The Big Ideas

by Malcolm Riddell

'The Housing Bubble That Just Won’t Pop'

The Wire China

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Hannah Reale
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May 9, 2021
'The Housing Bubble That Just Won’t Pop'
'The Housing Bubble That Just Won’t Pop'
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Hannah Reale

BIG IDEA | ‘China’s cities are plagued by a diverging trend: high demand and exorbitant prices for residential properties in tier 1 cities and yet an oversupply in smaller, lower-tiered cities.’

‘People in mainland China weren’t allowed to own property until 1998.’

  • ‘Since then, home ownership rates have blossomed.’
  • ‘But explosive growth has also fueled a building boom that has saddled some of the nation’s biggest property developers with precarious levels of debt.’

‘China’s massive property sector sops up steel and cement for major projects each year, creating a symbiotic relationship with the country’s construction firms.’

  • ‘One estimate put the real estate industry’s contribution to China’s GDP at 7 percent in 2019, with related sectors like home furnishings bringing up the total to 17.2 percent.’

‘The industry is also important for Chinese consumers as a mechanism for investment.’

  • ‘A 2018 study estimated that Chinese citizens put nearly three-quarters of their savings into property, compared to just a third for Americans.’
  • ‘ “Chinese end-users have limited room to deploy their savings into alternatives outside China,” says Henry Chin, head of Asia Pacific research at real estate and investment group CBRE. With restrictions on overseas investment, there’s one clear outlet for their funds: “buying up properties.” ’

‘China’s cities are plagued by a diverging trend: high demand and exorbitant prices for residential properties in tier 1 cities and yet an oversupply in smaller, lower-tiered cities.’

‘Although China had no property market at all in the 1980s (everything was state-owned), it is now home to the world’s biggest and most powerful property developers.’

  • ‘Big developers in China acquire state land at auction and then build high-rises developments and sell them to consumers. The scale is breath-taking.’
  • ‘The big developers then push into other cities, borrow heavily, and build even bigger projects.’
  • ‘And for that reason, the top 50 Chinese real estate developers now have 60 percent of the market, up from 26 percent in 2013, according to research conducted by UBS.’
  • ‘The industry has also driven China’s urbanization, with nearly 60 percent of people in China living in an urban area in 2017 compared to less than a fifth in 1978.’

‘The Chinese government started to rein in property developers over debt concerns in 2018.

  • ‘ “In 2018, 2019, all through those two years, we did see some underperformance at the second-tier, smaller developers,” Chin says.’
  • ‘ “The journey moving into 2020, because of Covid-19, things have changed quite substantially.” ’

‘In order to encourage GDP growth, government officials prioritized growth instead of correcting debt problems.’

  • ‘But now that China has made strides in its economic recovery, the reins are getting tighter.’

‘Some worry that China is careening towards a housing crisis much like the United States in the late 2000s.’

  • ‘Layers of debt are piling up as individuals take out loans to afford home ownership, and real estate companies tried to manage massive projects.’
  • ‘Beijing worries massive debt could undermine the state-dominated banking sector.’

‘As bad debt emerged as a narrative in China’s economy, major players such as Evergrande, the world’s largest real estate company, were swept up in liquidity concerns.’

  • ‘The push towards deleveraging started a couple of years ago, but the policy was codified with the nation’s “three red lines” policy in fall 2020.’

‘Regulators set three debt-oriented criteria and accordingly limit how much more debt companies are allowed to take on annually with a graduated system.’

  • ‘At the most extreme end, any company that crosses all three lines isn’t allowed to grow its debt at all.’

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Malcolm Riddell
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'Are you tired of losing yet, America?'

As I write this, Taliban forces have entered Kabul and are reportedly occupying the Presidential Palace.
8/15/2021

Bloomberg

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'China Signals More Regulation for Businesses in Coming Years'

‘The State Council’s statement provides a guiding context to interpret current regulatory thrusts. The blueprint as an attempt by Chinese authorities to help investors understand the motives behind the regulatory push.’
8/15/2021

The Wall Street Journal

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George Soros
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'Xi’s Dictatorship Threatens the Chinese State'

‘Mr. Xi is determined to bring the creators of wealth under the control of the one-party state.’
8/15/2021

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Malcolm Riddell
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Don't Say Xi Jinping Didn't Warn You

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

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Matthew Brooker | Bloomberg
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‘Global investors shocked to have discovered that China is run by Communists.’

‘Global investors are shocked to have discovered that China is run by Communists.’
8/5/2021

Bloomberg

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'Shocked Investors Scour Xi’s Old Speeches to Find Next Target'

‘While China’s policy moves can feel ad hoc particularly to foreign investors, the changes are quite targeted on certain sectors.’
8/5/2021

The Wall Street Journal

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Greg Ip | The Wall Street Journal
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'China Wants Manufacturing—Not the Internet—to Lead the Economy'

‘Social media, e-commerce and other consumer internet companies are nice to have. But in his view national greatness doesn’t depend on having the world’s finest group chats or ride-sharing.’
8/5/2021

Bloomberg

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'China Plans to Exempt H.K. IPOs From Cybersecurity Reviews'

‘China plans to exempt companies going public in Hong Kong from first seeking the approval of the country’s cybersecurity regulator, removing one hurdle for businesses that list in the Asian financial hub instead of the U.S.’
7/18/2021

The Wall Street Journal

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The Editorial Board | The Wall Street Journal
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'Biden’s Warning on Hong Kong'

‘The pretense of Chinese and Hong Kong authorities is that their crackdown on the rule of law and dissent will have no effect on Hong Kong’s viability as an international center for trade and finance.’
7/18/2021

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Malcolm Riddell
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Why the U.S. Lacks Leverage over China

During the celebration of the Chinese Communist Party’s Centennial celebration, Mr. Xi stood in the same place on the balcony facing Tiananmen Square where Mao Zedong stood when he announced the founding of the PRC; Mr. Xi wore a gray Mao suit, among a sea of blue western suits; and he centered himself right above the portrait of Mao, who is similarly attired.
7/18/2021

Foreign Affairs

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Kurt Tong | Asia Group
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Hong Kong and the Limits of Decoupling

‘The United States’ inability to make China regret—much less reverse—its transgressions in Hong Kong suggests that financial separation, sanctions, and economic barriers are less reliable tools than many in Washington believe.’
7/18/2021

Nikkei Asia

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'I will aim for Mao's Status.'

‘There on the gate was Xi Jinping, Chinese president and party general secretary, in a gray Mao suit. Just below his feet was the portrait of Mao Zedong, also dressed in a gray Mao suit.’
7/18/2021

Financial Times

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'US warns companies of risk of doing business in Hong Kong'

“In the face of Beijing’s decisions over the past year that have stifled the democratic aspirations of people in Hong Kong, we are taking action,” said Antony Blinken, US secretary of state. “Today we send a clear message that the US resolutely stands with Hong Kongers.”
7/18/2021

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Malcolm Riddell
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The Chinese Point of View

Here are a few of my thoughts on the importance of Wang Jisi’s ‘The Plot Against China.’ Yuen Yuen Ang’s ‘The Evolution of Chinese Corruption’ speaks for itself - but note especially how Mr. Xi's anti-corruption campaign could hurt China's economy. I have now lived long enough that when a friend complains about his or her spouse, I say to myself, ‘There are no doubt two sides to this story.’
7/4/2021

Foreign Affairs

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Wang Jisi | President of the Institute of International and Strategic Studies at Peking University
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'How Beijing Sees U.S.-China Relations'

‘In Chinese eyes, the most significant threat to China’s sovereignty and national security has long been U.S. interference in its internal affairs aimed at changing the country’s political system and undermining the CCP.’
7/4/2021

Foreign Affairs

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Yuen Yuen Ang | University of Michigan
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'How Corruption Powers China's Economy'

‘China has managed to sustain four decades of economic growth despite levels of corruption that even Xi has described as “grave” and “shocking.” Why does it seem to have bucked the trend?’
7/4/2021

Harvard Magazine

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Ed Steinfeld | Brown University
Tony Saich
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Harvard Kennedy School of Government
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'From Rebel to Ruler': Tony Saich on Chinese Communism at 100

‘At so many points during its century-long existence, the CCP appeared to be in its death throes, whether as a result of external attack or self-inflicted internal strife.’
7/1/2021