Skip to content

Is the Real Estate Business a Threat to China’s Economy?

 
The director of the Office of Economic Development of the Economy Research Institute, China Social Science Institute, Xianrong Yi, commented half jokingly, when Stock Daily interviewed him, “Housing prices will not drop even if we build houses using soil from the moon. The current market is a hyped up market.” The general manager of Lianda Sifang Real Estate, Inc., Beijing, Shaofeng Yang, said, “The majority of the new buildings in Beijing were sold out even before the construction was completed. However, only 30-40% of the apartments are occupied, even though it has been two years since construction was completed. It would be really good if 50% had residents.”

A phenomenon exists in the real estate market. On the one hand, a group of people are waiting in line to purchase houses; on the other hand, the vacancy rate is getting higher and higher. Almost all the new buildings are dark when night falls. In the area outside of Wuhuan of Chaoyang District, Beijing, a building with 2,000 apartments sold out a long time ago. However, only 30% of the apartments have residents. The realtor in the community said, “The majority of the apartment buyers are investors. There are relatively few real residents.” The same situation exists in Shenzhen City and Shanghai City. In many of those communities, the rate of occupancy is less than 50%.

According to international convention, it is normal if the vacancy rate is 5% to 10%; it is risky if the vacancy rate reaches 10%-20%. If the vacancy rate is over 20%, there is a serious overbuilding of commercial housing.

Xin Zhang, the CEO of SOHO of China also indicated that, in Manhattan, people would feel that the end of world was coming if the vacancy rate reached 10 to 15%. However, in Pudong, the eastern part of Shanghai, the vacancy rate is as high as 50%. Nonetheless, new skyscrapers are still being built.

Bin Yu, the director for the Macroeconomic Research Department of the Center for Development Research in the State Council, stated that real estate accounts for 6.6% of China’s GDP and a quarter of all investments. Sixty different industries are directly related to real estate and have become the heart of China’s economy. Once the real estate industry has major problems, the industries that depend on real estate, such as the production of reinforced concrete and the middle to large-scale enterprises that invest in real estate will suffer major damage. That may induce a major loss of capital and the destruction of China as an economic entity. More seriously, those banks that loan large amounts of money to real estate industries will have trillions of bad or dead accounts, which will ruin China’s financial industries. …

In July 2004, Xianrong Yi warned, “We should carefully protect ourselves from the situation where real estate threatens China’s entire economy.” At the time, he pointed out clearly that the real estate industry has been bound together with the economy of the whole country and with people’s personal interests. It is threatening China’s economy. He used the example of Japan in the 1990s and reminded that once problems occur in the real estate industry, the economy of the whole country will quickly go into a period of crisis. From Bin Yu’s analysis, it can be seen that five years ago, Xianrong Yi, unfortunately, made the right prediction. It is hard not to associate the current situation of China’s real estate market with the breaking of the real estate bubble in the early 1990s in Japan in the last century.

Some economists hold the view that, just like Japan, the experiences of many places have proved that it is very inappropriate and unsafe to use real estate as the major industry to support the economy. The high housing prices can directly affect the expenses in other areas of life and, therefore, affect the overall feeling of happiness. Just as Xianrong Yi pointed out, when real estate becomes “hijacked,” for luxurious consumption forced on people’s livelihood, then economic development based on real estate is absolutely irrational.

Xianping Lang once stated to the media that, “None of the big countries dares to make real estate the major industry. If all the money went to real estate in order to create a high GPA, how could people spend money to buy other things? If none of the people in the country work in the manufacturing industry, and everybody plays the stock market, where can the country go?”

As the housing prices keep soaring, the average people have to pay more to buy a place to live. The anxiety caused by being able to afford a place is getting more and more intense. The soaring prices directly affect people’s choice of expenses, while anxiety affects people’s expectations in spending their money. Those two factors are the major causes for the prolonged inactive internal markets in China. When all of your savings throughout your life are spent to buy an apartment, how can you expect people to spend money on anything else? That is why we can say that the high housing prices have seriously affected the recovery of the economy in China. To increase GDP through real estate is like drinking poisonous water to quench your thirst.

In Beijing, Shanghai and Shenzhen, apartments close to the metropolitan areas are all above 20,000 yuan per square meter and those in the cities are 30,000 yuan. An average family has to spend at least 4,000,000 yuan in order to by a place that is 120 square meters. According to the investigation of Stock Daily, the apartments in the Lujiazui region in Pudong of Shanghai City are priced at 70,000 per square meter. Every suite costs more than tens of millions of yuan.

According to the report published in a Reference News article, “The Korean Finance Group Bought the AIG Building in New York City for a Low Price,” the purchasing group of Young Woo & Associates bought AIG’s building in New York City for the price of $150 million, a unit price of $100 per square foot. That is less than $1,077 per square meter. That is to say, Chinese can buy landmark buildings in Manhattan for the price of 7,300 yuan per square meter.

According to the statistics of the U.S. Ministry of Commerce, the average price of a house in the U. S. is $200,000, which is 1 million yuan. In addition, the so called “houses” in the U.S. are actually “villas” in China, which have a garage, a yard and a swimming pool. The well-known commentator Hanbing Shi once questioned, “What kind of house can you buy for 1 million yuan in China?”

A government official in Ningbo City once gave out the information that in the recent two months, 18 more real estate companies emerged in the city. They were all once in manufacturing. Due to the inactive market in the manufacturing industry, they used all their money to buy high-priced land. The reason of course is the amazing profit in the real estate market.

From this year, under the situation that the national GDP was 30 trillion yuan in 2008, in order to stimulate the internal market, the major banks loaned out an amazing amount of money, about 10 trillion yuan. Most of the money went to state owned enterprises. After obtaining the money, they then purchased land. Therefore, these “landlords” emerged one after another. For example, the land at No. 15 Guangqu Road in Beijing, land at Changfeng in Shanghai, and at Tianchu No. 22 in Shunyi, are all owned by state owned enterprises.

In addition to the many people who buy and sell houses for profit, the number of people who bought houses to receive fixed investment income is also large. How long does it take to get the money back if the house is rented out? A researcher at the Yiju Real Estate Research Center in Shanghai told Stock Daily, “The 100-square-meter houses in the center of Shanhai City rent for 7,000 yuan a month. You need to pay about 4-5 million yuan to buy one. Therefore, if you want to get your money back through rent, you have to wait about 60 years. Furthermore, that is not an example of the recent low rental rates in big cities in China.

In the Rainbow City Community in the South Sanhuan of Beijing City, a 100-saqure-meter second-hand apartment is listed at 1.6 million yuan. The real estate agent for the community told the reporter that when those kinds of apartments are on sale, they can definitely be sold within five days. However, the rent for such an apartment is only 2,000 yuan a month. That is to say, the owner cannot get his money back until 800 months later, which is 66 years.

According to an investigation by the Market Research Department of Meilian Real Estate, Inc., since November 2009, the rental and selling ratio has broken the historic record of 1:150 and reached 1:525. Some regions have reached 1:700. However, the ratio was 1:400 in 2008. The increment is 25%, which does not include the newly built houses that can be rented. The vacancy rate has also been increasing.

The international standard for a reasonable rent and selling ratio is below 1:250. That means if you rent the house out according to the price for the current market and you are able to get your money back within 100-230 months (10-20 years), the house is not too expensive, and buying a house is a good investment.

However, when the housing price is soaring, wealthy people buy high priced houses not only in order to maintain the value or as an investment; more and more regular employees have joined a group that is “buying houses to make money.” The wealthy people who buy houses to maintain the value do not care at all whether the rental fee is high or low. The profit gained through the rising housing prices also makes more and more average people become negligent about the rental price. All people across the country have joined the trend of buying and selling houses. …

According to the latest statistics on Beijing Real Estate Trading Management Net, since November, the closing rate for second-hand houses has broken the record of 20,000 units, or 1,031 units each day on average, which is a sharp increase compared to the 600-700 closing rate some time ago. If predicted according to the current trend in 2009, the total trading rate of second-hand houses in Beijing in 2009 will break 270,000 units, which is greater than the sum of the rates of the three previous years from 2006 to 2008. Zhang Dawei, the general director for the Market Research Department of Meilian Real Estate Inc. indicated that it is dreadful that a “need for purchasing a house out of terror” has emerged in the market in just a short period of time, due to people’s worries about an end to beneficial government policies and soaring housing prices. Those people have made the housing prices soar, together with those who have invested in houses in Beijing. Furthermore, people have become more and more emotional as the housing prices have become higher and higher. Currently, those two kinds of needs in real estate are counted as over 50% of the market. In the U.S., the average price of a house is $200,000, which is a little over 1 million yuan and is actually the villa that Chinese inside China refer to. However, in Beijing, Shanghai and Shenzhen, it costs at least 3 million yuan to buy a house of similar size that is close to the city.

Endnote:
[1] China Economic Net, November 28
http://finance.ce.cn/rolling/200911/28/t20091128_15239300.shtml

China to Merge Phone, TV, and Internet Networks by 2015

According to the “2010 Mass Communication Bluebook” released by the Chinese Social Science Academy, the State Council Standing Committee decided to merge the business scope of the three network industries – telecommunications, broadcasting (radio and TV), and the Internet. Telecommunication companies will be allowed to be involved in production and broadcasting of TV/radio programs; while TV/radio networks may also begin operation of some basic or value-added telecommunication business. The Committee also planned the stages of the merge: 2010 through 2012 would be the trial period; 2013 through 2015 would be the promotion of the merge on a larger scale to promote certain competition and to set up corresponding institutions and regulatory bodies for the merged business models of the three networks. 

Source: People’s Daily, April 22, 2010 
http://politics.people.com.cn/GB/1026/11430260.html

Half of Chinese Luxury Goods Used as Gifts

China has become one of the major luxury goods consumers in the world. A recent Bain survey showed that, in 2009, Chinese spent $9.6 billion on luxury goods, which accounts for 27% of the world total, while China’s GDP only accounts for about 5% of the world GDP. According to Boston Consulting Group (BCG), the consumption of luxury goods in Chinese will reach 40 billion USD by 2015; Bain’s estimation for 2015 Chinese luxury goods expenditures is 14.6 billion USD. According to another consulting firm, McKinsey, about half of the Chinese luxury goods are used as gifts. 

Source: Radio Free Asia, April 22, 2010 
http://www.rfa.org/mandarin/yataibaodao/shechi-04222010100130.html

Disparity of Income Distribution: A Long March from Pyramid Pattern to Olive

Yu Jianrong, a professor at the State’s Chinese Academy of Social Sciences, predicts that it will take another 30 years for China to move from the current pyramid pattern of income distribution to one that is olive-shaped. The pyramid pattern of income distribution is used to describe the great disparity of income, intense social conflicts, and the lack of a middle class as a buffer, while an olive-shaped pattern denotes the existence of a large middle class with relatively small groups of rich and poor. Hence it is more conducive to social stability. Yu holds that a middle class has not yet formed in China whatsoever. “For example, the popular ‘hatred of the rich’, ‘hatred of government’ and other social discontent and resentment are both the evidence and ‘combustion’ that has induced large-scale incidents of conflict by social groups to vent their anger.” “People at the bottom are growing in numbers, albeit economic development and improvement of living standard for the bottom society.” “Objectively, the white-collar workers are a little bit more capable of making money, but speaking of their social situation or political status, they are the same [as migrant workers],” says Yu.

Source: International Herald Leader, April 19, 2010
http://news.xinhuanet.com/herald/2010-04/19/content_13383024.htm

State Continues to Dominate Reform of Culture System

An article on reform of China’s culture system was published on the website of the Party School of the Chinese Communist Party, addressing bottlenecks and recommendations. The reform moved from pilot programs to full implementation in March 2006. One of the key bottlenecks, according to the article, is “some of the culture enterprises blindly maximize their market profits,” and “have increasingly led to economic benefits diverging from social benefits” and to a greater disparity of income. The recommendation is to uphold the Party’s leadership in the reform, adherence to Marxism and ensuring the dominance of state-owned culture enterprises in the culture market.

Source: The Party School of The Chinese Communist Party, April 14, 2010 http://www.cntheory.com/news/Dshcdssdjt/2010/414/104141520769BBIIKAJ192JK20I11F.html

About the Chinese Model

Xu Chongwen, a senior research fellow at the State’s Chinese Academy of Social Sciences published a criticism of “four misconceptions” of the Chinese model. His article is summarized below.

Misconception 1: The term was first coined by foreigners with the ulterior motive of containing China’s expansion. Not true because Deng Xiaoping used the term back in 1980 when discussing the Russian October Revolution. 
Misconception 2: The term “model” means example or demonstration for others to follow; hence one should be cautious when using the term. Wrong because it contradicts Deng Xxiaoping who held countries should independently seek development paths and models suited to their own situation. 
Misconception 3: The Chinese model is the "Beijing Consensus" for the reference use of other countries. Disagree because Joshua Cooper Ramo’s Beijing Consensus was coined to mean opposition to the Washington Consensus. The Chinese model is to develop China based on its own situation and China has no intent to promote it the same way that the Washington Consensus has been promoted.
Misconception 4: It is too early to talk about a Chinese model. This is without grounds. Hu Jintao has set forth the theory on building a harmonious society. No one should use it to deny that the achievements of the Chinese model have already been well recognized.

Source: The Party School of The Chinese Communist Party, April 13, 2010
http://www.cntheory.com/news/Llltllyt/2010/413/1041393831I6EFADA9CEE5413J46J9.html

China’s Construction of a Modern Global Information Dissemination System

"The National Conference on Publicizing China Overseas concluded on January 5, 2010. This year the conference clearly brought up a number of high priority tasks related to propaganda targeting foreign countries. These included strengthening the development of the institutional mechanism for issuing press releases and building a good system for servicing and managing foreign media reporters and journalists who are in China; strengthening the propaganda and management of Internet information and creating a favorable public opinion environment on the Internet; effectively implementing the campaign of international public opinion in order to safeguard our national security and social stability; organizing foreign cultural exchanges to enhance the influence of Chinese culture; widely carrying out major international public relations activities and boosting news exchange and cooperation with foreign media; enlarging and strengthening the media that publicize China overseas and building a modern dissemination system with extensive coverage and advanced technology; and strengthening and paying great attention to the development of the cadre troops that publicize China overseas."

"The State Council News Office Minister, Wang Chen, said that improving our global dissemination ability complies with global media’s development trend and is a must in order to realize the leap-forward development of China’s media; … (improving our global dissemination) is a must to inform the world about China; is a must in order to actively participate in international cultural competition, and enhance Chinese culture’s soft power; and is must for breaking the Western media’s monopoly and promoting a world information and communication order that is more just and reasonable."

"At present, Xinhua News Agency broadcasts China’s news to the world 24/7 in 7 languages. … CCTV’s international channels in English, Spanish, French and other languages are broadcast in the United States, Great Britain, France, Northern Europe, Africa, Hong Kong, and other countries and regions, and some programs have gotten into their local TV channels. In 2009, we opened two more channels in Arabic and Russian, respectively. Our international radio broadcasts to the world in 59 languages and its influence is continuing to expand. China Daily currently is distributed to more than 150 countries and regions around the world and has a wide impact. Including the journals published by the Chinese Foreign Language Bureau, there are more than 30 journals at the national level that are published in other countries, and more than 200 journals at the regional level. "

"However, China’s current global dissemination power still does not match our national economic and social development. China’s global media resources and international voice are still very limited, and the dissemination power should be improved. It still happens sometimes that Western media misunderstand or even purposely distort China’s image."

"In the meeting celebrating the 50th anniversary of China’s television industry and CCTV, the CCP Central Committee Political Bureau Standing Committee member Li Changchun said, ‘As China’s economy  and society rapidly develop and our international position continues to rise, our dissemination power has yet to meet the requirement of our economic and social development, has yet to meet people’s growing spiritual and cultural needs, has yet to meet the rapid developing situation of modern science, technology and communication, and has yet to meet China’s new international status and influence.’"

"Wang Chen said, ‘There is still a big gap between China’s media and the overseas world-class media. Our voice is still relatively weak in the competition between international public opinions. The situation that more than 80 percent of global news and information comes from major Western media still has not fundamentally changed. Our media coverage does not have enough influence within the Western mainstream. Our passive position within international public opinion has not fundamentally changed.’"

“Yu Guoming, the Associate Dean of the College of Journalism at Renmin University, has offered this interpretation, ‘The key issue that has caused China’s voice to be so weak on the global media stage is that, in the international dissemination field, Western mainstream media have basically established the current rules of the game. These rules shape people’s information consumption appetite, and determine their talking styles in dissemination. This is what our media must face and adapt to when reaching out to the world.’” 

"Shan Bo, Associate Dean of the News and Media College at Wuhan University said, ‘Instead of creating a new rule, China should set the tone for its overseas publiciity on breaking the Western monopoly on discourse that is centered in the United States. We should be clear on this. What we need is to have an equal exchange, understanding, and communication in our cultures, and build a harmonious world.’"

"In addition to newspapers, radio, television and other traditional media, the Internet and mobile media, with many advantages, such as their massive, interactive, and real-time features, are rapidly taking over the frontier development of the media industry. … With this trend, all the countries around the globe are competing to use the Internet as an effective media for publicizing national images, improving their international dissemination power, and trying to occupy the forefront of information dissemination."

"‘With the deepening of media convergence and the growing status of the Internet on revealing, building, leading, and penetrating international opinion, there will soon be a new battlefield in the international war of dissemination. That is, in using social media as a way to achieve penetration, and fighting over young Internet users in target countries, victory will definitely belong to whichever side masters the essential characteristics of this new media, has a clear strategy, and takes quick action,’ said Dr. Deng Jianguo of the College of Journalism, Fudan University. He believes that the effort to build a world-class media is a new opportunity for China to greatly develop global information dissemination."

"In June 2008, when General Secretary Hu Jintao inspected People’s Daily newspaper, he said, ‘The Internet has become the center for ideological and cultural information and the amplifier of public opinion.’ He brought up that, “We must be fully aware of the social influence of the new media forms such as the Internet, pay great attention to the development, use, and management of the Internet, and strive to make the Internet become a frontier for spreading the advanced culture of Socialism, an effective platform for providing public cultural services, and a vast space for promoting the healthy development of people’s cultural lives.’ In December 2009, when Li Changchun attended the launching ceremony of China Network Television (CNTV), he said that, in today’s society, with highly developed information dissemination technologies, it is a general trend for the mainstream media to spread and extend into the Internet and other new media forms. In strengthening the dissemination power of mainstream media, we must enhance the sense of urgency and take the initiative to extend into the Internet, actively explore new media forms, and constantly expand coverage and boost influence."

"He Jiazheng, president of People Daily Online, said, ‘How can we take advantages of the Internet to better publicize China to overseas readers and improve our national image? This has become an issue that all of China’s Internet media must actively think about and deal with.’ He suggested that new media should further strengthen the numbers and intensity of news reporting, which will let China increase its international influence and voice."

"In order for Chinese culture to ‘walk outside’ [go abroad], we must have a global perspective and need to actively explore the influence of Chinese culture as it spreads to the world. Overall, currently most of the Western understanding of Chinese culture is limited to food, Chinese medicine, martial arts, Chinese opera, landscapes, and other similar aspects. It is extremely urgent to introduce the excellent results of contemporary Chinese culture, especially those cultural achievements that have the core value system with Chinese characteristics, to the world. … Each year, there are a large number of excellent academic achievements in China’s Philosophy and Social Sciences fields. However, due to the poor international communication for academic information and language barriers, this precious spiritual wealth rarely gains any attention from the international community. This really is quite unfortunate in today’s cultural communication."

"Dr. Du Huizhen from the School of Journalism and Communication, Guangdong University of Foreign Studies, believes that ‘scholar strategy’ has a unique significance in publicizing our national image. She says that scholars’ multiple identities, authoritative status, nature of work, and academic positions all account for the fact that implementing the ‘scholar strategy’ is more diverse than only discussing how to improve media: it can have interpersonal dissemination, organizational dissemination, and media dissemination. Therefore, if we utilize the scholars’ roles well when building our national image, then through their participation in academic activities, we can have a more thorough and lasting impact."

"Chinese Academy of Social Sciences Documentation and Information Center researcher Zhang Shuhua has made several suggestions on ‘walking outside’: establish political confidence and national self-confidence; be good at expressing and not afraid to change our styles and discourse system; actively contribute to writing articles and utilizing our high level ‘think tanks’; form international forums, bring up international topics, and set the global agenda; establish a variety of international academic exchange funds in order to build the bridge of ‘walking outside, and inviting in’; and gather talent, especially good translation teams in all languages."

"In the process of gaining the right to speak and the right to lead and enhance dissemination power, philosophy and the social sciences can have a great impact. They will have an irreplaceable role in the timely and powerful dissemination of China’s voice to the world."

Endnote:
[1] Chinese Academy of Social Sciences, Feb 2, 2010
http://www.cass.net.cn/file/20100202256909.html

Nanfang Metropolitan: Loving Ones Country Does Not Mean the Same as Loving the Imperial Court

On April 11, 2010. Nanfang Metropolitan published an article by History Scholar Hong Zhenquai, “Loving Ones Country Does Not Mean the Same as Loving the Imperial Court.” The article suggested that nowadays many people misunderstand the relationship between the people, the country, and the imperial court (or the government in modern society). Mencius [a philosopher from the fourth century B.C. who defended the teachings of Confucius against other philosophies] made public that “people are the most important, followed by the country, with the emperor coming last.” An explanation for the confusion is that the sitting government misleads people into believing that “loving the court is representative of loving the country.”

The article makes a case for people having oversight and control over the government. The article received a lot of compliments for its boldness, given the CCP’s media control. An unconfirmed blog message on Aiyuan said that Nanfang Metropolitan Editor Zhu Di was chastised (and lost her job) for publishing the article. The article is no longer available on the website of Nanfang Daily (Nanfang Metropolitan’s parent company), but can be found on many overseas Chinese sites.

Source:
1. Tianya website, April 14, 2010
http://www.tianya.cn/publicforum/content/develop/1/408089.shtml
2. Aiyuan website, April 17, 2010
http://aiyuan.wordpress.com/2010/04/17/%E4%B8%80%E7%AF%87%E8%AE%A9%E7%BC%96%E8%BE%91%E4%B8%A2%E6%8E%89%E9%A5%AD%E7%A2%97%E7%9A%84%E6%96%87%E7%AB%A0%EF%BC%9A%E7%88%B1%E5%9B%BD%E5%AE%B6%E4%B8%8D%E7%AD%89%E4%BA%8E%E7%88%B1%E6%9C%9D%E5%BB%B7/