Views: 4739|Replies: 12

Why China Needs to Keep Building [Copy link] 中文

Rank: 8Rank: 8

Gold Medal September's Best Writer 2012

Post time 2011-5-26 07:10:22 |Display all floors
When I first visited Shanghai, the Pudong half of the city was mostly marshland.  "Crazy!" was my reaction when told of plans to build skyscrapers there. Who would want to live there? A decade and a half later I live in Pudong, along with 8 million others.

Apple's most profitable retail store in the world per square foot is located there, as are the China headquarters for IBM, Citigroup and DuPontlured by tax breaks and cheaper rents. The Chinese government’s growth strategy has been to invest in highways, subways and bridges to previously difficult to reach locations to attract investment and spur development.  Doing so has aided in reducing urban crowding and has improved efficiency.

In predicting China’s economic collapse famed short-seller Jim Chanos surprisingly does not understand how capital and infrastructure spending, rising incomes, and a lack of leverage are contributing to stable future growth.

Chanos argues that by taking up nearly half of China’s GDP that construction spending is too high. However, in contrast to Japan where many infrastructure projects lead to nowhere and do not spur sustainable development most infrastructure projects in China have a purpose. If towns remained empty forever or everything was bought highly leveraged, Chanos would be right that huge problems could emerge.

The reality is private enterprises eventually relocate to these development areas because of tax breaks, cheaper rents, and because many key government departments and state-owned enterprises take advantage of the developments to create new business centers.

Why is this development strategy needed? Far too many Chinese live in sub-human conditions because of land constraints and poverty. The country has an inhabitable area the size of America’s eastern seaboard yet five times the population.

It is common for families of 3-5 people to live in 350 square foot homes; the average house in America is 2,330 square feet according to the National Association of Home Builders. Many workers live 8 people to a room. Workers are moving to urban areas in search of better pay. This year, for the first time, more than 50 percent of the country lives in urban areas, up from 30 percent just a decade ago. As the country continues to urbanize and incomes rise, people need more comfortable living conditions.

Chanos also makes the mistake of underestimating rising incomes. Per capita GDP more than tripled to $3,400 at the end of 2010 from $949 in 2000. The trend is continuing as foreign direct investment (FDI) is rising 25 percent a year, causing a fight for both white collar talent and manufacturing jobs.

Factory salaries at companies like Toyota [TM  Loading...      ()   ], Foxconn are rising 20 percent year on year.  The number of US dollar millionaires has risen to nearly 1 million, when just dozens had that wealth two decades ago. In other words, rising incomes and urbanization are creating demand for empty units.

Finally, Chanos wrongly equates high real-estate prices with an impending bubble. What causes problems is not whether the average person can afford homes but whether people buying them are highly leveraged.

In China they are not. Even in the case of highly publicized development failures like Erdos, where a new district of the city developed to house government offices, businesses, and up to one million new residents lies nearly empty despite the fact that many properties have been sold, any long-term damage to the economy is limited because property buyers were not leveraged.

Government restrictions limit leverage on the residential side as well as how many apartments one can buy. In Shanghai, for instance, one cannot even buy a third home anymore. Prices continue to rise in cities like Shanghai because instead of buying five units, wealthy consumers buy one luxury apartment. As a result, transactions and prices in the mid-market have effectively slowed while overall market prices have soared.

The government’s willingness to manage the situation has effectively squeezed speculation out of the market. The result? Real estate agencies are closing. Chanos sees this as a sign of problems ahead when in reality dropping prices and shuttering agencies is good because it signals government measures to keep the market under control and get more affordable housing to the people who need it are working.

It is easy to look at China’s construction boom, and the real-estate market there, and compare it to what has happened in the US, Dubai or Japan but in reality the market is very different.  Spending on infrastructure has a purpose, the trend is towards rising incomes and increased spending power, and property buyers are not exposed to anywhere near the level of risk that led to collapses elsewhere.

h ttp://ww
our life is full of sunshine

Use magic tools Report

Rank: 6Rank: 6

Post time 2012-1-2 23:04:47 |Display all floors
The reason why property development is very much focused on the Eastern coastal provinces is to allow those people on the east china to get rich as fast as possible, just like Hong Kong did from 1960-1980.

Using property to drive the economy growth and create paper millionaires for well connected people in china, is western capitalist concept of exploitation of cheap labor for the immediate benefit of a few. The western capitalist concept of let a few get rich first and later the rich will use their increased capital from increased property prices, to create jobs are a totally flawed system, and is collasping now as you can see the bankrupted western countries and the US now.

The rich and superelite in the US and western europe, who are supposed to create jobs for the poor and middle class, are now asking their governments to bail out their bankrupted corporations such as GM, Ford, Chrysler, Citibank, Bank of America, etc.

If China follow blindly the economy and capitialism system of the west and the US, then China will face similar problems of running out of cheap labor in the future.

Use magic tools Report

Rank: 8Rank: 8

Post time 2012-1-2 23:53:09 |Display all floors
I think what are important is being done by the State:

- curb property price overheating;
- spur domestic investment;
- build consumer confidence;
- stem hot money outflow.

Given tepid export markets, the growth rate and debt-servicing ratios may take a hit but the effects can be reduced if services and the western sectors can be developed further. China has been developing outstanding infrastructure ripe for cost-efficient inbound tourism and other currency-earning projects.  Her rail projects may have overshot costs but they are essential to mobilize vast numbers of people quickly and cheaply, opening new places and easing business and new investments.

So long as loans are serviced in the economy, meaning money circulated within the local market, liquidity should not be an issue for rational development and at more stable margins.

Foreign naysaying observers may be excused for not seeing that this is a socialist state with emergent capitalist economy anointed with Chinese characteristics.  It's rather unique, especially when out of every ten people, eleven want to be their own bosses so that the entrepreneurial spirit will provide resilience when needed and reconfiguration where necessary.

Use magic tools Report

Post time 2012-1-3 03:28:10 |Display all floors
Reminder: Author is prohibited or removed, and content is automatically blocked

Use magic tools Report

Rank: 8Rank: 8

Post time 2012-1-3 12:40:13 |Display all floors
markwu Post time: 2012-1-2 23:53
I think what are important is being done by the State:

- curb property price overheating;

Provincial semi autonomy is vital!

The SELF HELP is needed, to avoid the problems painted by all those "photo journalist" in our CD BBS.
Training by Beijing on how provinces can CREATE CREDIT, and fulfill  PROVINCIAL INFRASTRUCTURE, SOCIAL SECURITY spendings!

The first 16 to 22/23 year old is crucial for the FUTURE OF CHINA.
and the last moment from 65 onwards is the SYMBOL of our present times!

The initial years is to PREPARE the citizen, and the last years HOW CIVILIZED, pleasant of our state!


Green DRagon
Game Grandmaster
Enjoying Retirement Chats

Use magic tools Report

Rank: 6Rank: 6

Post time 2012-1-14 00:05:59 |Display all floors
Exploitation of workers especially poor factories workers from rural areas are very sensitive issues which no chinese leaders dare to take actions against those factory owners or shareholders which owned these businesses in partnership with certain group of greedy local leaders(not from Beijing). These greedy local leaders get the initial capital from overseas investors such those from HK, Taiwan and the US corporate wall street. These group of greedy capitalist with foreign partners are very powerful, and no chinese leaders will dare to challenge them. They are only interested in one thing which is to get rich and more richer at the expense of millions of poor people who are knowledge poor and powerless. Deng biggest mistake when China open up her economy is to allow this group of very greedy capitalists with foreigners help, to gain control of the china economy.

All these greedy chinese capitalists have illegal assets kept overseas in US, Singapore and Taiwan, etc. Their children also have permanent residence in foreign countries.

The next decade will be re-education of the greedy capitalist children to get them to realise their parents ill gotten wealth are mostly through exploitation of workers, and they should use their inherited wealth invest back to China, and build a better and more enviromentally cleaner China.  

Use magic tools Report

Rank: 6Rank: 6

Post time 2012-1-14 17:12:08 |Display all floors
I hope China would heavily urbanize the west and central parts of China as much as they did on the east part.
Put out your right arm, hold back your left arm... <(=^.^=);

Use magic tools Report

You can't reply post until you log in Log in | register

Contact us:Tel: (86)010-84883548, Email:
Blog announcement:| We reserve the right, and you authorize us, to use content, including words, photos and videos, which you provide to our blog
platform, for non-profit purposes on China Daily media, comprising newspaper, website, iPad and other social media accounts.