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Song Wenyu: More than 20 provinces have set up special funds for culture industries

According to Xinhua on April 22, 2010, the People’s Bank of China in conjunction with the Propaganda Department of the CPC Central Committee, the Ministry of Finance, the Ministry of Culture, the State Administration of Radio Film and Television, the General Administration of Press and Publication, the China Banking Regulatory Commission, the China Securities Regulatory Commission and the China Insurance Regulatory Commission jointly issued a “Guidance on Financial Support to Culture Industries’ Revitalization, Development and Prosperity.”

Song Wenyu, director of the Culture Division at the Ministry of Finance, told Xinhua that currently more than 20 provinces around the country have set up special funds for culture industries. The special funds will be used to build national culture industry bases, nurture state-owned large enterprises and support reconstruction of culture organizations – changing non-profit culture institutions into profitable culture enterprises.

Source: Xinhua, April 20, 2010
http://news.xinhuanet.com/video/2010-04/22/content_13402126.htm

China Review News: Sino-US dispute over the exchange rate will be a long-term one

On April 22, 2010, www.chinareviewnews.com published an article, “Sino-US dispute over the exchange rate will be a long-term one” by Wang Dong, a Chinese researcher in Beijing.

Wang said that Obama’s government has never given up on pressuring China to increase the RMB (Chinese currency) value, resulting in the current Sino-US trade friction and a growing number of disputes. Wang further said that the depreciation of the U.S. dollars will cause drastic shrinkage of China’s foreign currency reserve assets, lead to global inflation, and make China’s exports more difficult.

However, Wang pointed out that RMB appreciation will increase Chinese people’s confidence in domestic assets calculated in RMB and thus ease inflation pressure. In addition, a stronger RMB will inevitably speed up the internationalization of the RMB and thus diversify the international currency pattern.

Source: www.chinareviewnews.com, April 22, 2010
http://gb.chinareviewnews.com/doc/1012/9/8/0/101298092.html?coluid=123&kindid=0&docid=101298092&mdate=0422163437

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