not really just RE, it's in all business, and I find it easier.
I grew up in europe, and back home is just way to much regulations and forms you have to go through to set up.
In china, you find a guy, who knows a guy, whos married to the sister of a girl who is the daughter in law to the official you need to talk to and your set.
More or less.

Guanxi and greasing gov. officials. I call it the Asian Machine and for a western very nerve racking.
I thought you might find this interesting.

http://www.cbrc.gov.cn/english/info/news/index.jsp

http://www.ft.com/cms/s/0/c6ed2e24-2...44feabdc0.html

Mismanaging China’s rural exodus

By David Pilling
Published: March 10 2010 22:21 | Last updated: March 10 2010 22:21


If Han Jun is right, over the next three decades a population the combined size of Germany, France, Britain, Italy, South Korea, South Africa, Spain, Poland and Canada will up sticks and move to China’s swelling cities. Mr Han, a rural expert at Beijing’s Development Research Centre, reckons that by 2040, the number of people in China’s countryside will have shrunk by 500m to just 400m. On that assumption, China’s city-dwellers would rise to well over 1bn, catapulting the urban population from 45 per cent of the total to around 70 per cent.
The startling numbers conjure up images of mass migrations and the trebling or quadrupling in size of big cities such as Beijing, Shanghai and Guangzhou. In practice, it is unlikely to be quite like that. China, after all, is a planned economy. Even so, McKinsey Global Institute, which has researched China’s urbanisation trends, paints one scenario under which, by 2025, the country will have 15 super-cities with an average population of 25m people each. Meanwhile, many cities will “move” to the countryside as the state frantically constructs new urban centres in the interior and as changing land use blurs the distinction between village and town.
This is not futurism. By some counts, China already has some 170 cities with a population above 1m. That compares with nine in the US and two in the UK. In population terms, Tianjin is China’s New York and Qingdao its Los Angeles.
The emergence of second and third-tier Chinese cities with big populations has businesses salivating at the prospects of a consumer bonanza. A steady stream of urbanites could indeed become tomorrow’s purchasers of kitchen appliances, insurance and cars. City authorities will need mass-transit systems, power grids and telecoms equipment. Chinese urbanisation could, as McKinsey says, be the biggest business opportunity of the next several decades.
There is a hitch. Not only will planners need to build the physical infrastructure to accommodate this urban groundswell. Harder still, China will have to erect a legal framework. As things stand, of the estimated 200m migrants who have already swapped their hoe for factory aprons or a hard hat, the bulk have no right to permanent residence in the cities. The so-called hukou registration system, instituted by Mao Zedong in the 1950s as a way of limiting internal migration, divides China’s urban population into two castes – privileged official residents and marginalised migrants.
In Beijing alone, according to work carried out at the Beijing Institute of Technology, about half the 460,000 children born over the past threeyears cannot be registered as official residents. China has tens of millions of people living in legal limbo. Designated as rural-dwellers – though they may spend most or all of their time working in the cities – they are denied access to social services, including subsidised housing, income support and education for their children. Yasheng Huang, a China expert at the Massachusetts Institute of Technology, says the system is “inhumane” and economically damaging. Scrapping it, he says, would narrow the rural-urban income gap at a stroke, unleashing the pent-up demand of people too socially vulnerable to spend freely.
China’s leaders have been talking about modifying the system for years. The theme plays into the priorities of the current leadership – Hu Jintao and Wen Jiabao – for whom building a harmonious society has been a constant theme. Hopes for change were recently raised a notch when Mr Wen said on an internet chat forum – imagine inadvertently coming across China’s premier on Chat Roulette – that hukou reform was a priority. More unusually still, 13 newspapers printed a joint editorial complaining in almost revolutionary terms about a system they (quite accurately) denounced for being unconstitutional and placing “invisible fetters” on China’s population. “Bad policies unsuitable to these times enrage the people,” it thundered.
The editorialseems to have gone too far. The piece fell foul of the Communist party’s propaganda department. The editorial has since disappeared from most websites and one of its authors has lost his senior editing position. When Mr Wen addressed the National People’s Congress last week, he disappointed those hoping for bold changes by talking only vaguely about the need for gradual change.
It is not hard to see why Beijing is nervous about moving too quickly. Mishandled, it could trigger a stampede to the richer urban centres. Even if the law were changed to regularise the status of those migrants already living in cities, most local governments lack the money to provide the housing, education and other benefits to which newly designated city-dwellers would become entitled.
An abrupt change could have a revolutionary impact. Revolution is, of course, the last thing Beijing wants. Yet it does want change, not least because rural poverty is potentially just as destabilising. Gradually shifting people to the cities could bring big economic benefits. Indeed, change is being orchestrated at a local level. At least 10 cities, Shenzen and Wuhan among them, have already tinkered with their hukou system. The world’s biggest experiment in urbanisation is unstoppable. It is about time legislation caught up with reality.

[Sharky]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

I'm skeptical about how much longer the urbanization can or will continue.

China has already had about 300M people move from rural areas into the cities, and they are about half-and-half rural and urban now. How many more jobs really exist in the urban areas? What will happen to the stability of the national food supply if rural areas are further depleted?

[nicmakaveli]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Hey Bill, very interesting links indeed, especially the ft article.
there is lot's of different views out there, see extreme case here
http://articles.moneycentral.msn.com...-bankrupt.aspx

I do have lot's of uygur friends, even though, you can call some of them wealthy, most do business locally here in Shanghai, a few do exports.

I have one, however, with a good business who raises cattle in Xinjiang and sells meat here.
Solid, not too bad, but he's not ultra rich either.

China is a big blur to me itself.
But I can speak about Shanghai.
Real estate has been extremely regulated since the beginning of last year.

There are a few rules in place that make it almost impossible to play the speculation game nowadays.
Downpayments are required to be very high, interest rates are through the rough, and the bank will only transfer funds directly to seller after the sale has been made.

Before 2008 sometime, the loans went first into buyers hands, and a lot of it went somewhere else (hgiher sales contracts).

Obviously, there are endless other schemes going around.
But there is also lot's of people to people business going on if you understand what I mean.
A lot of the spent stimulus went around in circles,and most of the actual econommy didn't benefit directly from it.
It's not like the west when a gov project comes around and people bid on it etc.
The contract stays within the circle of government companies.
Much of it is being lend to the governments by foreign banks, I'm sure they cheating them out of it too.

Huaxi above is a different example, those guys aren't nomads, they've been the richest people in the whole area since many years ago.
I doubt there is another place in china like it.
It's like Monaco.
They supply most of shanghai, hangzhou, suzhou etc with milk, eggs and other things.
They're cash rich people and you could probably compare them with a big family of waltons.

[touchring]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

I'm skeptical about how much longer the urbanization can or will continue.

China has already had about 300M people move from rural areas into the cities, and they are about half-and-half rural and urban now. How many more jobs really exist in the urban areas? What will happen to the stability of the national food supply if rural areas are further depleted?

Wages are still very much cheaper in China than in the UK, Germany or the US. For as long as that is the case, jobs will be transferred to China, so I can say, urbanization will continue for much longer.

Of cos, discounting the possibility that the US and EU starts to boycott Chinese imports than urbanization will reverse.

[GRG55]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Ok, I tried to write this differently, but it was a lot of babble.

If the whole thing tanks, and we have a depression and everything will stop, I'll probably leave the country.
But I welcome a small downturn, I love the opportunity they create it's the power of being cash rich. We could live through a few years without changing our lifestyles without having any income.

Chinese people are cash rich, it's really difficult to explain, but especially since last year, a lot have a lot more cash.
They don't buy anymore, they wait, they do this everytime.

And these aren't small fish, there is a lot of people with hundreds of millions, that nobody knows about, because it's all "tax-free".

They've been itching, and they're uneducated, but they understand the general game of china, buy low, sell high.
Everyone who played the cash money game here succesfully knows it's too high right now.
So they wait.
I have a friend, who we helped flip a lot of houses in the last five years come to me and say, man, I have like 7 hundred million in the bank, when the heck is this market going to go down? He didn't buy since summer 08, and they sold like 10 of his places in 09.
He didn't even go to little school, doesn't know how to write, and comes from a hell poor farming family.
But he knows when to keep his hand in the pocket.
There is so many people like this I know, I just picked him out cuz they got the most money.

But there is also so much cash here that never shows up in the reports (well we can't believe them anyway), it's all cash.

I know people who trade steel, go to hongkong, sign a contract and bring several 100k$ back in cash.
Big western companies still bribe manufacturers to put up higher prices on contracts, and shipping bills.
Real estate for profit almost always write a lower purchase price do duck tax, the rest is cash, no loan, just cash, from one hand to the other.
I doubt, any retail, or restaurant in china reports how much they make, they all pay min. tax for sure, they'd be stupid not to.

I don't think any government owned company can fail.
Because government has cash.
If the small companies here fail, they're always people, waiting on the sideline with lot's of cash to scoop up bargains.

It's usually what'll widen the gap between rich and poor, it's the middle class, usually the most educated, chasing the bubbles, the rich sell out.

Oh wow, not a short post,

I'm not arguing with you that this isn't high, as said, I cashed out too, and I'm not going to buy again until stuff comes down, when I see an opportunity, I probably like many others who waited won't need loans or whatever, so credit really doesn't matter, the interest rats are so high, they'd cripple any profit anyway.

And in my circle, I lost out, a lot, because I was always expecting a bubble burst in the beginning.
Now, I know, if you keep enough cash, a downturn won't matter, and because lot's of people keep a lot of cash, an implosion won't happen, at least not in the near term, for now it'll just be, middle class speculated wrong and rich buy again, then it goes around in circle for few years and repeat scenario.

Like china's car numbers.
I see the government as funny enough to actually buy hoards of cars, I would really believe they're ridiculous enough to do it.

But, we heard the argument here too, recently talked about it.
Abroad, you have tax every year, and stuff, for your car. So it makes sense to switch.
There is no tax here, except the purchase tax.
So people just park the 2nd, or 3rd car somewhere else.
Trust me, who buys a car, can afford it and has lot's of cash too.
And it's because the speculation is so dry that they might buy cars, I know lot's of people who bought a few these few months.

Most don't even drive it anyway.

So unless you multiply the drivers, there won't be more people driving the cars, there will be no increase in gasoline from them.
Did you know that the motorcycles who used to grace our streets are all more or less gone in the last year or two?
They all switched to natural gas and electricity. Mainly Gas though.

They changed all of the buses too, and they took out the old cars and don't relicense them.

Most new engines are much smaller, than before, and the car sellers focus on them.
So you see the new, rich, LV bag carrying shanghainese girl leaving her Land Rover in the garage for taking out a camry, mazda 6, new audi etc, all with more efficient (not that that's what they care about) engines.

could also be, why, the gasoline consumption didn't rise significantly.
Just a thought.

This item in Time Online touches on a few of the themes that you've pointed out here.

China's Property: Bubble, Bubble, Toil and Trouble

By Bill Powell / Shanghai
Monday, Mar. 22, 2010

As he threads his taxicab every day through the epic traffic jams in and around Shanghai, jabbering on his cell phone and muttering under his breath, Yang Jinyu seems an unlikely real estate mogul. But when the government asked him to move out of his central Shanghai home so that the land it was on could be sold for redevelopment, he took the compensation payment and bought an apartment on Shanghai's outskirts.

Eight years later, after cleverly parlaying that first asset, the cabbie owns three apartments in the city and has his eyes on something bigger: a lovely five-bedroom, riverfront suburban house, owned but never occupied by a coal magnate from Shanxi province...

...Last year, total fixed-asset investment accounted for more than 90% of China's overall growth; residential and commercial real estate investment comprised nearly a quarter of that...

...Premier Wen Jiabao was telling NPC delegates that the authorities would slow both lending and new construction in 2010, and place additional curbs on speculative property investment...

...Is China, in fact, now at the end of its real estate boom? Many are not convinced. They point to a couple of factors that make China's situation different from that of the U.S. The first is that the real estate sector is nowhere near as reliant on debt financing as it is in the U.S. and much of the rest of the developed world...

...Another critical factor underpinning the residential real estate market is formed by the psychology of the Chinese home buyer in combination with regulatory restraints on what they can do with their savings. Just 34 years out of the chaos of the Cultural Revolution, and less than 15 years down the road from a nasty bout of inflation — consumer prices rose a staggering 21% in 1994 — the Chinese regard real estate as vital security (what Tsinghua's Chovanec calls the "bar of gold" syndrome). Yang says he hasn't even tried to rent out two of his three apartments because "it's not that important to gain income from them; there is security in just owning them. They are paid for, and I know that if I ever get into any kind of economic trouble I can sell them. That's real security."...

[touchring]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

...Is China, in fact, now at the end of its real estate boom? Many are not convinced. They point to a couple of factors that make China's situation different from that of the U.S. The first is that the real estate sector is nowhere near as reliant on debt financing as it is in the U.S. and much of the rest of the developed world...

Anyone who thinks that the low debt financing will not create a real estate collapse should study what happened in Indonesia in 1998 when unless you are a tycoon or high government official, you can't even get a mortgage loan.

[GRG55]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Anyone who thinks that the low debt financing will not create a real estate collapse should study what happened in Indonesia in 1998 when unless you are a tycoon or high government official, you can't even get a mortgage loan.

Agree. There are other examples. It wasn't excessive leverage on the part of end buyers that sank Dubai. Other than for well connected tycoons, mortgage lending to end buyers of villas and flats was never allowed to get close to the crazy levels seen in the USA and UK.

It was overlevered property development companies that simply ran out of speculative buyers who were not prepared to borrow more to keep buying...at which point the grossly oversupplied market collapsed from exhaustion...which is how most bubbles end.

Much of what I am hearing about China real estate today sounds to me like the same sort of rationalizations one heard in the later stages of other bubbles.

[touchring]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Much of what I am hearing about China real estate today sounds to me like the same sort of rationalizations one heard in the later stages of other bubbles.

I think there's also the commercial and luxury market to consider. Offices and luxury condos being built even when existing ones are empty. Such a situation cannot have a good ending even if everyone pays in cash and which is not the case in China.

We know that Chinese SOE and governments involved in the real estate speculation business can get unlimited funds from banks by virtue of their connection to the state.

If the office and luxury condos markets crashes, it will bring down the rest of the market as well.

[nicmakaveli]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Luxury is quite different, there are places that are empty, but there is no lack in demand for renting, often people, many of them expat that have high housing budgets have trouble finding a place in the hot areas such as Xintiandi here.
Nanjing Rd is another example.

There are empty units, but it's a small number in percentages compared to the one's occupied.

That's one thing though, speculators, are not really speculators in the sense you know them here.
Most of the people that buy luxury nowadays know that the boom times have gone.
They don't expect it to increase a lot anymore, at least most of them.
They just buy because they dislike hoards of cash in the bank.
And I think many of them are long term buyers.
The real investors and speculators are holding off for a dip.

Commercial (offices, in no way shops) is a different topic.
Those places have trouble selling, and renting, and most of them are empty because of lack of demand.

[touchring]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

They banned the Internet in Xinjiang, until today. If a deep recession triggering nation wide unrest happens in China, what happens next your guess is as good as mine.

[jpatter666]

Re: 2009 Investment in China's real estate as much as than the rest of the world combined?

Agree. There are other examples. It wasn't excessive leverage on the part of end buyers that sank Dubai. Other than for well connected tycoons, mortgage lending to end buyers of villas and flats was never allowed to get close to the crazy levels seen in the USA and UK.

It was overlevered property development companies that simply ran out of speculative buyers who were not prepared to borrow more to keep buying...at which point the grossly oversupplied market collapsed from exhaustion...which is how most bubbles end.

Much of what I am hearing about China real estate today sounds to me like the same sort of rationalizations one heard in the later stages of other bubbles.

Further fuel for the China FIRE. :p

This is not how things were supposed to be when the $57-million airport opened in late 2007. Local officials were so confident that tourists would flock to this beautiful, mountainous county in southwestern China that they made the terminal big enough to accommodate 220,000 passengers annually, and built a runway capable of handling a 140-seat Boeing 737.

But only a few charters and budget carriers have established service here. A grand total of 151 people flew in and out of Libo last year.

http://www.latimes.com/business/la-f...524,full.story