The Real Estate Economy
NTD TV reports on China. “Recently, Chinese Communist Party (CCP) Premier Li Keqiang said in an internal conversation that China’s economic problem is the real estate economy. In the Win Business Network article, Li admitted that, ‘China’s economy is basically the real estate economy, and China’s economic problems are basically real estate economic problems.’ Real estate prices continue to fall, but why do investments continue to flow into the real estate industry?”
“Mainland finance analyst Ren Zhongdao: ‘Without constructing new buildings, the local governments do not sell land, and then they have no money to pay debts. If the real estate developers do not buy land, then they have no land to use as loan collateral or issue trusts and other financial products. Therefore, in order to return the money, they still have to construct buildings. Now this has become a vicious cycle.’”
From the BBC. “At one property development here in eastern Hangzhou, the asking price of new apartments has been reduced by 25%, compared to the original sales price in 2011. The sales agent, who only gives her name as Miss Wang, shows me around. She explains it is a ‘perfect apartment’ for a three-person family - a family that can afford $900,000, that is. ‘The banks have tighter cash flow. People think the government might launch something like a property tax. That would make the price go a bit lower so buyers have started to wait and see,’ she explains. ‘The real estate developer wants to get their investment back. That’s why we’re giving a better discount,’ she says.”
“In Hangzhou, some of the price falls have been fast. One property developer’s office in the city was smashed up by buyers. They were angry they had paid more for their apartments a year ago than their new neighbours were now paying. ‘A lot in China depends on confidence, and it’s a matter of trying to get the middle class to think the value of their investment will go up again,’ says Jonathan Fenby, China director at Trusted Sources.”
The Global Times. “Driving in the downtown area of Hohhot, capital of North China’s Inner Mongolia Autonomous Region, Jin Fang felt surprised to see so much more high-rise apartment buildings compared to three years ago, when she left the city for studies. ‘How can these apartments be sold out in such a short period given the limited demand here?’ Jin, a 31-year-old white collar worker who lives in the city, said skeptically to the Global Times.”
“Jin said recently she was always being bothered by calls from housing agencies staff promising high discounts on apartments, but she kept refusing them because she had already bought an apartment of 125 square meters with her husband in 2012.”
“The total inventory of new apartments for Hohhot hit a high number of around 120,000 units as of June, according to Centaline Property Agency. However, only 3,780 units were sold in the first five months of this year, according to Hohhot real estate portal 365hf.com. In the light of the current poor sales, it will take around 10 years for the city to fill up its housing inventory, according to Centaline. Jin still remembers when three years ago, people from other cities rushed to Hohhot to buy property, which directly caused home prices to rise.”
“‘Most of the buyers were private lenders from Ordos city, where unregulated private lending activities were rampant’ partly due to excessive liquidity, said Jin. ‘I hope a rapid rise in home prices will not happen again,’ Jin said.”
The Wall Street Journal. “When Monte Burnham, the president of Birmingham, Ala.-based Foundry Manufacturing Solutions, recently visited Tianjin, China, he was pleasantly surprised to find its air more breathable than during his previous stay. ‘Then I realized, the smelters weren’t running,’ recalled Mr. Burnham, referring to the northern port city’s giant steel plants, which until recently had been delivering economic growth rates as high as 16% to Tianjin province.”
“So, how is China achieving 7.5% growth if it is powering down steel plants and letting copper stockpiles build up? With debt. Despite official instructions to banks to curtail lending to overstretched developers and municipalities, loans are still increasing at rates twice as fast as the economy—and those numbers exclude a so-called shadow-banking lending system estimated at more than $5 trillion, or 80% of gross domestic product.”
“‘That doesn’t make sense,’ says PNC Financial economist Bill Adams. ‘Eventually, sustainability concerns will either cause Chinese policy makers to slow credit growth or investor risk aversion will cause less credit to flow through the trust companies’ that manage the shadow lending programs.”
Radio Australia. “The top 1 per cent of households in Communist-ruled China control more than one third of the country’s wealth, while the bottom 25 per cent control just one hundredth, official media said, citing an academic report. The wealth gap is of significant concern for the ruling Communist Party, which places huge importance on preserving social stability to avoid any challenge to its grasp on power.”
“‘One per cent of households at the top level nationwide control more than one third of the country’s wealth,’ the website of the People’s Daily newspaper said late Friday in a report on the university’s statistics. ‘Twenty-five per cent of families at the bottom level only own one per cent of the country’s wealth.’”
The New York Post. “To avoid taxes or even seizure by the government, rich Chinese have exported a stunning $1.4 trillion between 2002 and today. China leads the world in ‘illicit capital flows’ — we call it ‘money laundering’ — while Russia, with $800 billion hidden outside the country, is runner-up. So much money is fleeing China — $10 billion a month — that it’s distorting the global economy, particularly in the art market and with real-estate booms in cities like New York.”
“China began to crackdown on the practice in 2012, following the arrest of powerful politician Bo Xilai for bribery and corruption and his wife for murder. Thousands of high-level confiscations have followed and this month two top oil executives, a popular television anchorman and the Bank of China itself were accused of laundering money and other forms of skullduggery.”
“It wasn’t until 2013 that China’s first money-laundering convictions occurred, and these were bit players. A 19-year-old Hong Kong delivery boy was convicted of laundering $1.7 billion in eight months through his bank account in a subsidiary of the Bank of China. Another involved an illiterate 61-year-old woman who laundered $876 million in three years by making small deposits of cash daily in several banks. Both netted 10-year jail sentences, and no one else was charged despite evidence they did not act alone.”
“Even more devious schemes by big shots have moved tens of billions offshore without handling cash or involving banks at all. For instance, money managers in North America were offered inflated fees of 20% to invest billions of Chinese corporate funds abroad. The catch was that half of the fees would be paid out to shell companies owned secretly by Chinese officials to buy them condos or art.”
“Other tactics involve bribing officials by selling assets at a loss so they can pocket immediate profits; or wiring cash to ‘fronts’ owned by officials or their children who wash the bribes as though they were legitimate income.”
‘More than 850 government workers in China’s southern province of Guangdong have been forced out of their jobs as part of an anti-crackdown on officials whose spouses and children have emigrated abroad.’
‘An investigation by the provincial government identified 2,190 “naked officials” and 866 of them have been removed from their posts, according to a report. Meanwhile, China has told retired military officers to return non-essential public housing after an investigation found “irregularities”, state media said Sunday, as Beijing steps up efforts to stamp out official corruption and excess.’
‘Xinhua news agency said the new measures were endorsed by the chairman of China’s Central Military Commission, President Xi Jinping, who has launched a much-publicised war on graft since taking office last year.
They will involve officers and their families only being allowed to “occupy one public housing unit in a single city, and its size must be appropriate for the official’s rank,” Xinhua said, citing a military circular that appeared in Friday’s People’s Liberation Army Daily newspaper.’
“Officials were ordered to give back extra properties if they have more than one military-owned apartment or their combined size exceeds the allowance for their ranks,” the news agency added.’
‘Families of deceased officers were also being told to leave military properties if they already owned housing, Xinhua added.’
Why don’t you ever write:
“It’s Monday, desk-piling-full-of-crap-time for this blogger”?
Just asking…
There are so many current stories on the Chinese real estate meltdown, I find it amazing Ben can stay on top of them.
Even more amazing: The HBB’s resident China economic miracle fluffers never run out of misleading, off-topic or unsubstantiated refutations, either.
‘Westpac chief economist Dominick Stephens said there was a “clear slowdown” in China’s residential property market. “There was very rapid price growth earlier in the decade and the various authorities in China made an effort to clamp down on price inflation through methods such as tightened credit supply and restrictions on multi-home ownership,” he said.’
“They were building a lot of new homes, mostly apartments, and by the end of 2013 there was a huge inventory of new apartments. With the economy slowing they ended up with a bit of a glut, which led to developers discounting.”
‘Jonathan Wu, a spokesman for Premium China Fund Management, said a big drop in Chinese house prices was unlikely because of the tools available to the authorities to stimulate the market. Even if China’s property prices did continue to fall, Wu said it would have little effect on demand from Chinese buyers in cities such as Auckland and Sydney, as this tended to come from the “very wealthy” who buy for lifestyle reasons.’
‘Late last year, Beijing authorities rolled out changes to the city’s affordable housing scheme, requiring applicants to enter a lottery if they wanted to purchase a low-cost home. But despite a rush of applicants at that time, about 20 percent of those who came up lucky subsequently relinquished their rights to buy an affordable home in the city. Their choices seem to be justified.’
‘First of all, prices on the homes in question were still too high for many low-income earners. Based on figures released at the end of 2013, prices at several of Beijing’s affordable housing projects were upwards of 22,000 yuan ($3,552) per square meter. Obviously, such prices are far too high for most ordinary wage earners.’
‘Second, these low-cost homes were priced 30 percent below surrounding residential properties at a time last year when prices were hovering near record peaks. Since the local market had already begun to show signs of cooling by the time of the lottery, many were willing to hold out for further price drops.’
She explains it is a ‘perfect apartment’ for a three-person family - a family that can afford $900,000, that is.
Millions of excess empty condos, co-opts, apartments…. and not a single buyer in sight.
Sound familiar?
Yes. It sounds like the China and U.S. housing situations are on a convergent path.
‘The cleaning up of the oil fields associated with Zhou Yongkang, former member of the Politburo Standing Committee, has gone from domestic to overseas. Two overseas executives were recently removed for investigation. Also wanted is the representative in Canada, Jia Xiaoxia, who has gone missing. Jia Xiaoxia is the sister of Jia Xiaoye, the wife of Zhou Yongkang.’
‘Song Yiwu, the deputy general manager of CNPC (China National Petroleum Corporation) Exploration and Development Company, was detained last week; Li Zhiming, executive of CNPC in Canada was escorted from the airport after he was summoned back to China in June.’
‘Jia Xiaoxia, also known as Margaret Jia, was the general manager of CNPC in Canada. She is Zhou Yongkang’s sister-in-law. The regime is seeking to bring her to justice. Sources alleged, Margaret Jia is currently hiding in Canada.’
‘She had reportedly had direct access to then chairman of PetroChina, Jiang Jiemin, and held tens of billions of dollars worth of projects. She was also suspected to have collected personal assets of one billion dollars.’
‘This June, Caixin had exposed problems associated with the CNPC oil sands projects in MacKay River and Dover of Canada, which cost 4 billion Canadian dollars and took five years to acquire. It is said that CNPC will spend at least another 30 billion Canadian dollars in the next decade before any output of productivity can be anticipated.’
‘Commentator Lee Shanjian indicates the Communist regime is at service to the officials and the privileged. The loss of the state is never a concern. Lee Shanjian: ‘All the investments and projects are more than the business. It has a major function. That is to enrich those who participate in the process. They are obviously related to Zhou Yongkang.’
‘Lee Shanjian says, Zhou Yongkang and his gang knew these were the final days of the Communist regime. However, their desperate money grabbing and endless greed have also accelerated the demise of the Chinese Communist Party.’
The purge is certainly a positive - one billion dollars in IGG by that woman Xiaoxia compares with the so called brilliant sociopath hedge fund managers.
‘China is currently experiencing a “Soviet-style 1930s purge” to consolidate power of leader Xi Jinping and four or five people are disappearing daily, many falling out of buildings, says Jim Chanos, founder of the hedge fund Kynikos Associates.’
“The challenge in China is trying to figure out what is really happening beneath the gloss of government statistics,” he said. “China is the only major industrialized that knows its annualized GDP on January 1 of that same year.” This is because the GDP “is what they say it’s going to be,” Chanos said with a laugh.’
‘The purge extends to not only prominent people, but people below prominent, Chanos says, “and its having an impact on the economy. This is because a large percentage of high end luxury items were bought with dirty money” and many of these people are now being purged out of existence.’
‘China is currently experiencing a “Soviet-style 1930s purge” to consolidate power of leader Xi Jinping and four or five people are disappearing daily, many falling out of buildings, says Jim Chanos, founder of the hedge fund Kynikos Associates.’
Sounds like Chinese authorities are at least finding some use for its ghost towers. I’m not sure the news that four to five people are falling out of buildings is the best way to stimulate mania demand for housing, though.
‘China’s coal producers faced greater inventories in the first half of the year as an economic slowdown and lingering oversupply continued to weigh down the sector, according to data from the National Development and Reform Commission (NDRC).’
‘By the end of June, Chinese coal producers had 99 million tonnes of unsold coal…Wang Xianzheng, president of China National Coal Association (CNCA), warned that the industry’s situation could worsen due to a lingering oversupply in the current economic slowdown.’
‘A CNCA investigation across the country showed more than 70% of the country’s coal enterprises are operating at a loss and workers at over half of China’s coal producers have had wage cuts or defaults.’
‘The China-US sorpasso is looming. I do not mean the much-exaggerated moment when China’s GDP will overtake America’s GDP – which may not happen in the lifetime of anybody reading this blog post – as China slows to more pedestrian growth rates (an objective of premier Li Keqiang.)’
‘The sorpasso may instead be the ominous moment when China’s debt ratios overtake the arch-debtor itself.’
‘A new report from Stephen Green at Standard Chartered argues that China’s aggregate debt level has reached 251 per cent of GDP, as of June. This is up 20 percentage points of GDP since late 2013.’
‘Mr Green – a highly-respected China veteran – includes total social financing (TSF), offshore cross-border bank borrowing (a story that we are going to hear a lot about), bond issuance, shadow banking of various kinds, and government debt.’
‘… I do not mean the much-exaggerated moment when China’s GDP will overtake America’s GDP – which may not happen in the lifetime of anybody reading this blog post – as China slows to more pedestrian growth rates (an objective of premier Li Keqiang.)’
Would ‘more pedestrian’ be higher or lower than 7.5%?
…more pedestrian growth rates (an objective of premier of Li Keqiang.)
That boat has most likely sailed. As all the articles that Ben has collated here (and in the past), the vast empty cities and buildings contributed to the substantial growth this past two decades. IMO, this growth was entirely dragged from the future to the present. There is no way air can be let out this bubble slowly. Incidentally me thinks that the poor in the countryside will be fine.
‘the poor in the countryside will be fine’
‘Set against the backdrop of the world’s largest annual human migration, Last Train Home follows Changhua Zhang and his wife Suqin, factory workers who travel home once a year on Chinese New Year to reunite with their family.’
‘Sixteen years ago, the Zhangs left their young children to find work in the city, consoled by the hope that their wages would give their children a better life. But in a bitterly ironic twist, the Zhangs’ dreams for the future are undone by their very absence.’
‘This excerpt from the Emmy-nominated documentary follows the Zhangs as they head home from the city to their rural village.’
https://www.youtube.com/watch?v=q07bMuQLrbY
‘Two years before the scheduled completion of a project to reproduce the scenic Austrian village of Hallstatt in southern China’s Guangdong province, only a few people have moved into the villas built on the mountains and not many stores have opened in the nearby commercial zone.’
‘Shanghai’s National Business Daily reported on July 15 that the road leading to the project in Boluo county in Huizhou is dusty and while tourists flock to the housing complex during the daytime, only security personnel on patrol remain there at night.’
‘While official data from the county government showed 60% of the rooms of the development project have been sold, or 337 out of 554, few buyers appeared to have moved in as reporters noted only one lit room among the hillside villas while doing a spot check at night on July 15.’
‘Construction on the 20,000 square km commercial zone has been slow; only a dozen stores have opened and there is only one convenience store in the 1 million square meter complex.’
‘Berlin Huang, president of the VHC Profile Shenzhen Virtue Hotel Consultant Company, said he does not consider the project successful for several reasons. First, the prices of the housing units are relatively high considering that life in the complex remains inconvenient. Second, from the perspective of the local government the project has not contributed much to the local economy and environmental protection. Third, the developer still has room for improvement in making the complex a tourist destination, Huang said.’
‘National Business Daily reporters also found a lack of transportation to ferry visitors from the entrance to the commercial zone, a 10-minute walk. Meanwhile, the lake at the center of the complex is surrounded by unused building material.’
‘Furthermore, only a fraction of the buildings have appeal for tourists, as only 20,000 square meters of the 1 million square meter site feature structures modeled after the Austrian village.’
The Chinese should buy US Treasuries instead of houses. Oh wait…
Snapping up like hot cakes, even as ABQDan assures us here daily that dollar collapse is right around the corner…
I lost patience with the Inflationistas and Collapsheviks a long, long time ago. They are a one-trick pony. They seem to be largely late Boomers and all of Gen-X; inflation is all they knew for their entire lives or their entire adult lives or their entire investment-age lives. They keep betting on inflation without regard to what fueled that in the late 20th Century (that being, massive supplies of petroleum, which finally peaked and will soon enough enter an age of decline).
They just can’t imagine a society that has to stop growing and start conserving, in order to avoid an expansion of what’s really a World War Three that’s been waged on a low level in the Middle East since 1991 or so. But even if that war expands and sucks a lot of industrialized soldiers into it, the energy demands for the war will starve domestic markets and radically change their economies. Despite growth in war industries, overall domestic growth in the involved industrialized nations will abruptly cease and then enter a period of hyper-DE-flation.
… if we don’t avoid a hot WWIII, that is.
“So, how is China achieving 7.5% growth if it is powering down steel plants and letting copper stockpiles build up? With debt. Despite official instructions to banks to curtail lending to overstretched developers and municipalities, loans are still increasing at rates twice as fast as the economy—and those numbers exclude a so-called shadow-banking lending system estimated at more than $5 trillion, or 80% of gross domestic product.”
So how is the United States avoiding negative growth despite lower wages for most workers over the past 35 years and increasing inequality?
The same way.
I don’t quite get it but it feels profound.
“Mainland finance analyst Ren Zhongdao: ‘Without constructing new buildings, the local governments do not sell land, and then they have no money to pay debts. If the real estate developers do not buy land, then they have no land to use as loan collateral or issue trusts and other financial products. Therefore, in order to return the money, they still have to construct buildings. Now this has become a vicious cycle.’”
“…Therefore, in order to return the money, they still have to construct buildings. Now this has become a vicious cycle.”
Sounds like without real estate construction, the entire Chinese economy would implode.
Can anyone think of a simpler way to state that so even the HBB’s resident China fluffers will get it?