Over one billion unique Chinese viewers watched some
part of the Olympic Games on television between Aug. 8, the day of the
opening ceremony, and Aug. 12. That's nearly 85% of China's total TV
population. This number is based on the viewing of the main CCTV
channels broadcasting the games. The average person spends 208 minutes
per day watching television. Source: CSM Media Research
China
Railway Construction Corp. acquisition of 15% of Inter Milan
>> MORE
Four in ten use the internet in
China. China's internet population hits 538
million >> MORE
China's e-commerce turnover to hit $9.6
billion in 2012
>> MORE
China promoting their own talent - many
have been educated overseas now.
>> MORE
80,000 developers in the real estate
industry >> MORE
The Asian Consumer
China's middle-class population will reach 600 million to 800 million
in the next 10 to 15 years, compared with about 300 million now.
"China Soccer Moms want SUV too
..." >>
MORE
The average Chinese millionaire is 39 years old, travels 8 days a month
for business, takes three international trips a year, owns three cars and
4.2 luxury watches >> MORE
They Chinese Consumer are increasingly modern and
international, but they remain distinctly Chinese - they are global
>> MORE
Asians are global real estate purchasers and since the
global economic financial crises, have dominated in some markets
>> MORE
Thirty percent of the 400 cars Maserati sold in China
last year were bought by women. "Women
accounted for more than half of China's estimated $15 billion in luxury
sales in 2010..." >>
MORE
Chinese are big savers. Foreign
insurers eye the Insurance business in China >>
MORE
Foreign
beer is a status symbol in China. China’s per capita beer consumption
stands at about 35 liters annually, less than half the U.S. level and
a quarter of the consumption of Czechs, the global leaders.
>> MORE
As with young, they determine well in
advance one's course in life >>
MORE
Practise, practise,
practise. China's children learn this young >>
MORE
Red tape cut as private jets set for mainland
take-off. The number of private jets on the mainland reached 109 last year, up 45.3 per cent year on year.
All mainland-registered private jets are subject to 17 per cent value-added tax and a tariff of at least 4 per cent.
Gulfstream opened an office in Beijing in 2011.
"In 20 years, China's cities will have added 350 million people-more than the entire
population of the United States today."
"By 2025, China will
have 221 cities with one million-plus
inhabitants-compared with 35 cities of this size in Europe
today-and 23 cities with more than five million."
"By 2030, 1 billion
people will live in China's cities. 170
mass-transit systems could be built. 40 billion square meters of
floor space will be built in five million buildings-50,000 of
which could be
skyscrapers."
"To achieve success in the country requires taking the time to develop relationships and gauging the
direction the market is moving"
-- Fedex SVP China
China with
its market of 1.3 billion people is the 'go to' place when people think of
expanding their business. People are now clamouring to China in the hopes of
jumping on the perceived gravy train. According to the Ministry of Commerce,
foreign direct investment in China grew 26.04 per cent year-on-year to reach
US$38.8 billion in the first four months of this year.
Today's China is reminiscent of the days when people thought the US streets
were paved with gold. But like the US myth, there are very few overnight
sensations; the bulk of the successes are the forward-thinking businesses that
started in China long before it became 'hot'. These businesses are succeeding
because they have a toehold in the market. They entered the market when others
simply shook their heads in wonder.
FedEx is a company that takes risks they believe will pay off by innovating
and energising its business. We began operations in China in 1984 when the
playing field was very different.
Back in those days, we had to work with an agent and all foreign carriers
partnered with the same provider. There was little opportunity for
differentiation, but the Open Door policy showed signs of a changing China and
we wanted to be on the ground and ready when the market changed.
China is a country that wants to know you are in for the long haul, that you
are committed to the country and its people. You absolutely need to 'think
global, act local'.
Success requires taking time to develop relationships. It also requires
looking to the future and gauging the direction you think your market is moving.
You need to demonstrate your commitment to the country by sharing best practices
and incorporating the special needs and requirements of China into your
operations.
Like a steam engine, China began with gradual changes, but the country soon
began to move at the speed of a high speed rail. Our presence in the country
gave us a front row seat to realise the full potential the opportunities these
changes presented. The relationships we developed helped us manage the complex
regulatory environment and seize the moment as the country moved towards a more
market-driven economy.
We had many 'firsts' in China. For example, we were the first to have an
on-line system with China Customs. We were the first foreign carrier to fly our
planes direct to China. We were the first to have an online system for
customers. We couldn't have had any of these firsts if we hadn't already built a
strong presence in the market.
Our presence in the market meant we were ready with logistics services for
customers when China decided to join the World Trade Organization. In 1999, we
partnered with a privately held Chinese company, DTW Group.
When the announcement to allow freight forwarding companies to become wholly
owned foreign enterprises (WOFE) was made in December 2005, we had already laid
the groundwork to acquire our joint venture partner. In January 2006, we
announced our intent to not only purchase the shares of our joint venture
partner's interest in our international express business, but also to purchase
the assets of their domestic express operations - another forward-thinking move.
It took time for all the t's to be crossed and the i's dotted, but FedEx
became a WOFE in March of 2007. Becoming a WOFE gave us custodial control of our
operations, which benefits our customers and strengthens our toehold in the
market.
Interestingly, in many ways our entry into the domestic delivery business was
like entering into a new business in China. Although it seemed the same to us -
we use the hub and spoke concept developed by our founder, the market and the
regulations were very different from our international express business. We had
to take the attitude that we were starting at square one and begin the complex
process of establishing ourselves as a reliable, committed domestic service
company.
We have now been in business for four years and have maintained a fluid
operation to meet the dynamic customer needs of the domestic market. Our
domestic business has increased steadily. For example, we have expanded our
service portfolio to include general delivery service, a reliable ground service
for less time sensitive shipments.
Our experience in China is fairly common. Nothing comes easy, but if you 'pay
your dues', that is laying the groundwork and building a reputation of trust and
reliability, the rewards can be great.
I always say you need to 'be like bamboo' when operating in China - strong,
but flexible. That is what we have in China, a strong but flexible business
operation ready to support China's market, whatever direction it takes. It is a
market that will keep you on your toes. It's an exciting place to do business -
and a profitable place to do business - as long as you keep up with the dynamic
pace. -- 2011 December
3 SINGAPORE
BUSINESS TIMES
The
Asian market analysis company CLSA
says that by 2020 about 44 per cent of the customers worldwide for luxury goods
will be in "Greater China." The survey of both well-heeled
consumers and luxury store managers found that the average Chinese millionaire
is 39 years old -15 years younger than non-Chinese counterparts -is male, has
4.4 expensive watches and three cars, preferably BMWs. CLSA says the global
luxury goods market was worth $225 billion last year, but by 2020 will reach
$515 billion.
A report from Barclays Capital says China now
accounts for 12% of global luxury goods sales. This is set to rise further as
the country's market is forecast to grow a further 20-30% a year. --
2011
GUARDIAN
Corporates are looking to supply the new middle
class of China
Hong Kong, as part of Greater China,
is tax-free shopping mecca for rich mainlanders
Real Estate in China
Real estate is a foundation of China's phenomenal growth record in the
past two decades, and its health is crucial to China's construction, steel
and cement sectors. Real estate is also a favoured investment of Chinese
looking to get better returns than bank deposits pay.
Mark Twain said: 'Buy land; they don't make any more of it.' As the world's population has
continued to grow, that would seem to have been a sensible piece of advice for most people. Of course, there are many factors driving land or property
prices - not least of which is the underlying strength of an economy. So too
is the importance of monetary policy as, too often, property booms have been
followed by busts around the world. At this time of great uncertainty, how
should one view property prices across Asia?
Over the last five years, Asian properties have been good investments.
Property prices in most of the region have outperformed inflation and, in
some cases, reached record highs, as domestic real interest rates stayed low
or negative. Singapore's private residential property prices have risen more
than 50 per cent since the last trough in 2009. Can this continue?
The reality is that it is not possible to predict the exact peaks and
troughs of any property market. However, it is possible to analyse the
underlying trends and have a good gauge of the fundamental value and of the
potential ahead. One of the biggest challenges arises when expectations get
carried away, leading property prices to rise too far.
Asia has to avoid the lethal combination of cheap money, leverage and
one-way expectations that led to the recent financial crisis in the West. An
advantage for Asia is that many countries in the region are adept at using
the so-called macro-prudential measures. These are policy tools that were
not used widely in the West.
As property prices have risen across Asia, the authorities have
implemented strict macro-prudential regulations, such as mandating lower
loan-to-value ratios on mortgages, imposing stamp duties on short-term gains
and higher down payments for second mortgages, to prevent one-way bets in
the housing markets.
At the same time, authorities are increasing land supply for developers
to build more affordable homes - particularly for lower income buyers. The
important point for investors is that regulators appear keen to prevent
property bubbles across the Asian region. In China, authorities are even
experimenting with property taxes.
Events in the rest of the world may make life tough for Asian policy
makers. One consequence of the Western financial crisis has been the wall of
money that has headed towards Asia, as well as other emerging regions, in
recent years. This money has been seeking higher returns in these
high-growth markets and has often ended up in property sectors. Alongside
domestic savings looking for a home, the net result has been property price
inflation across a number of cities. For instance, tier-one cities in China,
such as Shanghai and Beijing, and others such as Hong Kong and Singapore
have seen a surge in property prices. This has raised genuine concerns about
bubbles in many parts of Asia.
Prone to bubble
Earlier this year, Standard Chartered Research came up with a
'bubble-o-meter' which aimed to identify which of Asia's housing markets
carried the risk of inflating into bubbles. It looked at many factors,
including the rise in house prices, growth in mortgage debt and assessing
real interest rates. Our bubble-o-meter found that, of all the Asian
markets, Hong Kong, Singapore and some tier-one cities in China are the most
prone to a bubble, if current conditions continue.
Perhaps this should be a warning, not a deterrent, as it would stress the
need to look at the value and quality of any particular property. That is
more so because, in these cities or economies, the rise in prices can be
explained not just by low interest rates but also by rising incomes as well
as excess savings. In the longer term, rising incomes, rapid urbanisation
and the movement of an increasing number of rural labour into cities are
likely to drive property prices in cities across Asia higher.
In Singapore, rapid income growth is already helping support rising
property valuations. Singapore continues to attract talent, capital and
businesses from across Asia and beyond as it emerges as a regional
headquarters for global companies. The city state's population has risen 18
per cent in the five years to 2011 as its world-class infrastructure,
housing, schools and universities, as well as its political stability and
the rule of law, draw professionals, investors and business people from many
countries.
The number of foreign residents has increased 59 per cent over the past
five years. As we have seen in the case of prime London real estate, wealthy
international investors want to maintain properties here which they can use
for a multitude of reasons, including as a second home for their families to
settle into or as a holiday destination.
We see Singapore's economy continuing to benefit as a trading, services
and financial hub from the rise of China and India, and as its manufacturing
industry moves up the value curve. This, together with gradually rising
rates, points to further property price increases in the medium term.
Overall, Asia's relatively low leverage, compared with the West and with
previous bubbles, together with the region's robust growth outlook, means
that any property price correction is likely to be mild and less dangerous
for the wider economy. There is certainly the risk of a global recession due
to fallout from the European crisis.
Generally, though, there is likely to be a steady stream, or even a wave,
of capital once again flowing towards Asia, causing property prices to rise
faster than local incomes. This would test the mettle of Asian regulators
and their macro-prudential toolkit, especially if interest rates stay low in
the West.
Capital wave
Asian authorities have faced this challenge before and they seem to be
determined to overcome it. In Singapore, for instance, the government is
building 25,000 public housing units per year in 2011 and 2012, and could
build a further 16,000 units per year until 2015, to address pent-up demand.
The government plans to sell the new public housing units at a discount to
current market rates with an aim to moderate overall residential housing
prices.
These and other macro-prudential measures have already had a considerable
impact, with the rise in private residential prices slowing to 1.3 per cent
in the third quarter of this year, from a high of 16 per cent in the third
quarter of 2009.
For investors and households, prime properties in Singapore and elsewhere
in Asia are likely to remain attractive assets to acquire and to hold,
provided their expectations are well grounded. It is important to remember
that properties are cyclical assets and are prone to economic shocks, such
as a global recession, but in the longer term, they are likely to follow the
growth in real income in the underlying economy. As Asian incomes rise, so
will Asian property prices.
The writer is chief
economist and global head of research for Standard Chartered Bank
=====
The Central Bank has
tightened monetary policy, making it harder for developers to raise the
funds needed to finance their real-estate projects. This
situation came to a head with recent European Union financial crises in
Greece.
A
project by the largest state-owned real estate publico China Overseas Land (I was
offered position in Hong Kong as Non-Executive Director in 1999) according
to reports,
properties owners have not even taken the delivery of the properties (as
they were pre-sold), but the latest “group-buying” offered a 30%
discount to latest buyers. The properties owners were angry because
they haven’t even got the properties and went to the sales office to
demand a refund for the amount they lost, and they damaged the sales office
in the process. -- 2011
October 24
Having said all of this, co-investing
with sophisticated and cash-rich developers at this point of the cycle makes
a lot of sense as they are taking advantage of appropriate openings - blue
chips like Shui On, Hutchison Whampoa and Hongkong Land, who have the depth
of management, decades of experience operating in China and the right
connections to make strategic connections.
The difference between the property bubble in
China and in the West - is the absence of leverage
Investors in China have only three places
to put their funds: in the bank, in stocks or in real estate.
New investment
What's missing is leverage. As buyers have
to put down at least 40 per cent of the purchase price in most cases, a
bursting bubble would look different from the recent US housing crash. Still,
the fact that prices have reached such levels in the absence of easy mortgage
credit shows how much expectations of capital gain have risen.
So who owns all those empty buildings?
That's the wrinkle: China has a supply
bubble too. Rising prices have attracted new investment, but buyers and
sellers can't agree, so apartments sit empty. Ordos, a city in Inner Mongolia,
shows up on Google Earth as a pristine ghost town. And a widely circulated
rumour in 2010 suggested that 65 million Chinese homes had used no electricity
in the previous six months.
The government has helped create this
excess. Provinces depend on revenue from selling land for development.
Officials at every level have tacitly welcomed building activity, since it
pushes up gross domestic product (GDP), on which their success tends to be
measured. Even wealthy cities such as Tianjin and Dalian boast visibly empty
stretches of prime real estate.
Sellers also have no reason to cut a deal
in a hurry. Rental yields, as low as 1-2 per cent, are less than the cost of
depreciation, so there is little pressure to rent out properties. And since
many speculative owners have little or no leverage, they often do not face
cash flow pressure. - 2011
March 31 REUTERS
"Hong Kong-listed China developers are arguably more sound
financially than other listed in China and those not listed at all, but since
early 2010, these real estate developers have raised US$11,060 mn through the
debt market, and the weighted average coupon rate was close to 10%.
Compare that to latest People’s Bank of China Policy Rate: 5-year or above
lending rate is 6.6%. "
Sample of Hong Kong-listed China Real Estate
Developers who raised capital from bond market:
Industry powerhouses are eyeing the next hotpots for expansion. The ten
“hotly contested” cities for expansion include Ordos in the Inner
Mongolia autonomous region, Taiyuan in Shanxi province, Tangshan in Hebei
province, Hefei in Anhui province, and Qingdao in Shandong province,
according to WLA. -- RED
LUXURY
Western companies underestimate how quickly the Chinese market is
developing and how little time they have to establish a competitive
foothold—particularly in cities other than Beijing and Shanghai
China is the largest economy on
the planet that's still growing at
breakneck speed.
China has more than $2 trillion
in budget surpluses to spend as it
sees fit.
China is spending billions on
boosting China's inland economies...by 2025 China will have 221
cities with more than one
million people living in them.
New highways, bridges, power
grids, airports and high-speed railways-you name it-have been
built. And China has also built the same number of houses
currently in ALL of Japan and TWICE the number in the UK in just
10 years! At the current rate of construction, another
Europe could be built in just
15 years
China Shops - Investments & Operating
Businesses
The world's top exporting nation amassed $2.7 trillion in aggregate
domestic savings by the end of 2009, a pot likely to grow sixfold by 2020,
according to the World Bank. Experts are predicting a surge of
overseas takeovers by Chinese companies over the next decade. A five-year plan
Beijing approved in March calls for establishing "international sales
networks and brand names."
>> WALL
ST. JOURNAL2011June 6
The Chinese are Everywhere!
[in property] HEADLINES
Chinese (PRC)largest overseas buyers in Singapore
The Chinese have overtaken Malaysians as the second-largest overseas buyers in Singapore’s
residential market, despite the Singaporean government introducing measures
aimed at cooling down the market.
International
property consultancy Jones Lang LaSalle says that in 1Q2011, Chinese and
Malaysian buyers bought more than 50% of the flats sold in Singapore’s prime
residential areas.
Indonesian, Chinese and Malaysian buyers accounted for 24%, 16% and 14% of the
sales respectively, it says.
But the Chinese made up the majority of the buyers who spent S$5 million (about RM12 million) or
more on residential property in central and prime markets and, in 1Q, 31% of
the 54 homes worth S$5 million or more were sold to Chinese buyers.
“The surge in
Chinese buyers in Singapore coincides with the policy tightening in China. We
expect the number of Chinese buyers to stay at a healthy level as seen in
previous quarters, as the fiscal and monetary policy in China remains
conducive to overseas investment by the wealthier Chinese,” says Dr Chua
Yang Liang, head of research and consultancy at Jones Lang LaSalle’s
Singapore office.
Since Beijing introduced limits on home purchases, Chinese who have been barred from buying
third properties at home have had to go to overseas markets to expand their
property investment portfolios.
Although Singapore, like Hong Kong and the Chinese mainland, has tightened borrowing limits and
introduced a hefty stamp duty to penalise short-term speculators, demand from
the Chinese mainland has remained strong.
Chua says that the Chinese buyers are motivated by the fact that many have children studying in
Singapore. >>
MORE
According to a recent article in the Telegraph,
with the infrastructure projects currently underway in project and in planning
stages, some are speculating a mega-city in the Pearl River
delta comprising an audience, the size of Canada currently:
City planners in south China have laid out
an ambitious plan to merge together the nine cities that lie around the Pearl
River Delta.
The "Turn The Pearl River Delta Into
One" scheme will create a 16,000 sq mile urban area that is 26 times
larger geographically than Greater London, or twice the size of Wales.
The new mega-city will cover a large part
of China's manufacturing heartland, stretching from Guangzhou to Shenzhen and
including Foshan, Dongguan, Zhongshan, Zhuhai, Jiangmen, Huizhou and Zhaoqing.
Together, they account for nearly a tenth of the Chinese economy.
Over the next six years, around 150 major
infrastructure projects will mesh the transport, energy, water and
telecommunications networks of the nine cities together, at a cost of some 2
trillion yuan (£190 billion). An express rail line will also connect the hub
with nearby Hong Kong.
-- 2011
ECONOMIST
We do not find this concept so
far fetched. Already a
bridge is under construction to connect to Hong Kong and Li Ka-Shing, the
world's richest Chinese billionaire has a number of projects across the border from Hong
Kong.
Foreign private equity players face big
squeeze in China
The odds are increasingly stacked against foreign private equity (PE)
players in China, as they face greater competition from peers and domestic
yuan funds.
These new domestic players are redefining the PE landscape in China with
swift deal-cutting and their willingness to stomach higher valuations. Foreign
players find themselves increasingly priced out.
Many of the domestic yuan funds, even if they have a sizeable capital of a
billion yuan, are able to 'make investment decisions within minutes', Johnson
Teh, managing director of Singapore-based Black Swan Equity Partners told BT.
According to Alvin Li, managing director for direct investments at CCB
International Asset Management (which now has only US dollar PE funds), there
are currently more than 2,000 yuan-denominated PE funds on the mainland, of
which most are small with capital of under 100 million yuan (S$19.4 million).
They know the market very well and are able to sew up small deals quickly
without much fuss.
The competition is intense - a number of firms compete for
each deal, he said.
Competition is not just coming from domestic players. Foreign PE players
themselves are rushing to put their money to work.
Latest data from Thomson Reuters shows that some US$246 billion in PE
commitments have been made in Asia Pacific and Japan since 1995, but only
US$173 billion or 69.8 per cent of commitments has been invested in portfolio
companies or other PE entities.
Mr Teh noted that many Hong Kong-based US and UK funds that raised funds
just before the 2008-2009 financial crisis and stayed liquid during the period
are now eager to snap up deals, so some have started to match up to the
valuations offered by the Chinese domestic PE funds.
'We are ultimately chasing the same assets in China. That's where it gets
intense,' Mr Teh said. 'Many PE players are rushing in and paying high
valuations to the asset owners, which we personally see as creating a bubble.'
This could erode returns for PE investments in China at a time when the
inflation bubble and prospect of policy tightening have raised investment
risks too, he added.
Last year, 82 PE funds set up in China raised 27.6 billion yuan, more than
double the 12.96 billion yuan raised by 30 funds during the previous year,
according to Beijing-based fund consultancy Zero2IPO.
Of the 82 PE funds, 71 are denominated in yuan, although they raised a
combined total of only US$10.7 billion, compared with US$16.94 billion by
generally much bigger hard-currency funds.
Apart from state-owned enterprises, China's domestic PE funds are run by
well-connected private individuals. Some operate largely on the strength of
relationships with local government or entrepreneurs - though the bigger
domestic PE players like Hony Capital and Legend Capital are said to abide by
traditional PE rules.
Global players believe they can distinguish themselves from the pack
through their operational expertise, international network and other resources
beyond merely providing capital.
More foreign PE firms are mulling the prospect of launching yuan-denominated
funds in China or tapping the upcoming pilot QFLP scheme in Shanghai, Beijing
and Tianjin for qualified foreign limited partners to convert investments into
yuan.
One Singapore-based fund manager at a US PE firm told BT that the company
has been in discussions in the past few months to launch an onshore yuan fund.
London-based 3i is also said to be seeking to raise a yuan-denominated fund to
invest in Chinese private equity.
Blackstone Group, the Carlyle Group and TPG Inc have already launched yuan-denominated
PE funds in partnership with local governments or companies, after the
government relaxed rules allowing them to do so.
In a bid to be 'local' and stay close to the ground, some foreign players
like Carlyle and Blackstone have also set up offices on the mainland and hired
locals with strong local knowledge.
But regulatory factors in China do not appear to be in their favour.
Foreign investors are restricted from certain downstream investments, such
as in sensitive sectors, secondary stock market, bond trading market or real
estate investment, said Anthony Zhao, a senior partner at PRC law firm Zhong
Lun.
Deloitte China has also pointed out that there are market concerns about
the capacity of the A-share markets to support IPOs that could stem from yuan
funds seeking to exit from portfolio companies.
The wait for approval from the China Securities Regulatory Commission for a
Shanghai listing is estimated to be five years.
-- 2011 February 9 BUSINESS
TIMES
In the old days, we used to peruse 'China
Reconstructs' but nowadays the country is scoring a number of First's
Some 63% more Porsches – or a total of
14,785 vehicles – were driven away from Chinese showrooms. The best-selling
model, which accounts for more than half of Chinese sales, is the Cayenne SUV.
-- 2011 GUARDIAN
China 's use
of its foreign reserves in the international currency markets is aimed at
managing the value of the yuan - a normal part of any country's monetary
policy. Much like that of the US Federal Reserve, the job of the People's Bank
of China is to create a financial environment that maximises the likelihood of
full employment and stable prices at home.
US President Obama visited China recently, primarily to find out what exactly & how exactly China is
doing things that makes it such a success story, surpassing all the
so-called "expert economic planners" of the US & Europe. His
team found these 5 basic lessons behind China 's success - it applies
equally to everybody :
LESSON No 1 - BE AMBITIOUS
The Chinese believe in Setting Goals, Making Plans, & Focusing on Moving
Ahead - there is always the sense of forward motion.
As an example, a huge 6-lane highway in Shanghai took only 2 years from
planning to ready for traffic. In the US , 2 years will only get you the
environment and local authority permit if you are lucky.
LESSON No 2 - EDUCATION MATTERS
The Chinese are obsessed with ensuring kids get the right education -
English, Maths & Science. They made sure that their education system
reached even the most remote rural areas - today the literacy
rate in China is OVER 90%, surpassing even the USA 's 86%. According
to American Educationists, the Chinese kids are ahead of the kids in the US
. LESSON No 3 - LOOK AFTER THE ELDERLY
The Chinese DO NOT send their elderly to nursing care centres -
they personally look after & care for their parents. In the US , nursing
care of the elderly is now costing each resident USD 85,000 annually, &
this is rising. The Chinese also believe that the grandparents
at home make the best tutors for their children. It also provides a sense of
cultural continuity - this helps bind society. LESSON No 4 - SAVE MORE
In the US , savings dropped to zero in 2005, and is only now slowly rising
to 4%. In China , the savings rate for every household has exceeded 20%. The
Chinese believe that fugality & a healthy savings rate are a sure
indicator of a country's financial health. High savings lead to increased
investments - results in increased productivity, innovation & job
growth. LESSON No 5 - LOOK OVER THE HORIZON
In China , everyone is forward looking - anticipating the future
and investing accordingly. New graduates make a vow -
never ever will their children & grandchildren be worse off than they
are. With this kind of forward mentality, people are always thinking &
planning how, not just to succeed, BUT how to be the best in the world in
everything they do
.
Leverage
is an important indicator in judging how susceptible a housing market is to
growing into a bubble. The chart above from BCA Research, shows debt as a
percentage of disposable income in China and in a number of developed-market
countries. More than half of the developed countries had debt in excess of
income, with Denmark and Ireland pushing 200 percent.
China is at the far other end, with debt totaling just 44 percent of disposable income. Furthermore, homebuyers in
China put down at least 20 percent as a down payment (30 percent for a
first-time buyer and 40 percent for a second-home buyer to damp down
speculation). These buyers rarely fall behind on their mortgage payments.
It’s obviously true that there has been rapid
price appreciation in major cities like Shanghai and Beijing. Prices have
risen above the affordability level for most families in these cities, and
that is why the government is acting to let some air out of those markets
before dangerous bubbles form…
Where does the China housing market go from
here? Home inventories are low in major cities – at the current sales pace,
there are only a few months worth of inventory in Shanghai, and the situation
isn’t much better in Beijing or Shenzhen.
But demand is still strong. A recent survey by the Hong Kong-based brokerage CLSA found
that 56 percent of China’s middle-class families are considering buying a
new home – despite the higher prices many families can pay a 30 percent down
payment because of their higher savings.
The country's approach to prevent a housing
bubble
New home prices continue to rise in China
New commercial home prices in 36 major
Chinese cities continued to climb month-on- month in May despite the
government's attempt to cool the property market, the National Development and
Reform Commission (NDRC) said
Average new commercial home prices in 36
popular cities were priced at 8,479 yuan (S$1,719) per square metre in May, up
0.81 per cent from the April figure, according to the NDRC.
However, the May growth rate in those 36
major cities was 2.65 percentage points lower than the April figure.
According to the National Bureau of
Statistics figures released on June 10, home prices in 70 large- and
medium-sized Chinese cities rose by 12.4 per cent year- on- year in May.
To rein in house prices, the Chinese
government has tightened scrutiny of developers' financing, limited loans for
third-home purchases, raised minimum mortgage rates and tightened down-payment
requirements for second-home purchases. --
Xinhua2010
June 24
China's property stocks fell to the lowest
levels in more than a year after the Economic Observer said the State Council
has approved a real-estate tax trial in four cities. And Citigroup forecast
prices may drop 20 per cent.
Turning point: Guangzhou
had 804 cancellations for home purchases on April 19, the highest on
record
China Vanke Co, the biggest developer, slid
2.6 per cent to close at 7.90 yuan, extending its decline this year to 27 per
cent. A gauge of property stocks in the Shanghai Composite Index retreated 1.8
per cent to its lowest since April 8, 2009.
The trial will start in Beijing, Chongqing,
and Shenzhen and then in Shanghai following the World Expo, the report said,
citing an unidentified person.
A 'turning point' in the China property
market is 'unavoidable,' Citigroup analysts Oscar Choi and Marco Sze wrote in
a report yesterday.
'Investors are worried about a worst-case
scenario for property companies along with banks on the government's
crackdown,' said Wei Wei, an analyst at West China Securities Co in Shanghai.
China has introduced 'the most draconian' measures in the past week,
according to Deutsche Bank AG's Greater China chief economist Jun Ma, after
earlier steps including raising the amount of bank reserves failed to
prevent a record surge in property prices in March.
Hedge fund manager James Chanos said China is 'on a treadmill to hell'
and that the real estate is a bubble that may burst as early as this year.
The property bubble could hurt social as well as financial stability and
must be deflated if the country is to urbanise and develop a healthy
economy, the China Securities Journal said in an editorial yesterday.
The implementation of a property tax is 'inevitable,' the only question
is when and where, Michael Klibaner, head of research at Jones Lang LaSalle
Inc, said in Shanghai yesterday.
Citigroup analysts predicted home prices may fall as much as a fifth from
current levels by the end of the year, as tightening measures and increased
land supply take effect.
The southern city of Guangzhou had 804 cancellations for home purchases
on April 19, the highest on record, China Business News reported, citing the
Guangzhou Municipal Land Resources and Housing Administrative Bureau.
The housing ministry vowed on April 20 to punish developers that
'artificially' create supply shortages and ordered builders not to take
deposits for sales of uncompleted apartments without proper approval.
The central bank last week raised mortgage rates, increased down payments
for home purchases and ordered banks to restrict loans for buyers of three
or more homes. State-owned companies were ordered by the government in March
to pull out of property development if it's not their main business.
Demand for housing in China will withstand government bank lending curbs,
and further declines in the nation's property stocks may be an opportunity
to buy the shares, Templeton Asset Management's Mark Mobius said this week.
Alpha Investment Partners, a unit of Singapore developer Keppel Land, is
looking to invest in Chinese property as it bets on 'real demand' to hold
up, managing director Loh Chin Hua said in Singapore on Wednesday.
Shanghai New Huangpu Real Estate Co slumped 4.7 per cent to 13.11 yuan
yesterday, extending a loss this week to 21 per cent. Greentown China
Holdings, which develops villas, slid 2.4 per cent to HK$8.47 in Hong Kong,
a 12th day of declines. -- Bloomberg
2010 April 23
China is an economic growth story which
is what Financial Markets like
"[By 2025,] 40 billion square
meters of floor space will be built -- in five million buildings. 50,000 of
these buildings could be skyscrapers -- the equivalent of ten New York
Cities."
Source: Mckinsey,
"Preparing for China's urban billion"
Why Real Estate in China?
By 2030, China will add more new city-dwellers than the entire U.S. population;
Residential and commercial property prices in 70 major mainland cities
rose 5.7 percent in November from a year earlier, up from 3.9 percent in
October, according to the National Bureau of Statistics.
Prices of newly built residential units grew 6.2 percent in November,
while secondary home prices gained 5.5 percent.
CCTV reported that average secondary property prices in Beijing reached
an annual high of 13,112 yuan (HK$14,881) per square meter in late November.
Transaction volume last month also surged nearly 80 percent from October.
Primary homes in Beijing were 3 percent dearer in November than October.
The upside appears to have continued in December, with the average cost of
property units in a Sanlitun project rising from 40,000 yuan per sq m to
42,000 per sq m within three days.
- 2009 December 11THE
STANDARD
China's US$114 billion pension fund plans
to ramp up its investments overseas in search of higher returns, even though
it expects the yuan to strengthen in the long-run, according to a report
from Reuters that appeared in Singapore’s Business Times.
Dai Xianglong, chairman of the National Social Security Fund (NSSF), said
the fund would pour more money into foreign stocks and bonds as well as
overseas private equity funds and unlisted firms.
The NSSF is permitted to invest up to 20% of its assets outside China. The
proportion now is just 6.7%.
“We are selecting, and are in contact with some Hong Kong financial
professionals. Of course, I hope we can do some deals,” Mr. Dai said.
The NSSF, which functions as a backstop for China's patchwork of underfunded
provincial pension schemes, will also keep buying stakes in domestic
companies, particularly financial firms, Mr. Dai added.
The pension fund expects to increase its assets under management to two
trillion yuan (US$293 billion) by 2015 from 776.5 billion yuan at the end of
last year, Mr. Dai said.
The fund, set up in 2000 with government capital and dividends from listed
state firms, had a return on investment of 16.1% last year. Its average
annual return over its nine-year history is 9.75%.
Expressing optimism about overseas markets, Mr. Dai said the United States
would achieve its goal of doubling exports in five years, while the
eurozone's sovereign debt strains would not escalate.
Mr. Dai, a former central bank governor, said the yuan was likely to tread
water for the time being despite intense US pressure on Beijing to let the
currency appreciate. In the long-run, though, the currency was headed
higher.
At home, the pension fund would inject 15 billion yuan into Agricultural
Bank of China, the only big state lender that has yet to float its shares,
and 20 billion yuan into China Development Bank, he said.
The NSSF has invested 10 billion yuan into each of Industrial and Commercial
Bank of China, Bank of China and Bank of Communications, earning returns of
more than 25% in the last three to four years, he said.
“In the future, when China's financial firms want to expand their capital
base, we will make our investment decisions based on market conditions,”
Mr. Dai added.
He was upbeat about the long-term outlook of China's stock market, but he
added that 2010 would be a difficult year due to policy uncertainties.
As a key institutional investor in China, the pension fund would be a big
user of domestic stock index futures when they are launched next month in
Shanghai, Mr. Dai said. -
2010 April 1
Just 16 state-owned firms allowed to deal
in property:
16 companies still in the property fray
include China State Construction (3311), China National Real Estate
Development, China Poly Group, China Railway Construction (1186) and
Sinochem Corporation.
The list also includes China Travel
Services Holdings, China Merchants Group, China Resources (Holdings) and Nam
Kwong Group Limited. - 2010
March 19 THE
STANDARD
At Fendi, creative director Karl Lagerfeld
staged the first-ever runway show on the Great Wall of China last October
in, arguably, the slickest example of brand building that the luxury market
has seen in years.
"Why are we in China? Because in the
next 25 years, it will become the world's greatest economic power and we
want Fendi to be very important in this country," Bernard Arnault,
president of LVMH, the giant French luxury empire that Fendi, told Fashion
Wire Daily. - 2008
Spring FQ MAGAZINE
China is set to overtake
the U.S. as the largest grocery market in the world by 2014, according to
global food and grocery expert IGD.
The firm predicts that the Chinese grocery market will be
worth nearly $1.1 trillion in four years. - 2010 February
8 Progressive
Grocer
Tesco formed a 50-50
joint venture with an investment group that includes HSBC Nan Fung China
Real Estate Fund, Metro Holdings of Singapore and Nan Fung Group of Hong
Kong to build three shopping centers in China. The venture will build a
500,000-square-foot mall at Fushan in northeast China and two other malls in
the northern cities of Anshan and Qinhuangdao.
- 2009 November
China now No. 5 World's Largest Consumer
Market
China has become the fifth-largest market
for consumer spending, at $890 billion, following the U.S., Japan, the U.K.
and Germany. The ratio of China's personal consumption to GDP is only 36%,
half of the U.S. figure and two-thirds of the figures in Europe and Japan,
indicating the market still has enormous growth potential.
China will become the third-largest
consumer market worldwide after the U.S. and Japan by 2020, when consumer
spending is expected to exceed $2.5 trillion, according to global
consultancy McKinsey. China will reach another milestone much sooner,
however, when it surpasses Japan as the world's second-largest economy by
early next year, as much as five years earlier than previously
forecast.
Chinese insurance companies will be
allowed to invest directly in commercial real estate for the first time
under new regulations that are set to trigger a huge influx of cash into the
country’s high-end property market - 2009
September 29 FINANCIAL
TIMES
China's industrial output grew by 16.1%
in October compared with a year earlier. Retail sales were up by 16.2%. The
data underscore China's rapid economic recovery, thanks in part to a huge
stimulus package. Car sales, for instance, have been booming (up by 72.5% in
October) because of a cut in sales tax on new vehicles. - 2009
November ECONOMIST
China's share of global GDP (PPP
adjusted) was less than 2 per cent in 1980 but has grown to 11.5 per cent in
2008. She has grown an average of 10 per cent per annum for the last 30
years and is forecast to overtake the US as the world's largest economy by
2027 by Goldman Sachs, and even earlier, by 2020, by the Economic
Intelligence Unit.
In 1980, China was the 32nd largest
exporter in the world. In 2008, she was the second largest.
In 2008, profit of the top 500 Chinese
companies exceeded that of the top 500 US companies. The top 500 US
companies chalked up US$98.9 billion profit compared to their Chinese
counterparts, which generated US$170.6 billion profit. However Chinese
companies are not branded well internationally because they are focused on
industrial products on a B-to-B basis rather than B-to-C directly to the
mass market.
The top two companies in China are larger
in value than the top two in the US: Petrochina and ICBC are valued at
US$338 billion and US$323 billion respectively, compared to US$320 billion
and US$211 billion for Exxon Mobil and Microsoft respectively.
China's fast growing savings are being
strategically reserved for the rainy days.
China's foreign exchange reserve was
US$1.6 billion in 1980; in 2008 she had the largest foreign reserve in the
world at a whopping US$2.13 trillion. This is 30 per cent of the global
reserve and is now well deployed to provide stimulus to the economy.
As of August 2009, China's (including
Hong Kong) US$5 trillion market value stock market is the second largest in
the world. Notably, only one per cent of China's population invests in the
stock market, compared to about 45 per cent of the households in the US. It
is obvious that the growth potential for China's stock market is phenomenal.
- 2009 October 31 BUSINESS
TIMES
Why the Chinese invest abroad They get higher margins,
ready-built brands and sales networks, supplies of key energy and raw
materials
Hummers and Saabs in the hands of the
Chinese? The thought of Saab, a global symbol of Sweden, and Hummer, the
epitome of America's love of big things, calling China their home would have
seemed unthinkable in the not-too-distant past.
But times are changing, and while
everyone else is tightening their purse strings in this economic climate,
China is increasing its overseas mergers and acquisitions (M&A). And
both Hummer and Saab could very well be surviving on Chinese soil if Sichuan
Tengzhong and Beijing Automotive Industry are successful in their bids.
According to United Nations Conference on
Trade and Development (UNCTAD), China's foreign direct investment (FDI)
outflows for the period 2002-2006 grew at a rate of more than 60 per cent
per year, and its total FDI stock at the end of 2008 was almost US$148
billion, or 3.4 per cent of China's GDP in the same year.
While these may seem like impressive
numbers, China's outward FDI flows and stocks are actually quite small
relative to the size of its economy. For the sake of comparison, the outward
FDI stock as a percentage of GDP was 14 per cent for developing economies
and 26.9 per cent for the world.
If China decides to match the average
rate of FDI stock for developing economies, we can almost certainly expect
to see more M&A activities.
While FDI outflows will continue to focus
on natural resource-rich regions, such as Africa, Latin America and
Australia, knowledge-rich companies (in technology, skilled people,
distribution networks) with strong brands in North America and Europe will
also be potential FDI targets.
So why do Chinese businesses invest
abroad? Let's look at this question from the perspective of the Chinese
government, Chinese companies and foreign companies.
China's annual FDI outflow was virtually
non-existent in 1979, due to a lack of foreign currency reserves. However,
after 30 years of strong growth, partly fuelled by international trade,
China has amassed huge foreign reserves (US$2.27 trillion as of September
this year). As pressure mounted from trading partners to float its currency
upward, the Chinese government responded by acquiring assets overseas - most
of which were in natural resources to support China's economic growth.
After joining the WTO in 2001, the
Chinese government began selectively supporting the overseas expansion of
Chinese companies in their quest to become internationally competitive
players. The support was mainly in the form of tax rebates and cheap loans.
Additionally, in 2005, when the Chinese currency policy was switched from
being pegged to the US dollar to being pegged against a basket of its major
trading partners' currencies, the Chinese yuan appreciated against the US
dollar. A stronger yuan tends to favour overseas acquisitions over direct
exports.
Low-cost manufacturers, such as those in
the automotive and consumer electronics industries, were plagued by
overcapacity and cut-throat price wars that made domestic markets
hyper-competitive. With a lack of profit potential in the domestic market,
foreign markets became more attractive because they had less competition,
higher margins and they provided an opportunity for Chinese manufacturers to
capture a larger portion of the value chain.
Acquiring capabilities (R&D and
talent) is a second major reason why Chinese companies are reaching beyond
their domestic borders. A case in point is China International Marine
Containers (CIMC), a container manufacturer that acquired several foreign
companies and licensed advanced technologies to improve its manufacturing
process.
By licensing technology from Germany,
CIMC improved its reefer production process, reduced capital inputs and
increased its capacity and efficiency by leveraging on automotive
technology. Production volume was expanded 1.5 times with merely 20 per cent
of the original capital input. Productivity improved from a rate of over 20
minutes per container to about five minutes per container. Foreign staff,
who understand their home markets and environments, have been hired to run
the European operations.
Acquiring brands and a sales network,
instead of building them from scratch, is another reason why Chinese
companies invest abroad. For example, in December 2004, Lenovo announced
that it would acquire IBM's PC division for US$1.75 billion. The deal
quadrupled Lenovo's PC business, realising the company's globalisation
dream.
The deal also gave Lenovo the right to
continue using the IBM logo on its products for the first five years. The
renowned ThinkPad laptop and ThinkCentre desktop brands would belong to
Lenovo. The access that it gained to global sales channels, management
talent, research and development capabilities and global corporate clients
was critical to Lenovo's future global expansion.
Finally, as China is poorly endowed with
oil, gas and other natural resources, Chinese companies acquire these
resources abroad to secure the supply of key energy and raw materials in
order to sustain economic growth.
In February last year, Chinalco teamed up
with Alcoa, a major US aluminium producer, to purchase a 12 per cent stake
in Rio Tinto, the world's biggest mining company, for US$14.5 billion.
Chinalco's interest in the company would secure its bauxite and iron ore
reserves.
From the foreign company's perspective,
China's activities abroad are viewed as both a threat and an opportunity.
While Chinalco's 2008 effort was viewed as an opportunity, Chinalco's
interest in investing an additional US$19.5 billion in Rio Tinto in February
this year was not viewed as favourably. As a result, Rio Tinto unilaterally
abandoned its deal with Chinalco in June. Another example was the US$18.5
billion bid by China National Offshore Oil Corporation (CNOOC) in 2005 for
Unocal, the US oil company, which the US government blocked. In the end,
CNOOC withdrew its bid.
Finding the right opportunities can be a
challenge for Chinese companies, as it requires the willingness of the
target companies and their governments to accept a Chinese acquisition.
However, the economic crisis has meant that the opportunities are there and
they are at the right prices, as evidenced by the Hummer and Saab cases.
In today's volatile economic environment,
multinational companies would be smart to review their business portfolios
and take advantage of the opportunity to either partner with or sell their
non-performing businesses and assets to Chinese companies. As more companies
enter into strategic alliances, joint ventures and partnerships with Chinese
companies, the global competitive landscape is bound to change, and those
companies that participate will have a unique competitive advantage.
- 2009 December 4 BUSINESS
TIMES
REAL
ESTATE
\
GUANGZHOU, China—What
is being billed as the world's most energy-efficient skyscraper is being
built here in the center of one of China's smoggiest cities by state-owned
China National Tobacco Co.
It is the latest example of a new trend
in China's burgeoning commercial-property market: State-owned businesses in
industries as disparate as insurance and tobacco are emerging as developers,
putting up the cash to build some of the most eye-catching skyscrapers in
the world.
These large corporations are drawn to
these projects by potentially lucrative returns and are helped by strong
connections and easy access to state bank lending. While these companies
typically occupy some of the space they build, they often put much of it on
the market to lease to others. China National Tobacco plans to lease out
most of the 71 floors in its new project to other tenants.
"We are a tobacco company, but the
management is also thinking about the future," the project's chief
engineer, Hu Baiju, said during a recent interview
Ping An Insurance (Group) Co. of China
Ltd., one of China's biggest insurers, already has committed to investing
about 25 billion yuan ($3.66 billion) in Chinese property over the next
three years through a trust. It now is working on what will be one of
China's tallest buildings, in the southern city of Shenzhen, financing the
multibillion-yuan skyscraper entirely with its own capital.
China's state-owned enterprises also have
been shaking up property prices, both at record-breaking government-land
auctions and on the secondary office market. Last fall, Agricultural Bank of
China paid about US$550 million for a top-grade Shanghai office tower,
according to brokers.
"Before 2009, there were relatively
few state-owned enterprises involved in land sales and property markets;
most concentrated on their own businesses," said Hing-yin Lee, a
Shanghai property broker for Colliers International. Now, he said,
"they see that easy profits can be made."
At the same time, the building techniques
Chinese companies are using in these new developments reflect the country's
hope to leapfrog the U.S. by taking the lead in developing new green
technologies that have long-term growth potential. The China National
Tobacco project has four big wind turbines, solar panels and a dual-layer
glass skin that traps sunlight and pipes it into the building's heating
system.
Shanghai-based head of office services
for CB Richard Ellis in China, said state-owned enterprises are big
employers that are expanding quickly in China, and see constructing and
buying landmark buildings as a way to put their "badge" on a
high-profile skyline.
"[State-owned enterprises] have the
opportunity to acquire sites in prime locations and have the cash or access
to cash to be able to develop buildings tailored and customized according to
their specific requirements," Mr. Latham said.
Office vacancy levels are at about 20% in
Beijing and 16% in Shanghai. Those are high rates by U.S. and European
standards, but the new space is expected to be absorbed quickly thanks to
the strong growth of the Chinese economy.
Also, much of the vacant space is second
rate, so demand for the newly built prime space may be strong.
State-owned enterprises also are keen to
show that they are in step with the priorities of national and regional
officials, who have made it clear that green companies and those
constructing sustainable buildings are going to enjoy more official support.
In the case of the Pearl River Tower, as
China National Tobacco's tower is known, the company's management decided to
make the green plunge at the encouragement of Guangzhou's municipal leaders,
who set aside a large swath of prime farmland for a new business district
and encouraged state-owned corporations to participate.
China National Tobacco decided it would
build a landmark environmental building, and four years ago, through a
subsidiary company, hired Chicago architects Skidmore, Owings and Merrill
LLP to fashion the world's first "zero-energy" skyscraper,
generating all the energy it needed to operate itself.
Skidmore Owings embedded the tower with
triple-glazed facades and solar panels, and chilled radiant ceilings. Its
showpiece: four power-generating vertical-axis wind turbines.
"A lot of clients say they want to
build something very energy efficient, but in this case, they really
followed through with that goal," said Ame Engelhart, a Hong Kong-based
Skidmore associate involved with the project.
Ms. Engelhart said China National Tobacco
is one of the few companies willing to put its money where its mouth is on
environmental issues. While the building won't be smoke-free, it will
restrict smoking to designated areas, a far cry from China's typically hazy
workplaces. The project is expected to be completed in about a year.
Ms. Engelhart said a building like the
Pearl River Tower costs about 10% to 15% more than without the
energy-efficient features, but said the projected cost savings could mean
the building breaks even within five years.
Some of Skidmore's ideas, including
"microturbines" that would sell extra capacity back into
Guangzhou's power grid, were barred by municipal regulations. But Skidmore
still maintains that the 2.2-million-square-foot tower will consume about
8.76 billion pounds of carbon dioxide over its life cycle, 58% less than a
nonenhanced building of the same scale.
The municipal government of Guangzhou's
construction arm, Guangzhou City Construction & Development Co., also is
getting in the act, having hired Wilkinson Eyre Architects of London to
design a 103-story skyscraper not far from China National Tobacco's tower.
The 750 million yuan building, set to
open in October as the Guangzhou International Finance Center, features
high-efficiency chilled water systems and heat recovery design, an
air-conditioning system that recycles condensed water, built-in carbon
dioxide sensors and double-glazed windows.
"In the long run, the costs will be
offset by savings on a range of resources such as energy and water,"
said Liang Jihao, deputy general manager of the municipal construction
company. - 2010
January 13 WALL
ST. JOURNAL
China property sales more than US, UK
together
Commercial property deals total US$31b
in H1 as easy credit boost land sales
(BEIJING) China outpaced the United
States and the UK combined in commercial property sales in the first half of
the year, Real Capital Analytics Inc (RCA) said.
China's transactions totalled US$31.2
billion following a surge in land sales after the government eased credit
terms, according to RCA. US sales were US$16.2 billion in the first half,
according to the report, and the UK's were US$13.7 billion.
'There's no question that China will be a
more significant player on the world stage for commercial property
transactions versus other Western countries,' said Dan Fasulo, the managing
director at RCA. China's growth 'may not be sustainable at this level', he
said.
About US$62.8 billion of commercial
properties were sold during the second quarter, 17 per cent more than in the
previous three months and the first increase in 18 months, RCA, a New
York-based research company, said in a report yesterday.
The research firm said sales growth is
the first step towards a global recovery. The first half's total sales were
US$116.4 billion, 65 per cent less than a year earlier and US$500 billion
below levels at the height of the market in the first half of 2007,
according to the report. Countries that receive the most financial support
from their governments will recover faster, said RCA.
The amount of office space sold in China
rose 13 per cent in the first seven months of this year, while sales of
property for commercial uses gained 22 per cent, the National Bureau of
Statistics of China said in an Aug 10 report, without giving more details.
Sales in the second half may rise as
investors believe that 'the economy has bottomed out, clearing some of the
uncertainty', Lee Hing Yin, Colliers' director of research of East China,
said in an interview yesterday.
Soho China Ltd, the biggest developer in
Beijing's central business district, last week said it bought an office and
retail development for 2.45 billion yuan (S$516 million) that it plans to
sell within a month or two.
'Asia's looking the healthiest. They're
very optimistic over there, like a young buck,' said Ray Torto, Boston-based
global chief economist for CB Richard Ellis Group Inc, the world's largest
real-estate broker, in an interview. 'You come back to the US and you're
talking to an older man.'
The slow US recovery reflects the 'deep
connections of its major institutions to the epicentre of the 2008 financial
cataclysm', RCA said.
US spending was 6 per cent of the
first-half amount in 2007, Mr Fasulo said, compared with China's spending of
92 per cent.
The total volume of properties in
default, foreclosure or bankruptcy around the world has reached US$230
billion, increasing US$96 billion in the second quarter, RCA said.
'The growth in transactions is only a
first step in the recovery process,' according to the report. 'Pricing and
operating fundamentals remain in decline and debt remains scarce.'
- 2009 August 25 Bloomberg
"Our conviction over the medium term
is the China real estate story. . .strong personal income growth, the
urbanisation and industrialisation demand, and also lack of alternative
investments" - 2008
February 26 ING's
Justin Pica
"With global money supply rising following the quantitative easing measures enacted in 2008, ample Chinese liquidity impacting Hong Kong through its increasingly porous border, and HK$3 trillion ($375 billion) of domestic net cash suffering from zero deposit rates, we expect to see significant price rises of 32% for homes, 29% for offices and 12% for retail spaces, and rent rises of 11%, 28% and 14% respectively" says Wong. UBS is also positive on China's property market for a number of reasons...
UBS eyes higher China/HK property prices through 2010 Liquidity is playing a key role in supporting current property market trends.
The property markets of China and Hong Kong will experience
significant price gains throughout the rest of 2009 and into 2010,
according to a UBS forecast.
Thanks in large part to global money supply, ample China liquidity
and poor returns on bank deposits, UBS believes Hong Kong's homes and
offices will rise 32% and 29% respectively between June 2009 and
December 2010, while China's home prices will increase 20% over the
same period.
Eric Wong, head of Asia real estate research at UBS investment
bank, says Hong Kong's property market is in a far stronger position
than during the 1997 financial crisis because of strong liquidity.
"With global money supply rising following the quantitative
easing measures enacted in 2008, ample Chinese liquidity
impacting Hong Kong through its increasingly porous border, and HK$3
trillion ($375 billion) of domestic net cash suffering from zero
deposit rates, we expect to see significant price rises of 32% for
homes, 29% for offices and 12% for retail spaces, and rent rises of
11%, 28% and 14% respectively," says Wong.
UBS is also positive on China's property market for a number of
reasons. The Chinese government has set a 2009 real GDP growth rate of
8% and this has been the basis for almost all policies issued since
the target was announced.
UBS notes that since China's property sector was classified as a
vital pillar industry, the sector's operating environment is far
looser than it was in 2008.
Capital raising activities by developers has meant that liquidity
pressures on them have eased and increased their ability to hold
properties longer in return for higher prices. Plus, improved investor
appetite has seen inventories shrink with the increase in demand not
being met by an increase in construction.
- 2009 August 4 ASIA
FINANCE
In China, "loans to developers and
mortgages accounted for under 20% of total outstanding loans in late 2009,
compared with...57% in America
- 2011 THE
ECONOMIST
Cash-rich mainland
pension and sovereign wealth funds are looking to make acquisitions abroad
as companies are now good value, according to reports.
The National Social Security Fund, the
mainland's largest pension fund, is planning to invest in foreign private
equity firms subject to State Council approval, Reuters said.
China Investment Corporation, the
one-year-old sovereign wealth fund, is looking to invest in value assets and
according to Dow Jones is eyeing Deutsche Bank's Singapore assets among
other deals.
Its investment in the distressed assets
of the German Bank would be comparable in size to stakes CIC has purchased
in Morgan Stanley and Blackstone, Dow Jones said.
The NSSF and CIC are cash rich having
stopped investing amid the financial turmoil in order to preserve capital
for expansion.
NSSF has a portfolio of about 563 billion
yuan (HK$639.3 billion), while CIC has US$2 billion (HK$15.6 billion) in
cash and assets under management.
The NSSF is preparing to launch a
strategic overseas investment plan that could kick off in the second half of
this year with private equity funds as its first targets.
"The goal and the path is very
clear. Timing is important as one certainly does not want to do a deal when
the market has already fully recovered," said one source, adding that
the plan had already been approved by the Ministry of Finance.
The NSSF will target foreign private
equity funds, including real estate and buyout firms with a focus on
domestic assets and overseas stocks and bonds, the source said.
CIC was cited by independent research
house JL McGregor as being ready to sign several deals this year, including
the purchase of Deutsche Bank's distressed assets in Singapore.
If the Deutsche Bank deal goes through it
will be CIC's first overseas investment since it took a stake in Morgan
Stanley at the end of 2007.
- 2009 May 18 THE
STANDARD
China's economy is now tied more closely
to the world. In 2007, China had surpassed the United States as the world's
second largest merchandise exporter, and it is expected to replace Germany
in 2009 to become the world's largest exporter.
Shanghai has been linked to New York,
through Hong Kong. As of end-March 2008, among the top 10 Chinese companies
measured by market cap in Shanghai, nine are dual-listed both in Shanghai
and Hong Kong, compared with three at end of January 2006.
There is paradox in today's situation:
China, the proverbial world factory is now heading to become the world
largest market, while, its counterpart, the US, is turning from the world's
largest market to the world's largest factory.
Although the market has slowed somewhat,
growth is still at 9%. The country has foreign reserves of $1.9
trillion USD.
Investment in residential real estate
comprises 10% of country's GDP, compared with 4.6% in the US.
Mortgage loans account for 12% of Chinese bank lending and loans to
developers another 7%. In the U.S., real estate-related loans
accounted for more than 50% of lending by commercial banks, according to
Standard Chartered.
China will exempt property transactions
from stamp tax and value-added tax from November 1, 2008 for first-time
buyers and for units under 970 sq ft.
China wealth fund is US$10b richer
CIC stayed largely in cash last year
and avoided Western bank shares
China Investment Corp (CIC), the
country's US$200 billion sovereign wealth fund (SWF), made a profit of about
US$10 billion last year as it benefited from staying largely in cash and
avoiding new investments in Western banks, a source close to the fund told
Reuters yesterday.
About half of CIC's money is tied up in
Central Huijin, a financial company that holds the state's stakes in nine
big banks and brokerages; the other half is invested overseas with about
US$90 billion or so in cash and the remainder in the form of equity stakes
in firms including Blackstone and Morgan Stanley.
'Combining all the investments together,
CIC is still enjoying a positive profit of slightly less than 5 per cent,
which is better than many other foreign wealth funds,' said the source, who
declined to be identified as he was not authorised to speak to the media.
The fund declined to comment.
CIC has lost over half of the initial
US$8 billion it ploughed into private equity firm Blackstone and Wall Street
bank Morgan Stanley when it was set up in September 2007.
The ill-timed forays have drawn
widespread criticism in China and prompted the fund to scale back its
ambitions in the financial sector for now despite seemingly attractive
valuations.
Fund chairman Lou Jiwei said in Hong Kong
on Dec 3 that he was 'not brave enough' to invest in financial institutions
in today's turbulent market conditions. 'Luckily, the fund put the brakes on
in time on a lot of potential deals last year as the crisis got worse,' the
source said.
CIC is still exploring investment
opportunities in other sectors, notably natural resources.
Earlier this month, Mr Lou visited
Australia, where one company, iron ore miner Fortescue Metals Group, has
said it is talking to CIC about selling hybrid securities to raise funds for
expansion.
Managing the fund's US$90 billion cash
pile yielded about US$3 billion in revenue in 2008 before expenses, the
source said.
The money is parked in a broad range of
highly liquid assets such as treasury bills, bank notes, deposits and
structured products, he said.
CIC also earns dividends from Central
Huijin's huge stakes in domestic financial heavyweights such as China
Construction Bank, Bank of China and China Galaxy Securities.
Huijin was put under CIC's umbrella when
the latter was established with the aim of earning greater returns - in
return for greater risks - on a portion of China's official foreign exchange
reserves. These now total US$2 trillion and are managed conservatively by
the central bank.
-- 2009 February
25 Reuters
Wary China to miss out on foreign
banks' mega sale
Political concerns, lack of
expertise and nationalistic worries among obstacles
China has the cash and ambition
to be a major player in the world's biggest sale of financial assets in half
a century, but politics, a lack of expertise and an aversion to risk will
relegate it largely to the sidelines.
Nationalistic worries about how
state-owned Chinese firms might behave if they had a controlling stake in a
major foreign bank are probably Beijing's biggest obstacle, but there are
others almost as daunting.
'Chinese financial institutions are not
mature enough to make a large overseas acquisition,' said Zhao Xiao, an
economics professor at the Beijing University of Science and Technology.
'They must gain experience helping China's thriving manufacturers to move
overseas . . . and in five years they may be ready.'
China's cautious regulators are also
reluctant to approve such acquisitions due to volatile markets, recent
losses from earlier financial stakes and a lack of experience.
'The Chinese may have that ambition . . .
but that would just not be allowed,' said Glenn Maguire, Hong Kong-based
chief Asia economist for Societe Generale (SG).
'Politically, it is very sensitive,' said
Mr Maguire, pointing to rising protectionist sentiment in the United States
in a presidential election year.
China's financial stakes in Morgan
Stanley and Blackstone have also soured as the credit crisis has spread,
offering painful lessons in market volatility to investors accustomed to
uninterrupted double-digit economic growth.
The expertise required in complex
takeovers can also be outside the reach of established foreign banks as
well.
After Germany's Commerzbank bought
investment bank Dresdner Kleinwort for US$14.5 billion from Allianz last
weekend, it unveiled plans to cut 9,000 jobs.
Commerzbank's shares have fallen 14 per
cent in response to the deal as the bank said it still needed more cash from
shareholders and analysts were sceptical of its ability to turn Dresdner
around.
China Development Bank had been seen as a
possible candidate to take over Dresdner, though how serious is not known.
Political concerns earlier this year
prevented Bain Capital and China's Huawei Co from obtaining US government
permission to buy 3Com Corp for US$2.2 billion.
SG's Mr Maguire said the opportunity to
buy assets such as investment bank Lehman Brothers may not happen again for
decades. Newspapers have reported China's top brokerage Citic Securities is
also interested in Lehman.
'I don't think it is an exaggeration to
call it a 50-year opportunity,' said Mr Maguire.
State-controlled Korea Development Bank
is in talks with Lehman over a possible joint investment with other Korean
banks, but has said it was still unsure whether there would be a deal.
'China's leading banks are massive in
terms of market capitalisation and assets,' said Jing Ulrich, the head of
China equities for JPMorgan Securities. 'But their business reach is limited
compared to international banks.'
China's underdeveloped financial industry
lags far behind its booming manufacturing sector, underpinning regulators'
cautious sentiment that local financial firms need to demonstrate they can
walk domestically before they run overseas.
China's Ping An Insurance bought 5 per
cent of Fortis, the struggling Belgian-Dutch financial group, for US$2.67
billion last year.
But Fortis said earlier this month
Chinese authorities had delayed approval of the US$3.33 billion sale of half
of its asset management arm to Ping An.
'It isn't much of an opportunity if you
don't have the ability to carry through,' said Gordon Orr, a director at
consultancy McKinsey's Shanghai office.
China Development Bank bought a 3.1 per
cent stake in Britain's Barclays plc last year but China's Cabinet rejected
a request in July to increase that stake when Barclays raised fresh capital.
But firms such as the US$200 billion
China Investment Corp, the country's sovereign wealth fund, and China
Development Bank could still play important funding roles in consortia led
by foreign banks. --2008
September 8 Reuters
The real threat China poses to the
world
Obsessed with
rankings, Americans are bound to see the Beijing Olympics as a metaphor for
a larger and more troubling question: Will China overtake the United States
as the world's biggest economy? Well, stop worrying. It almost certainly
will.
China's economy is now only a fourth the
size of the US$14 trillion US economy, but given plausible growth rates in
both countries, China's output will exceed America's in the 2020s, projects
Goldman Sachs.
But this is the wrong worry. By itself, a
richer China does not make America poorer. Indeed, because there are so many
more Chinese than Americans, average Chinese living standards may lag behind
ours indefinitely. By Goldman's projections, average American incomes will
still be twice Chinese incomes in 2050.
The real threat from China lies
elsewhere. It is that China will destabilise the world economy. It will
distort trade, foster huge financial imbalances and trigger a contentious
competition for scarce raw materials.
Symptoms of instability have already
surfaced, and if they grow worse, everyone - including the Chinese - may
suffer. China is now 'challenging some of the fundamental tenets of the
existing (global) economic system', says economist C Fred Bergsten of the
Peterson Institute.
This is no small matter. Growing trade
and the cross-border transfers of technology and management skills
contributed to history's greatest surge of prosperity. Living standards, as
measured by per capita incomes, have skyrocketed since 1950: up 10 times in
Japan, 16 times in South Korea, four times in France and three times in the
United States.
Significantly, these gains occurred
without serious political conflict. With the exception of oil, world
commerce expanded quietly. The chief sources of global strife have been
ideology, nationalism, religion and ethnic conflict.
Economics could now join this list,
because the balance of power is shifting. The United States was the old
order's main architect, and China is a rising power of the new. Their
approaches contrast dramatically.
Economically dominant after World War II,
the US defined its interests as promoting the prosperity of its allies. The
aims were to combat communism and prevent another Great Depression.
Countries would make mutual trade concessions. They would not manipulate
their currencies to gain advantage. Raw materials would be available at
non-discriminatory prices. These norms were mostly honoured, though some
countries flouted them (Japan manipulated its currency for years).
China's political goals differ. High
economic growth and job creation aim to raise living standards and absorb
the huge rural migration to expanding cities. Economist Donald Straszheim of
Roth Capital Partners estimates the urban inflow at about 17 million people
annually.
As he says, China sees export-led
economic growth as a magnet for foreign investment that brings modern
technology and management skills. Prosperity is considered essential to
maintaining public order and the Communist Party's political monopoly.
At first, China pursued its ambitions
within the existing global framework. Indeed, the United States supported
China's membership in the World Trade Organization (WTO) in 2001. But as it
grows richer, China increasingly ignores old norms, Mr Bergsten argues.
It runs a predatory trade policy by
keeping its currency, the renminbi, at artificially low levels.
That stimulates export-led growth. From
2000 to 2007, China's current account surplus - a broad measure of trade
flows - ballooned from 1.7 per cent of gross domestic product (GDP) to 11.1
per cent. The biggest losers are not US manufacturers but developing
countries whose labour-intensive exports are most disadvantaged.
Next, China strives to lock up supplies
of essential raw materials: oil, natural gas, copper. If other countries
suffer, so what? Both the United States and China are self-interested.
But the US has seen a prosperous global
economy as a means to expanding its power, while China sees the global
economy - guaranteed markets for its exports and raw materials - as the
means to promoting domestic stability.
The policies are increasingly on a
collision course. China's undervalued currency and massive trade surpluses
have produced US$1.8 trillion in foreign exchange reserves (China in effect
stockpiles the currencies it earns in trade).
Along with its artificial export
advantage, China has the cash to buy big stakes in American and other
foreign firms.
Predictably, that has stirred a political
backlash in the United States and elsewhere. The rigid renminbi has
contributed to the euro's rise against the dollar, threatening Europe with
recession.
China has undermined world trade
negotiations, and its appetite for raw materials leads it to support
renegade regimes (Iran, Sudan). The world economy faces other threats:
catastrophic oil interruptions, disruptive money flows.
But the Chinese-American schism poses a
dilemma for the next president. If Americans do nothing, China's economic
nationalism may weaken the world economy - but if we retaliate by becoming
more nationalistic ourselves, we may do the same.
One in four people globally, including China’s
population, will be able to speak Mandarin fluently by year 2007. Over
30 million people around the world now take Mandarin courses at 2,500
universities in 100 countries. -
Source: Borneo Bulletin, U.S. Census Bureau
Buying Into China's Land Rush Americans, Others Acquire Luxury Homes Despite Restrictions
Once known for drab,
government-controlled housing and ancient courtyard homes, China has become
a land of multimillion-dollar apartments and soaring property values. And
foreigners are trying to get in on the action.
Real-estate prices in major Chinese cities have been shooting up at
double-digit rates year over year, boosted by an economy that has been
growing at more than 10% annually. The jump in prices has been so sharp that
the government in mid-2006 implemented stricter controls on foreign
investment in hopes of reining in housing costs. Still, foreigners keep
buying.
Bill Bishop, a 39-year-old American living in China, bought
a four-bedroom penthouse in Beijing in 2005, choosing a luxury complex built
by a big-name developer and run by a well-known property manager. The
apartment was an unfinished shell -- a common way of buying a unit in China
-- and fitting it out took more time and attention than Mr. Bishop, a
private investor, imagined it would. But he estimates that the home, for
which he paid "a fraction of the cost of an apartment in Manhattan or
San Francisco," now is worth at least 50% more than he paid for it.
Behind the run-up in property values is the scarcity of
housing for sale. Analysts predict the growth will continue even after the
building boom sparked by the Beijing Olympics this year tapers off, despite
post-Games housing downturns that occurred in other Olympics cities such as
Barcelona, Spain, and Sydney, Australia.
In the last few years, the average growth rate of
residential prices in major Chinese cities has been 15% to 30%. Those prices
will continue to rise at a rapid clip this year, though the rate of growth
should slow, predicts Anna Kalifa, head of research for U.S. real-estate
services firm Jones Lang LaSalle in Beijing.
Already there have been signs of a slackening in several
southern cities. Prices for new homes in Shenzhen, a boomtown of nine
million that borders Hong Kong, dropped 8% from September to the end of the
year, according to global real estate advisers DTZ. In nearby Guangzhou --
China's third-largest city behind Beijing and Shanghai -- new-home prices
fell 9.9% in November from October, according to city government statistics.
Yet many brokers and analysts are reluctant to draw too many conclusions
from the downturn in the south. They point to the tides of middle-class
Chinese who continue to pour into big cities looking to buy a first home.
"Fundamental demand in China across the board is very strong and will
remain that way for the next 10 years," says Alan Chiang, the Shenzhen-based
head of mainland China residential property at DTZ.
The real-estate boom has extended beyond Beijing and
Shanghai, China's main population centers, to second-tier cities like
Chengdu in the west, Hangzhou and coastal Qingdao and Dalian, experts say.
As multinational companies push into less built-up parts of China they are
bringing along expat employees who have helped feed property growth there,
too.
Many investors say they have done well. Patty Chen, 53, an
American living in Shanghai, says she sold one of her first apartments in
the city -- a 1,829-square-foot luxury unit downtown -- for $600,000 in
2005, almost three times what she paid for it for in 2000.
Chinese real estate wasn't always a hot prospect. Foreigners in Beijing
once were forced to live in government-approved housing -- chiefly
diplomatic compounds and hotels -- often at astronomical rents. Buying was
difficult. But laws began to change in the late 1990s and with China's entry
into the World Trade Organization in 2001.
Today,
upscale developments are popping up all over China's major cities -- in
Shanghai, luxury apartments can go for as much as $20 million. The Beijing
Yintai Center, a high-rise development that opened in 2007 with apartments
ranging from 1,076-square-foot one-bedrooms to 9,253-square-foot penthouses,
is almost sold out, a spokesman says. A salesperson for the property, a
joint venture between Hyatt International, Merrill Lynch and China Yintai
Holdings Ltd., quoted the equivalent of $1.35 million for a
2,582-square-foot apartment in the project's 63-floor tower.
On average, however, a 1,640-square-foot apartment with
Western amenities in Beijing costs about $400,000, says Jones Lang Lasalle,
while the same quality and size apartment would go for $520,000 in Shanghai
and $190,000 in Chengdu.
Worried that real-estate speculation was leading to higher
prices, China's government rolled out regulations in July 2006 that greatly
restrict foreigners' ability to purchase homes. Under the rules, foreigners
can't buy a home until they have lived in the country for at least a year.
And they are restricted to owning just one home at a time. The full-year
requirement applies to all foreigners except Taiwan and Hong Kong residents
who have a Chinese work visa.
But as with most laws in China, gray areas exist. Some
foreigners have been approved to buy homes despite having traveled in and
out of China during their first year. "The rules aren't clear on how
that one year is calculated," says Kevin Tu, a Beijing-based agent who
works with foreign buyers. Agents also say that foreigners who owned
multiple homes before the new rules not only can keep them but may buy an
additional property. Ms. Chen, the American in Shanghai, says she owned
seven residential properties before the regulations changed and had no
problem buying another one afterward.
There are other potential downsides to China property
purchases. Foreigners must borrow locally, and down payments typically are
at least 30%. Lenders sometimes will loan only 50% to 60% of a property's
value if the buyer already has another mortgage. Property sold within five
years of purchase is subject to a 5% tax, a levy designed to discourage
flipping.
Ms. Kalifa of Jones Lang LaSalle says researching the
background of developers is especially important because buyers generally
must hand over the purchase price to a developer before construction is
finished -- the country lacks escrow services to provide a safeguard. Some
buyers, in fact, have been unable to move in until a year or more after the
agreed date. And since the government owns all the land in China,
real-estate purchases are technically very long-term leases, usually up to
70 years.
Still, Ms. Kalifa says an investment could be well worth it
for anyone looking to live in China for at least three to five years.
"There's a major need for housing," she says. "People are
looking for investment options, and housing is a no-brainer."
- 2008 January 18 WALL
ST. JOURNAL
China real estate sector
cools down
Big chill: More brokers are closing which may mark the start of a
broader slump in a previously booming market
After booming in recent years, China's
real estate market is finally starting to feel the pinch from sagging demand
and tighter controls.
One of China's biggest real estate
agencies, Chuanghui Real Estate, has shuttered dozens of outlets in Shanghai
and other cities, leaving angry customers and employees, after an ill-timed
expansion just as the market was peaking. Many other agencies around the
country have also closed down.
So far, the retrenchment appears to be
mainly limited to property brokers. But the moves could herald the beginning
of a broader slowdown in one of Asia's hottest real estate markets.
The government has been wrestling to get
control of the property sector, worried that rising prices for housing are
pushing poorer Chinese out of the market at a time when overall inflation is
surging.
Regulators stepped up curbs on the
property market last year, alarmed that 'bubbles' in property prices could
collapse and trigger a financial crisis. Those efforts are starting to take
effect. While urban housing prices last month rose 10.5 per cent from a year
earlier, a sharp slowdown in sales transactions in recent weeks suggests a
new trend.
In the first week of 2008, home sales in
Beijing fell 20 per cent compared with the previous week, the state-run
newspaper China Securities News reported. Sales were off 38 per cent in
Shenzhen and 52 per cent in east China's Nanjing, it said.
Realtors say the slump started late last
year but due to various reasons, like land supply and property hoarding by
developers, the impact hasn't been seen yet in prices.
So far, there are no signs of a mortgage
meltdown in China similar to that seen in the US, and experts don't foresee
property prices to fall substantially. Strong economic growth and surging
demand from upwardly mobile families are supporting demand.
But business is slowing, especially for
the so-called 'second-hand' apartments, or existing, rather than newly built
homes, that are the lifeblood of local realtors in this recently
commercialised market.
'In 2008, we think property developers
will face some liquidity problems and financing issues,' Matthew Kong of
ratings agency Fitch Asia Corporates said recently. --
2008 January 22 AP
China’s housing index on the rise
China´s National Housing Climate Index
registered 106.59 points in November, up 0.85 points over October and 2.67
points over last November, marking the eighth consecutive monthly rise since
March this year, the National Bureau of Statistics released on Monday.
Investment in real estate development entered into
a fast growth track this year, with November real estate development
investment index went up 0.11 points month-on-month and 3.07 points
year-on-year to arrive at 104.53 points. In the first eleven months of this
year, China´s real estate development investment recorded at 2.16 trillion
yuan, while investment for residential housing reached 1.544 trillion yuan
in the period, of which 69.3 billion yuan went into the development of
affordable housing, a growth of over 30 per cent.
Meanwhile, the land development acreage category
index in November went up by 0.42 points over October to reach 98.04 points,
which marks a year-on-year decline of 3.49 points. China´s real estate
developers made a combined development acreage of 214 million sq. meters in
the first eleven months, up 8 per cent year on year.
The index for idle commercial housing went up 1.26 points over October to
111.97 points, marking a year-on-year rise of 6.54 points. By the end of
November, China´s idle commercial housing acreage registered at 117.97
million sq. meters, down 4.5 per cent year-on-year; of which idle commercial
residential housing acreage stood at 57.66 million sq. meters, down 14.2 per
cent year on year. - 2007 December 17
ASIA PULSE
China house prices rise fastest in two
years Prices in 70 major
cities surge 9.5% in Oct
China's house prices rose in October at
the fastest pace since 2005 as inflation outpaced returns on bank deposits,
encouraging households to invest in property.
Fever pitch: The govt's recent steps to cool real estate
speculation included lifting downpayments to 40% from 30% for
housing loans. Housing sold to buyers hoping to sell at higher
prices accounts for a big part of total sales
Prices in 70 major cities jumped 9.5 per cent from a year earlier after
gaining 8.9 per cent in September, the National Development and Reform
Commission said yesterday on its web site. That was the biggest gain since
records began in August 2005. Values climbed 1.6 per cent from September.
The acceleration is fuelled by the cash flood from China's trade surplus,
a record US$27 billion in October, prompting concerns about a possible
property bubble.
China in September raised interest rates on some mortgages and increased
minimum down payments to curb real estate speculation.
'Price gains are understandable because the strong demand is still out
there,' said Liu Xihui, a Shenzhen-based analyst with Ping An Securities Co.
'The reason prices are still accelerating is probably because September's
tightening measures haven't yet had an effect.'
Prices soared 19.5 per cent in October from a year earlier in Shenzhen
and 15.1 per cent in Beijing, the commission said. New commercial housing
valuations rose 10.6 per cent from a year earlier and second-hand prices
increased by 8.7 per cent, it said.
Measures introduced by China on Sept 27 to damp property speculation
included raising downpayments to 40 per cent from 30 per cent for housing
loans, and to half a property's value for commercial real estate.
The steps will slow property price increases in the balance of the year
by crimping buying for investment purposes, said Ping An Securities' Liu.
Housing sold to buyers hoping to sell at anticipated higher prices accounts
for a 'big part' of total sales, he said.
September's measures came after new taxes, higher mortgage rates and
downpayment ratios imposed since 2005 failed to cool the market. Investment
in real estate development jumped 30.3 per cent in the first nine months of
2007, 6 percentage points faster than a year earlier.
China's consumer prices rose 6.5 per cent last month from a year earlier,
matching the decade high in August, as food costs surged. The benchmark
one-year deposit rate is 3.87 per cent.
China has this year raised interest rates five times and ordered lenders
on nine occasions to set aside larger reserves to curb inflation and contain
bubbles in the property and stock markets. --
2007 November 14 BLOOMBERG
China's booming economy is helping to
support global growth as America turns sickly. So now it has to keep up the
pace
Illustration
by Bill Butcher
No country in history has sustained such a blistering rate of growth over three decades as
China. Its economy grew by a staggering 11.9% in the year to the second
quarter. Since 1978 it has grown by an average of almost 10% a year—more
than Japan or the Asian tigers achieved over similar periods when their
economies took off. But eventually every sprinter trips. Japan's growth
averaged 9.5% in the two decades to 1970, but slowed to 4.7% in the 1970s
and to only 1% by the 1990s.
As China has grown, it has come to matter
much more to the rest of the world. For the first time it is now
contributing more to global GDP growth (measured
at market exchange rates) than the United States is. Yet, even as growth
forecasts for China are being revised upwards, America is looking at a
downturn caused by falling house prices, which threaten to clobber consumer
spending. The fate of the world economy now hinges not just on America, but
also on China's economic fitness continuing over at least the next two years
So what immediate threats does China
face? The biggest worry is that the economy is overheating and inflation
surging out of control. In August consumer-price inflation jumped to 6.5%,
up from 1.3% a year earlier and its highest for more than a decade. If China
slams on the brakes, its economy could suffer a hard landing, as happened
after past episodes of inflation.
But inflation is nowhere near previous
danger levels in 1988 and 1994, when it soared above 25% (see chart 1).
Moreover, the leap in inflation does not seem to be a symptom of overheating
caused by excess demand, as it was in the past. It is due entirely to the
rise in food prices caused by supply-side problems. Excluding food,
inflation is only 0.9%. This does not mean that food is unimportant: it
accounts for one-third of the inflation basket, and rising prices could
trigger social unrest. But it is not something that China's central bank can
easily fix by raising interest rates. The bank has raised interest rates
five times this year, but they still remain low relative to the country's
growth rate.
Growing public concerns over inflation
recently prompted Beijing to introduce a freeze until the end of 2007 on a
wide range of government-controlled prices, such as oil, electricity and
water. A more effective way to curb inflation would be to allow the Chinese
currency to rise faster. This would reduce import prices of food and raw
materials and also curb the build-up of liquidity as a result of rising
foreign-exchange inflows.
Unless checked, excessive monetary growth
combined with over-rapid GDP growth could
eventually lead to more general inflationary pressures. In its latest
“China Quarterly Update”, the World Bank says that in the first half of
2007 China grew faster than its potential growth rate (currently estimated
at around 10.5%) for the first time in a decade (see chart 2). However,
excess demand is tiny compared with previous phases of overheating so the
risk of soaring inflation causing a hard landing in the near future is
remote.
Bubble trouble
A second much-talked-about threat is the
bursting of China's stockmarket bubble. Share prices have risen by 400% in
just over two years, and average price-earnings ratios based on historic
profits are around 50 (based on forecast 2008 profits they are a still-racy
30). Even though almost everyone reckons this is a bubble, history suggests
that a bust is not imminent and that share prices could continue to rise for
a lot longer: both Japan's Nikkei and America's NASDAQ
saw p-e ratios well above 100 at their peaks.
Even if share prices did tumble this
year, the impact on the economy would probably be relatively modest. The
total value of tradable shares—that is, excluding those held by the
government—is only 35% of GDP compared with
180% in America at its peak in 2000. Equities account for less than 20% of
Chinese households' total financial assets, compared with half in America,
so price swings have less impact on spending. When Chinese share prices
collapsed by 55% from 2001 to 2005, GDP growth
remained robust. Over the past year there has been little sign that people
are saving less and spending their capital gains, so a slump in share prices
should not have much impact either.
Share prices can also affect the cost of
capital. But only a small proportion of Chinese companies are listed on the
stock exchange and those that are rely mainly on internal finance. Only 10%
of total financing for investment this year has come from equities. A more
serious problem is that because firms have invested in other companies'
stocks, a slump in share prices could directly hurt their profits and hence
their investment. According to a study by Morgan Stanley, one-third of
listed companies' profits in the first half of 2007 came from share-price
gains and other investment income. If share prices sink, so will profits,
which would make shares look even more overvalued.
Some analysts also worry that a sharp
plunge in equity prices could seriously hurt banks' balance sheets, causing
them to squeeze their lending. Chinese banks are officially not allowed to
lend to investors to buy shares, but anecdotal evidence suggests that
households and firms have taken out loans disguised as mortgages to buy
shares. If so, the effect of the bubble bursting could be larger than the
direct impact on consumers' wealth—especially if, as seems more likely,
the bubble continues to swell for another couple of years before it finally
bursts.
In many ways China today looks ominously
similar to Japan before its bubble burst at the start of the 1990s,
resulting in a decade of stagnation. Like Japan, China has high rates of
saving and investment, low real interest rates, soaring asset prices, a big
current-account surplus and upward pressure on its currency. After the Plaza
accord between the big industrial countries in 1985, the Japanese yen rose
by 80% against the dollar in three years.
Many in China have concluded that the
blame for Japan's economic malaise in the 1990s lay largely with the
appreciation of the yen. Beijing has therefore allowed the yuan to rise by
only 10% since July 2005. But Japan's real mistake was its loose monetary
policy to offset the impact of the rising yen—which further inflated the
bubble—and then its failure to ease policy once the bust had happened. By
holding down the value of the yuan and allowing a consequent build-up of
excess liquidity, China risks repeating the same error.
However, Paul Cavey, a China economist at
Macquarie Securities, suggests that China may have more in common with
Taiwan in the 1980s than with Japan. Taiwan's bubble was even bigger, with
share prices rocketing by 1,800% between 1985 and 1990. In Japan, reserve
accumulation did not play a big role in the bubble. By contrast, the
foreign-exchange inflows into Taiwan were greater in relation to its GDP
than those seen recently in China. Taiwan, like Japan, saw a big rise in its
exchange rate, by 60% in the four years to 1989.
In 1990-91 the Taipei stockmarket slumped
by 75%, even more than the Tokyo market did. But Taiwan's growth remained
fairly strong because policy was eased much sooner than it was in Japan. In
other words, contrary to Beijing's fears, a big exchange-rate rise does not
inevitably lead to economic depression.
The other big difference between China
and Japan in the late 1980s is that Japan had a serious property bubble
against which banks had lent heavily. Although a house-price crash would
have much nastier consequences for China's economy than a share-price crash,
because 80% of China's urban households now own their home, there is no
evidence of a nationwide housing bubble. Average house prices across China
are rising at an annual rate of 8%, with double-digit gains in some cities,
such as Shenzhen and Beijing.
In a developed economy such increases
might seem a little bubbly, but not in one in which nominal GDP
is growing at an annual pace of 15%. The ratio of house prices to average
income has fallen by 25% in China since 1999. In contrast, at their peak
last year American house prices had risen by 45% relative to incomes. A
collapse in house prices therefore seems unlikely in China.
If America sneezes
If neither a surge in inflation nor a
bust in asset prices seem likely to derail China's economy over the next
year or two, what about a recession in America? Exports account for over 40%
of China's GDP, so some economists predict that a
fall in exports as a result of a downturn in America would create massive
excess capacity and a sharp fall in profits and investment—the making of a
nasty hard landing. But the popular notion that China is dependent on
export-led growth is a myth; domestic demand is much more important. This
year the increase in China's net exports (ie, less imports) is likely to
account for about one quarter of its growth—a record amount. But even
without this external boost, GDP growth would
still have been a respectable 9%.
During America's 2001 recession, China's
export growth fell by 25 percentage points, but imports also slowed sharply,
so GDP growth (as officially reported) remained
strong. Since then, the share of its exports to America has shrunk; the
European Union and other emerging economies are now more important markets.
In the three months to August, Chinese exports to America increased by 14%
compared with a year earlier, whereas those to the EU
grew by 40%.
America's slowdown so far largely
reflects a collapse in house-building, but if consumers cut their spending,
the impact on Chinese exports would be harsher. The World Bank estimates
that if American consumption falls by the equivalent of 1% of GDP,
this could knock 0.2-0.5 percentage points off China's GDP
growth, depending on how much the Federal Reserve does to cushion the
downturn.
A recession in America would reduce
China's growth, but since Beijing's policy-makers are fretting that the
economy is starting to overheat, weaker exports and hence slower GDP
growth might be a good thing. Not only would it reduce the risk of
inflation, but it would also help to trim China's embarrassing trade
surplus.
If a fall in exports threatens to slow
growth by more than desired, the government's strong fiscal position means
that it has plenty of room to boost domestic demand by spending more on
infrastructure, education or health. The budget was in small deficit in
2006, but may now be in surplus—even excluding the large surpluses of
state-owned enterprises. China's public-sector debt is only 18% of GDP,
much lower than the 75% average in developed economies, giving the
government ample room for a fiscal stimulus.
In the short term, therefore, an American
downturn is more likely to cause sniffles in China than a heavy cold.
Indeed, an American recession might be a blessing in disguise to China: if
weaker exports forced the government to do more to boost domestic demand it
would help to rebalance the economy and make growth more sustainable in the
long run.
The bigger danger is that an American
recession would inflame America's increasingly protectionist mood and make
trade sanctions against China more likely. In an election year, politicians
will need a scapegoat. But import barriers would do more harm to America's
economy than China's. If China was forced to depend less on exports and more
on consumption it would gain in the long run.
Running out of fuel?
In recent months there has been much talk
about a new threat. China, it is claimed, is running short of cheap
labour—the main source of its extraordinary growth. This is nonsense. It
is true that average wages have risen by around 15% over the past year, but
labour productivity in manufacturing has risen even faster. Indeed, wages
have been rising at double-digit rates for a decade with no harmful impact
on growth, because higher labour productivity has actually reduced wage
costs (see chart 3). There are localised skill shortages, but it is hard to
believe that China's labour surplus is exhausted when almost 60% of the
population still lives in rural areas. The wide income gap between rural and
urban areas will continue to attract workers from farms to factories.
In any case, it is not true that China's
growth has been based primarily on cheap labour. Over the past decade, the
increase in the labour force has contributed an average of only 1% a year,
or one-tenth of its GDP growth. It is true that
the population of working age will peak by 2015 and then start to shrink.
But an analysis by the World Bank argues that China is unlikely to face a
labour shortage for many years. The decline in the working-age population
can be offset by making it easier for surplus labour to migrate into cities.
One thing China does not seem short of is
capital investment. Indeed, some economists have long predicted that
overinvestment as a result of an artificially cheap cost of capital will
lead to China's downfall. Sooner or later, it is argued, overcapacity will
lead to a plunge in capital spending, bringing the economy crashing to
earth.
According to government figures, China's
investment amounts to over 45% of GDP and is
growing at 25% a year. But many economists reckon that is grossly
overstated. For example, land purchases are wrongly counted as new
investment when they are really just a transfer of ownership. If China were
massively overinvesting, one would expect the return on capital to be
falling. Instead, corporate profit margins have been rising. Mr Cavey
estimates that average capacity utilisation, measured by the ratio of sales
to assets, has been rising not falling—in strong contrast to Japan during
its 1980s bubble.
Worries about rising excess capacity feed
another long-standing concern that China's banks, groaning under the weight
of non-performing loans, are heading for a crisis. Official figures show
that non-performing loans had fallen to 7% of all loans early this year from
almost 30% in 2001. But independent analysts suggest the true figure may be
closer to 20% (down from over 50% at its peak). The fear is that an economic
downturn and falling profits could lead to a surge in new bad loans.
China's fragile and inefficient banking
system is certainly a drag on its economy, but the risk that a banking
crisis could bring down the economy seems small. China has huge
foreign-exchange reserves available to protect its banking system. Capital
controls limit capital flight. And the government, unlike Japan's in the
1990s, has plenty of money if necessary to write off bad loans.
The list of potential threats to China's
economy is long and some might shave a couple of percentage points off its
growth rate (leaving it close to 10%). But none seems likely by itself to
cause the economy to collapse in the next two years—ie, during the time
when America's economy is likely to stumble. But what if several blows land
at the same time? For example, an American recession breeds greater
protectionism, global financial turmoil unnerves Chinese stockmarket
investors, share prices collapse and a downturn creates social unrest. The
overall impact on the economy would then be more painful.
China's best insurance against this is
that its budget finances are in better shape than those of any other big
economy. China's leaders are acutely aware of the risks of social unrest and
they will be willing and able to try to spend their way out of trouble. That
makes a sharp downturn in China less likely in the near future. But what
about farther ahead?
China's economic success has been based
on the essential ingredients of growth: high savings, openness to trade,
good education and strong productivity growth. This means its long-term
prospects remain strong, although its trend growth rate will inevitably slow
as its economy matures and its labour force starts to shrink.
Tao Wang, Bank of America's economist in
Beijing, says she is optimistic about China's economy in the short term and
the long term, but thinks the medium term looks risky. There is a high
chance of a sharp slowdown sometime within the next ten years. The problem
with years of rapid growth is that it hides problems that are then painfully
exposed when times are hard. But for the time being, the chances are that
China can keep sprinting even if America takes to its sick bed. That is good
news for the world. -
2007 September 27 ECONOMIST
China growth fastest in 11 years
China’s full-year growth for 2006, figures for which were released on
Thursday, has outstripped expectations, with gross domestic product
expanding by 10.7 per cent, the fastest annual rise in more than a decade.
The new figure means that China has recorded double-digit economic growth
for four consecutive years. It also means that if – as many expect – it
records a similar pace of growth this year, China’s economy could as early
as 2008 leapfrog that of Germany’s to make it the world’s third largest
in absolute terms.
However, the government’s satisfaction on Thursday at the management of
such strong growth was tempered by a surge in inflation to 2.8 per
cent in December, compared with the whole-year rise of 1.5 per cent.
The increase in inflation and continued strong overall growth lifted
expectations of possible further tightening measures from the People’s
Bank of China, the central bank, in the near future.
The government’s response to the GDP figures for the most part hailed
the success of a credit crunch, which has slowed growth from a peak of 11.5
per cent in the second quarter to 10.4 per cent in the fourth. -
FINANCIAL
TIMES 25 Jan 2007
SHORT FACTS
One in four people globally, including China’s
population, will be able to speak Mandarin fluently by year 2007. Over
30 million people around the world now take Mandarin courses at 2,500
universities in 100 countries. -
Source: Borneo Bulletin, U.S. Census Bureau
Shanghai families with young children spend
23.6% of total income on kids' education, a far high ratio than the 10%
spent in the U.S. and Canada, according to Shanghai's Women's Union and
Shanghai's Academy of Social Sciences. But among China's 480 million
rural laborers, 80% only received primary education or
below. - Source: Xinhua, McCann
Worldgroup
REAL
ESTATE ARCHIVED ARTICLES:
The real estate market in China is still
volatile though as evidenced by the article that follows:
China to raise downpayment for second
homes: sources
China will soon raise the downpayment
requirement for people buying their second home to 40 per cent, in an effort
to curb speculation in the red-hot property market, banking and regulatory
sources said yesterday.
It will also raise to 50 per cent from 40
per cent the downpayment requirement for commercial property like offices
and retail space, the sources told Reuters. They did not provide a specific
date for the changes, but one official said they would be unveiled 'very
soon'.
'In order to curb the excessive rises in
property prices, the government will on the one hand increase the supply of
low-rent flats and on the other hand raise the downpayment requirement,'
said one source.
Annual property price inflation in 70
major cities accelerated to 8.2 per cent in August, with prices going up
20.8 per cent in the southern boomtown of Shenzhen and 12.1 per cent in
Beijing. State media said the nationwide rise was a record high.
After the changes, there will be three
different levels of downpayment requirements for people seeking mortgages to
purchase a home. Anyone buying a second or subsequent home will need to put
down 40 per cent; those buying their first home will pay 30 per cent if it
is larger than 90 sq m (969 sq ft); and those buying a first home that is
for their own use and is smaller than 90 sq m will need to pay 20 per cent.
It will be the second time in about 15
months that Beijing has raised downpayment requirements to try to cool down
the property market. The Cabinet raised it for home mortgages to 30 per cent
from 20 per cent in June 2006 as part of a package of measures to deter
property speculation, exempting smaller, owner-occupied flats. --
Reuters
2007 September 18
Home sales in Beijing nosedived in the first three
months as hundreds of thousands of investors shifted from bricks and mortar
to chase quick gains in the mainland share market where valuations are
stretched and trading volumes have been ballooning to record highs.
National Bureau of Statistics figures show that sales of completed
residential properties in the capital tumbled almost 60 percent year on year
to 615,000 square meters during the first quarter.
Presales of uncompleted flats also slumped more than 40 percent to nearly
1.8 million sqm in the same period.
Market watchers attribute the sharp fall to steep price increases as well
as real estate speculators switching to the stock market. People from all
backgrounds - from housewives and cooks to pensioners and professionals -
are getting in on the act to "stir fry" shares, buying even
small-caps.
Mainland investors opened 4.7 million new stock trading accounts in the
first two months of the year, data from the China Securities Regulatory
Commission show.
While transactions fell, home prices continued to climb. According to the
National Development and Reform Commission, home prices in Beijing increased
9.9 percent in the first quarter.
"The ultimate reason for surging home prices is supply
shortfall," said Sherman Lai Ming-kai, managing director of Centaline
(China) Property Consultants.
Lai would like to see Beijing release more land for sale to stabilize the
market in the long term. He expects housing prices in Beijing to rise 10 to
20 percent this year. "Some buyers will return to Beijing's's property
market in the second half when developers are expected to speed up sales of
new projects, as normally annual sales volume including the primary and
secondary markets should exceed 20 million sqm," Lai said.
Property consultancy CB Richard Ellis said macroeconomic measures as well
as sluggish sales during the Lunar New Year holidays combined to drive
residential transaction volumes lower in the first quarter.
Enforcement of a land appreciation tax in February indicated a new round
of austerity measures aimed at cooling China's soaring property sector, as
previous initiatives seemed inadequate.
"LAT and the regulation of foreign purchases of commercial housing
will continue to have a positive effect on stabilizing prices and
discouraging investment," CB Richard Ellis said in a report.
Notwithstanding the fact, with the release of several top-quality
projects in Beijing, Shanghai and Guangzhou, the average sale price of these
three cities increased in the first quarter, the consultancy said.
Lai of Centaline said home prices in Guangzhou were up less than 10
percent in the first quarter, while apartment prices in Shenzhen jumped more
than 10 percent amid a dearth of new supply. Average housing prices in the
two cities climbed 20 percent last year, outperforming other cities.
"Unless the central government introduces tougher measures, housing
prices should continue their upward trend nationwide this year while
transactions may pick up," Lai said - THE
STANDARD 26 April 2007
China property prices rise faster in
January Prices in 70 major cities up 5.6% from
a year earlier
(BEIJING)
China's
property prices rose faster in January, the nation's top planning agency
said yesterday, even as the government has been trying to slow increases
withcurbs on land supply and bank loans.
Prices in 70 major Chinese cities in
January increased 5.6 per cent from a year earlier, 0.2 of a percentage
point faster than the growth rate in December, the National Development and
Reform Commission said in a statement on its website.
The January prices were 0.6 per cent
higher than in December, it said.
New housing prices rose 6.1 per cent in
January from a year earlier, one-fifth of a percentage point slower than in
the previous month, the statement said.
The southern city of Shenzhen, which
adjoins Hong Kong, had the fastest gain, 10.2 per cent, followed by Beijing
with a 9.9 per cent increase, it said.
China's economic growth has averaged 10
per cent a year for the past five years, fuelling property demand and
pushing up prices. Property prices in 70 major Chinese cities rose 5.5 per
cent last year, 2.1 percentage points slower than in 2005, as the government
imposed curbs on land and bank loans, the central bank said in a Feb 9
report.
Yet property prices in some big Chinese
cities are 'still rising too fast', and the government will 'stabilise'
prices by containing excessively strong demand, increasing the supply of
small and medium-sized apartments and tightening regulation, the official
Xinhua news agency reported on Feb 25, citing a meeting of the State
Council, the nation's Cabinet.
Prices of second-hand housing climbed 5.3
per cent in January from a year earlier, 1.1 percentage points faster than
in December, according to the statement.
Non-residential commercial property
including office buildings and industrial warehouses sold at prices 4.5 per
cent higher than a year earlier, 0.1 of a percentage point more than in
December. - BloomberG
2007 March 1
China's economy set for longest
expansion since '78: Goldman Sachs It
may grow 9.8% next year and 10% in 2008
China's economic boom will probably continue for at least another two
years, making it the longest and least volatile expansion since free-market
reforms began in 1978, Goldman Sachs Group Inc said.
The world's fourth-largest economy may grow 9.8 per cent next year and 10
per cent in 2008, Goldman economist Liang Hong said yesterday in a note to
clients. The expansion will cause only 'limited' pressure on inflation to
quicken, she said.
China's entry into the World Trade Organisation five years ago prompted
the government to open more of the economy to competition, leading to
productivity gains, Ms Liang wrote. The World Bank last month forecast the
economy will expand 10.4 per cent this year, which would be the fastest pace
since 1995. 'Trend growth is likely to be close to 10 per cent in China over
the medium term, driven by significant productivity gains,' Ms Liang wrote.
'The real economy has become much more flexible and market-oriented compared
with the last cyclical boom more than 10 years ago.'
The Chinese economy grew 10 per cent in 2003, 10.1 per cent in 2004 and
10.2 per cent last year. During the last five-year stretch of at least 10
per cent expansion - from 1992 to 1996 - growth varied between 14.2 per cent
and 10 per cent and the inflation rate climbed as high as 28 per cent.
Using Ms Liang's estimates, the size of China's economy would increase to
US$3 trillion in 2008 assuming the nation's currency is unchanged against
the US dollar, according to Bloomberg calculations. The yuan has climbed 5.7
per cent from 8.3 per dollar, where it was pegged for a decade until July
2005. It traded at 7.8258 to the dollar at 10:45am in Shanghai.
Such an expansion means China could overtake Germany as the world's
third-largest economy. Germany's gross domestic product was worth US$2.8
trillion last year, according to Bloomberg data.
China's prospects of achieving smoother and more sustainable growth are
also bolstered by the central bank's larger role in economic policy, wrote
Ms Liang.
The People's Bank of China has raised interest rates twice this year and
forced banks to set aside more money as reserves to rein in lending and
investment.
The central bank 'now commands a much better understanding of macro
issues and has a broader range of tools to conduct monetary policy', Ms
Liang said. It 'has managed to 'stay on the curve' with much fewer hiccups
than during past cycles'.
China's economy has grown an average 9.7 per cent a year since former
leader Deng Xiaoping began market reform in 1978, and is currently expanding
at about double the pace of the global economy. -
2006 December 5 Bloomberg
China mortgage market is Asia's largest
China's housing mortgage market has
become Asia's largest with a value of US$227 billion, according to the most
recent quarterly Bank for International Settlements report.
The market, which didn't exist until
1998, made up about 10 per cent of China's gross domestic product in 2005,
the Basel, Switzerland-based BIS said. China's GDP last year was 18.2
trillion yuan (S$3.6 trillion).
China, where traditionally people in
urban areas live in a free welfare housing system, didn't have privately
owned houses until the 1980s, the report said. The market remained small
until the government ended the welfare housing system in 1998. Commercial
banks have since become the dominant lender in the primary mortgage market,
according to the BIS.
Property prices in 70 cities in China
increased 5.4 per cent in October on average from a year earlier, compared
with a 5.3 per cent gain in September, the National Development and Reform
Commission said on its website last month.
South Korea has the second-largest amount
of mortgage debt outstanding among the six countries compared in the report,
which was written by Basel-based Haibin Zhu.
The market in South Korea grew three-fold
since 2001 to US$200 billion this year, and mortgage loans account for 26.6
per cent of the economy, the report said.
The region includes Singapore and Hong
Kong, where mortgage loans account for 61 per cent and 44 per cent of the
economies respectively, the BIS report said. -
2006 December 12 Bloomberg
China property prices up 5.8%
China's urban real estate prices increased 5.8 per
cent from a year earlier in May, faster than the 5.6 per cent rise the
previous month, a government survey showed.
Property prices, including residential and
commercial houses, rose 0.7 per cent from April, according to a survey of
the nation's 70 biggest cities, the National Development and Reform
Commission said in a statement on its website yesterday.
New housing prices climbed 6.1 per cent last month
from a year earlier, slowing from a 6.4 per cent rise in April, the top
planning agency's survey said.
China's authorities are under increasing pressure
to slow the rise in property prices after taxes and higher mortgage rates
imposed in 2005 failed to prevent prices rebounding, prompting complaints
that property has become unaffordable for many people.
The north-eastern city of Dalian, in Liaoning
province, reported the highest new residential apartment price increases in
May: 15.2 per cent year-on-year and 3.5 per cent from April.
Shanghai's new apartment prices fell 6.2 per cent
year-on-year in May, according to the survey.
The price of second-hand housing rose 6.7 per cent
from a year earlier, accelerating by 0.9 percentage point from April, the
survey said.
China's government on May 29 announced a plan to
raise the minimum downpayment for larger apartments to 30 per cent and more
than doubled the period during which a property sales tax will apply, as
part of efforts to cool surging property prices. - 15
June 2006 Bloomberg
China launched a series of
steps Monday aimed at curbing the mainland's soaring property prices,
including raising the minimum down payment for home buyers and sales tax on
the transaction of second-hand apartments
China launched a series of steps Monday aimed at
curbing the mainland's soaring property prices, including raising the
minimum down payment for home buyers and sales tax on the transaction of
second-hand apartments.
The initiatives, following general guidelines laid
down by the State Council on May 17, will raise the minimum down payment to
30 percent from the current 20 percent for people buying flats larger than
90 square meters.
The government also extended the period applying
sales tax for selling second-hand apartments, amounting to 5.5 percent of
the sales income, to five years from two years.
Both new rules will take effect Thursday, said a
statement issued by nine ministries, including the Ministry of Construction,
the Central Bank and State Administration of Taxation, published by the
official Xinhua News Agency.
The new regulations contain more specifics on
payment, land supply and taxation, elaborating on the guidelines given by
Premier Wen Jiabao, known as the six-point directives, on May 17.
This marked the second time Beijing has taken
measures to cool down rising property prices since 2005. Last June 11, the
government introduced the original sales tax on the transaction of
second-hand properties, in an effort to beat down real estate speculators.
"The rules last year didn't solve the
problems such as rapid surging prices in a few cities, conflict in the
structure of house supply, and unregulated market manners," Monday's
statement said.
Housing prices in 70 large and medium-sized
Chinese cities rose an average of 5.5 percent in the first quarter of 2006
from a year earlier after dipping for several months. Some major cities,
such as Beijing, Shenzhen, Guangzhou and Dalian, reported price hikes of
more than 15 percent, according to a recent National Development and Reform
Commission report.
Buyers of apartments smaller than 90 squares
meters for individual use will be exempt from the increase on minimum down
payment, in order to meet the need of middle and low income residents, the
statement said Monday.
The new regulations also require property
developers to build at least 70 percent of the units smaller than 90 sq m in
projects approved or those starting construction from Thursday.
The new rules also urge developers to start
building on the acquired land as soon as possible.
The government threatens to reclaim land if
developers haven't started construction two years after land acquisition.
In addition, commercial banks are not allowed to
lend money to developers with less than a 35 percent deposit of the project
capital, the statement said.
Bankers may not accept apartments vacant for more
than three years as security for the loan.
The central government also urges provincial and
city governments to provide a certain amount of affordable housing for low
income groups by the end of the year, although no specific number of units
is specified.
"We welcome the new policy. I believe the
measures will be very positive for the Chinese property market in the
long-run," said Walter Ng, strategic planning director of Nan Hoi
Properties, one of the developers specializing in the luxury property market
in Shenzhen.
"For the meantime, only those companies
lacking cash and landbanks will be affected."
Ng said Nan Hoi would enjoy an edge over other
competitors because his firm has enough landbanks for use over the next
three to five years and is in no need of project financing.
However, other property market watchers mostly
said they believe the government's new measures will negatively impact the
market, at least in the near term.
At Land Power, a real estate consultancy, chairman
Michael Choi Ngai- min said the latest measures may dampen short-term
investors in light of higher costs and risks of property resale. Choi said
flat price increases in Guangzhou and Shenzhen are likely to slow after
climbing about 8 percent this year.
A salesman from a US investment bank said the new
measures will affect developers in Beijing, Shenzhen and Shanghai the most
as they have seen the greatest price hikes during past months.
Shenyin Wanguo Asset Management director Alex Wong
Kwok-ying said: "Lots of speculative momentum will be taken out by
these strong measures. However, the impact on the China property market in
the long run will be limited."
Mainland property stocks dropped an average 5
percent Monday, and Shenyin Wanguo's Wong forecast another 5 percent decline
today.
China Overseas Land & Investment shares fell
4.37 percent to HK$4.375, while China Resources Land dropped 6.06 percent to
HK$3.875. - by Amy Gu, Raymond Wang,Katherine Ng and Winnie
Pang THE
STANDARD 30 May 2006
China to enforce tax to cool property
market
China is set to enforce a 12-year-old capital
gains tax on property transactions to curb speculation in red-hot real
estate markets in major cities, a Hong Kong newspaper reported on Thursday.
Wen Wei Po cited an unidentified source as saying
China would apply the previously unenforced 20 per cent tax on capital gains
from property transactions on houses sold within two years of purchase, or a
tax of between 2 and 5 per cent on the full transaction value if the capital
gain could not be confirmed.
When the tax became law in 1994 it applied to
sales within five years of purchase. The law will initially be enforced in
about 10 major cities, including Beijing, Guangzhou and Shenzhen, that have
posted sharp rise in house prices so far this year, the paper said.
China, worried about a property bubble that could
destablise its booming economy, has taken a series of steps to cool the real
estate sector. The government had also launched a nationwide capital gains
tax of 5.5 per cent last June on houses sold within two years. -
REUTERS 25 May 2006
Investors Clamor To Expand in
China
Foreign real-estate investors are ramping up their activities in
China's biggest cities, even though prices have risen and there are signs of
a coming downturn.
The thinking is that Shanghai will beat out Hong
Kong to become China's financial and commercial center and emerge as one of
the world's great cities, on a par with New York and London. Investors in
Beijing's hot market believe it will benefit from a pre-2008 Olympic boom.
And most recently, currency speculators have
helped boost prices, snapping up real estate as they anticipate that China
will ease its currency's peg to the dollar. That would drive the Chinese
currency higher and raise the value of the investors' real-estate holdings.
It's a risky game. Skeptics argue that property
values are rising too fast, outpacing personal-income growth among China's
burgeoning middle class. Since 2000, residential prices in Shanghai are up
an average of 85%. At the same time, rents have started to slide. Such an
imbalance can't last, says Peter Churchouse, a Hong Kong-based hedge-fund
manager specializing in real estate.
The upshot is that property developers accustomed
to reaping 6% rental yields in Shanghai now are finding it difficult to eke
out 3% to 4% gross, close to what real-estate investors expect in less risky
markets, such as New York and London. Rents are unlikely to go up, Mr.
Churchouse explains, as properties built to entice middle-class buyers
increasingly become unaffordable.
Michael Hart, head of Shanghai research at Jones
Lang LaSalle, says he has seen rents fall in apartments ranging between
$1,500 and $5,000 per month. In one complex outside Shanghai, rents have
dropped around 10% in three months, said David Zhang, an analyst at hedge
fund Dynasty Asset Management.
Yet foreign investors are clamoring to expand in
China. Although there is no exact calculation of foreign inflows into
property, Mr. Hart says the available data indicate overseas investment is
growing. In 1995, China real-estate investment totaled $38 billion, with a
minuscule portion of that coming from foreigners, Mr. Hart says. By
contrast, in 2003, $122 billion flowed into China's property sector, and a
2003 survey by the Shanghai government revealed that 5%, or about $6
billion, came from investors in Europe and the U.S., as well as in Hong Kong
and Taiwan.
Shu Yin Lee, who manages a $25 million real-estate
portfolio for Grand River Investments, says he isn't worried about having to
pay two or three times what he paid in the past to acquire new properties in
Shanghai. In his view, higher prices are justified because Shanghai's
long-term prospects for becoming a world-class metropolis remain appealing.
"In a way, we've taken the 'Real Estate for Dummies' approach,"
Mr. Lee says.
Many observers expect developers to manage risk by
diversifying to other Chinese cities. "One of the reasons people are
looking at other places is that the market in Shanghai is too crowded,"
says Mr. Hart. As for that city, he says, some developers who chose wisely
will do well, while those who bought land and developed projects
indiscriminately may struggle to see a profit. - 19 Jan
2005 by Laura Santini WALL
ST. JOURNAL
Chinese luxury property market a
high stakes gamble
Investors in luxury Chinese property are playing a
high stakes game, with forecasts for rising prices offset by dire warnings
of falling rents, poor sales opportunities and the threat of government
intervention.
Few analysts predict a total property market crash
in Shanghai because demand for low- and medium-cost housing in the booming
city is high. But people who buy luxury flats for a quick profit could end
up disappointed.
"A hot-shot in Hong Kong who bought a half
million dollar home in Shanghai will find that he can't lease it and he
can't sell it," said Peter Churchouse, a veteran Hong Kong-based
property analyst who left investment bank Morgan Stanley to run a hedge fund
devoted to property.
Shanghai is widely expected to become a major
financial centre over the next decade, on a par with London, New York and
Tokyo, but at this point there are not enough high-earners to fill expensive
apartments.
"It's going to have to go through some cycles
and pain to get there," said Churchouse.
While Shanghai luxury residential prices have
jumped on average by about 20 percent in the last two years, rents have held
steady. In Beijing, villa prices have not moved in the last couple of years
but rents have fallen about 10 percent.
And with no sign that the Chinese luxury rental
market is set for a quick recovery, Churchouse says property prices are ripe
for a fall.
"You can't have prices and rents going in
opposite directions for a long time," he said.
Not everyone agrees. Morgan Stanley analyst Kenny
Tse says Shanghai apartment prices could rise a further 15 percent this
year.
Demand will hold strong, Tse says, while new rules
to reduce building sizes and heightened government sensitivity over
relocating residents to make way for new projects will squeeze new city
centre supply.
REVALUATION, RESALE, REGULATORY RISKS
Speculation is rife, especially in Shanghai.
Developers say purchase contracts for some sparkling new 100 sq m apartments
doubled in price last year to as much as $550,000 before construction even
finished.
A similar apartment in Hong Kong could cost as
much as $2.5 million, which is why so many young professionals in the city
prefer to buy on the mainland.
But the first test of the luxury market could come
if the Chinese government revalues its yuan currency. A survey of 25
strategists last week gave a median 65 percent likelihood China would adopt
a more flexible foreign exchange regime this year.
Hong Kong, Taiwan and Singapore business people
who bought luxury apartments in China would be tempted to cash in on Chinese
assets after a revaluation, which would increases the U.S. dollar value of
their investments.
But with the secondary market already weak,
finding buyers would be difficult.
Most buyers want new apartments, so the big price
rises in recent years have tended to feed through to developers, such as
Hong Kong's Kerry Properties and Shui On Land, and Singapore's CapitaLand
and Keppel Land .
The divergence between rents and property values
has driven rental yields in Shanghai to 5 percent, down from 15 percent
three years ago, according to Tse.
That is still above Hong Kong's 3 percent yield
for luxury homes, but Tse says he would steer clear of the market.
"I personally wouldn't buy anything in China
if it gives less than 7 or 8 percent rental yield," Hong Kong-based Tse
said. "The risk is too high."
Tse says investors should be wary of a lack of
transparency in China's property market -- reliable data is difficult to
find -- and the risks of direct government intervention.
In the last year, the government instituted a
series of ad hoc measures to cool the economy, including an attempt to
improve property market regulation and transparency. However, the net result
was to help drive up land prices.
Beijing introduced land auctions in the place of
often shady deals between developers and local governments, put a 6-month
moratorium on developing agricultural land and froze bank lending for land
purchases.
But analysts say the government is equally capable
of bringing in draconian policies that would depress the housing market,
such as mass land sales, or alternatively, clamping down on mortgage lending
and sharp interest rate rises. ($1=8.276 Yuan) -
1 Feb 2005 REUTERS
China is the world's most attractive
place for foreign direct investment
(FDI), topping the United States for the
first time, according to management consultancy AT Kearney's annual FDI
confidence survey.
Unease over the state of the world's
largest economy and optimism about China's entry to the World Trade
Organisation prompted the switch, said the survey, published on and
seen by Reuters on Tuesday.
The study, dated this month, said nearly
one in three corporate executives cited China as their preferred first-time
destination for investment, more often than any other market.
''Investors in all regions and sectors
ranked the state of the US economy as their primary source of unease and
biggest likely driver of future investment decisions,'' Kearney said.
Kearney said China's WTO entry, its
successful bid for the 2008 Olympics, steady economic growth and stable
politics outweighed negative factors such as huge non-performing loans at
state banks and a murky regulatory environment.
China attracted US$29.54 billion in
foreign direct investment during the firstseven months of 2002, jumping 22
per cent year on year, according to official data.
Other large emerging markets such as Mexico, India
and Poland had all dipped in terms of their attractiveness when compared
with the last survey, conducted in February 2001.
The United States, Britain, Germany and France
rounded out the top five, with Brazil falling to 13th place this year from
third last year.
Kearney polls executives from the world's 1,000
top revenue-generating companies annually. - 2004
October SOUTH
CHINA MORNING POST
Land Freeze in Beijing
Clamp on land to hit developers
The latest round of urban redevelopment controls in China may reduce land
supply by 20 to 30 per cent, or up to 100 million square metres per year.
The new controls, announced by the
State Council last month, could result in real estate investment falling by
200 billion yuan to 400 billion yuan (HK$188 billion-HK$376 billion) a year,
representing 3-7 per cent of the mainland's annual fixed asset investment,
Morgan Stanley analyst Kenny Tse said.
``Real estate investment as a
percentage of total fixed asset investment could fall from last year's peak
of 18 per cent,'' he said.
Beijing's decree calling for an
immediate freeze on all urban redevelopment projects would cause a
significant slowdown in supply of new land in the medium term and
significant negative earnings revisions for some developers.
``Based on past experience, we
believe most relocation projects will face a delay of at least 18 months.
Local government officials are likely to be extremely sensitive in granting
permission for redevelopment/relocation projects due to the accountability
risk,'' Tse said. ``Only a handful of projects may slip through if previous
approvals were granted.''
His comments came after the State
Council issued strict nationwide guidelines on relocation/redevelopment
projects on June 15, which are intended to reduce supply, slow down real
estate investment, maintain social stability and cut down on dubious
practices in the property industry.
The policy was announced ahead of
the end of a six-month moratorium on land auctions in October.
The measures should be effective
in easing over-investment in some parts of the property sector and add
weight to the austerity programme which began in August 2003, Tse said.
Tse believes the combined effect
of tighter credit, a freeze on land supply and curbs on the sale of
uncompleted properties in the secondary market in Shanghai will accelerate
industry consolidation in the near term. ``Smaller less-capitalised
developers will either face an exit or seek partners with stronger balance
sheets to remain in the game. Larger developers will likely seek merger and
acquisition opportunities for land replenishment in the absence of land
auctions,'' Tse said.
Winners under the new conditions
are likely to be companies focusing on mass-residential development away
from city centres and hence not requiring heavy relocations, he added.
``In the context of
Shanghai, the losers appear to include Shui On Land, HKR International and
China Resources Land as they all hold key projects in the city centre, which
still require extensive relocation, in our view,'' Tse said.
- by Eli Lau HONG
KONG STANDARD2 July 2004
No property market collapse, says
China
Housing prices will continue to rise but at a gradual pace
(HONG KONG)
China's Ministry of Construction has moved to allay fears of a collapse in
the mainland's booming property market, saying prices would continue to rise
at a gradual pace during the rest of the year, South China Morning Post
reported yesterday.
Xie Jiajin, the ministry's property
department director, said on China Central Television on Sunday the sector
was 'returning to a rational path'. There was no possibility of a collapse
in the market, she said.
Ms Xie said she had observed from her own
investigations that 70 per cent of the flats in new property projects
released this year were taking a month to sell. She described this as a
'reasonable' market response. What happened last year, when people queued up
for flats two to three days before they went on sale, was abnormal and
needed to be corrected, she said.
Ms Xie's remarks came after recent
figures showed a slight easing in growth in property investment and prices.
Investment in the property sector from January to May rose 32 per cent
year-on-year to 370 billion yuan (S$76.6 billion). That rise was 2.6
percentage points lower than the increase in the January-April period.
The property development investment
index, a measure of activity in the sector released by the National
Statistics Bureau, was at 106.53 for May, down 0.62 points from April.
The total area of newly developed land
across the country in the first five months was up 19.8 per cent
year-on-year to 64.8 million square metres - 12.4 percentage points lower
than the increase from January to April.
Developers broke ground on 225 million sq
m of residential and commercial housing during the period, up 18.7 per cent
over the same time last year but down 0.6 percentage points when compared to
growth from January to April.
Still, the cost of housing in the first
five months of the year was 2,708 yuan per sq m on average - up 10.6 per
cent over the same period last year. The average price of residential
accommodation in Shanghai and Beijing was more than 5,000 yuan per sq m, the
highest in the country.
Ms Xie blamed earlier price
increases on speculative buying. She predicted residential property prices
would grow steadily in the coming months, pushed by strong demand from
people buying properties to live in rather than for speculation. But there
would be no big fluctuations, she said. China began introducing policy
changes at the beginning of the year to rein in the rapidly developing
sector. The measures were aimed at tightening loans extended by banks,
controlling land supply and restricting house demolitions.
- July 6 2004 SINGAPORE
BUSINESS TIMES
Around Asia's Markets: Beijing clamps
down on property
China's efforts to rein in its housing
boom may take the steam out of a rally in Hong Kong-traded property
developers such as New World China Land, whose shares have more than doubled
from a record low in April.
China has begun limiting building
approvals and land supplies and in June told banks to restrict property
lending. Real estate investment surged by a third in the first eight months
of this year to 557 billion yuan, or $67 billion. Top officials have
expressed concern that an overheated market, left unchecked, could damage
economic growth.
"There are innumerable signs of an
unsustainable boom in real estate in China, especially in Shanghai,"
said Robert Zulkoski, chief executive of Colony Capital Asia.
Property prices are in need of
"serious correction," he said in an address to the Asia Society in
New York.
New World China, China Overseas Land
Investment, Henderson China Holdings and other developers, have bet that
investment spurred by China's entry into the World Trade Organization two
years ago, plus the 2008 Olympics in Beijing and the 2010 World Expo in
Shanghai, will keep the boom going.
"We are keen on the mainland because
the economy is robust, the population is large, the demand is high and the
people are becoming more affluent," said Chew Fook Aun, chief financial
officer of Kerry Properties.
Many investors agree. Shares of New World
China, a unit of the Hong Kong developer New World Development, have risen
163 percent since April 28, when the stock reached a record low during the
SARS epidemic. New World China has assets of more than $2.6 billion on the
mainland.
China Overseas Land, an arm of China's
ministry of construction, has climbed 82 percent during the same period,
while Henderson China Holdings has jumped 50 percent.
Those gains exceed the 34 percent rise in
the Hong Kong benchmark Hang Seng index in the same period.
In Shanghai, where house-hunting has
become a weekend obsession for many residents, home prices have risen as
much as 50 percent in the last two years, according to property consultant
Colliers International.
But the property boom has alarmed
Beijing. The central bank governor, Zhou Xiaochuan, said last month that
runaway credit and excess money flowing into real estate could create a
bubble. Analysts fear that the already fragile banking system would be
undermined if a subsequent collapse in prices caused borrowers to default.
Since last week, commercial banks have
been required to keep more reserves on hand to back deposits, a move that
the central bank estimates could drain about $18 billion from the financial
system and reduce funds available for lending.
The government has also said it will
limit construction of luxury homes to prevent rising housing prices from
stoking inflation and told banks to finance construction rather than land
purchases.
As a result, the developers stock prices
might already have seen their best days.
"All the measures on credit and
supply, the effect of which may start to take hold later on, may be negative
on property prices," said Eric Wong, an analyst at UBS Securities Asia.
"A lot of the rebound in property stocks may have taken place
already."
Chinese property is "a
high-risk area," according to Agnes Lee of Standard Poor's. "There
are high regulatory risks, low transparency, and the profit margin is very
uncertain." -
By Jasmine Yap and Jianguo Jiang Bloomberg
News September 29, 2003
Graft in China real estate fuels discontent Minister hits out at developers, city planners
over graft, forced relocations
BEIJING - A senior government official admitted yesterday
that China's overheated and chaotic real estate market was riddled with
corruption, demolitions and forced relocations, fuelling social discontent.
Construction vice-minister Liu Zhifeng also told
journalists that up to 29 per cent of commercial housing in China remained
vacant, investment into the sector was too hot and property development was
too dependent on bank loans.
'At present there is indeed a great deal of
corruption in real-estate development especially in the relocation of people
and in city planning,' Mr Liu said at a press conference. 'In some places
this is relatively serious.'
He blamed developers and local city government
planners, saying they had not met the needs of the market when planning
residential development and had 'blindly' undertaken projects that were well
beyond the financial capacity of ordinary Chinese.
Developers and city planners also refused to
follow regulations in demolishing old homes, relocating citizens and paying
compensation, a situation that has caused widespread discontent, Mr Liu
said.
'The relocation issue is an area where people have
made the most complaints. In some cases this is a very serious issue and the
State Council has placed a lot of concern on settling this,' he added.
In the past few weeks, at least two people have
publicly attempted suicide over government relocation policies, with a
disgruntled man from central Anhui province attempting to set himself on
fire in front of the portrait of revolutionary Mao Zedong on central
Tiananmen Square on Monday.
According to the National Bureau of Statistics,
real estate investment in China rose 33 per cent to 556.6 billion yuan
(S$118 billion) in the first eight months of 2003, with growth in investment
in August falling some 6.6 percentage points from the previous month.
State press reports indicate there was a yearly
increase in investment of 20 per cent from 1998 to 2002.
Last year, the gross volume of individual housing
consumption and building expenses totalled 800 billion yuan, of which 450
billion yuan was tied up in building and selling commercial homes, Mr Liu
said.
He said that in 2002, 25 million square metres of
new housing came onto the market, increasing the total commercial housing to
285 million square metres.
As of end-July, 97 million square metres remained
unsold, or approximately 29 per cent, but of this, Mr Liu said, more than
half had been on the market less than a year and were difficult to consider
as vacant housing.
He said also that between 30 and 40 per cent of
all Chinese bank loans were tied up in real estate, both in personal housing
loans and land development loans. China's central bank has taken measures to
curb over-lending, including recalling 180 billion yuan in short-term loans
in June. - AFP
19 Sept 2003
Mainland
property prices have risen strongly this year, partly due to massive
investment in the construction industry.
But over-investment has seen vacancy
rates rise sharply in the first eight months, reaching 14.1 per cent of the
country's overall gross residential and commercial floor area. According to
a recent survey conducted by the State Development Planning Commission and
National Bureau of Statistics, housing prices in 35 cities nationwide
increased by 4 per cent on average in the third quarter over the same period
last year.
The average house price in Shenzhen was
about 692,120 yuan (HK$652,253), the highest in China, while the annual
disposable income per household was 77,087 yuan, also the highest, the
survey found. Guangzhou was second in terms of housing prices, at 495,720
yuan.
In Beijing the average house price was
488,370 yuan and annual disposable income was 39,365 yuan, while in Shanghai
they were 382,060 yuan and 43,804 yuan respectively.
Analysts said property prices in
these four cities had risen more than 10 per cent so far this year.
- Hong
Kong Standard
4 November 2002
Another Asian Nation Battling a Crisis
With one of the world's fastest-growing
economies, China seems to have mastered the move to capitalism with
surprising speed. But its financial sector is still struggling to cope with
the waste from decades of socialism.
For years, banking decisions depended not
so much on creditworthiness as on personal ties to government officials and
even bribery. China's banks ended up lending hundreds of billions of dollars
worth of yuan and renminbi to unsound enterprises, usually state-owned, that
soon defaulted.
China's government took a big step in
1999 to start cleaning up the mess, setting up four asset management
corporations - modeled after the American government agency that handled the
savings and loan bailout - to take over and dispose of $170 billion of the
banks' worst loans.
These focused on essentially hopeless
deadbeats, who had failed to repay anything since at least 1995, and
sometimes even longer.
But now the cleanup is proving less
ambitious thanpromised, and is falling far short of its goal of helping push
China further toward a market economy. Many of the loans, instead of being
sold for cash, have simply been converted into stock in the bankrupt
companies, allowing even the most inefficient to stay in business under
government ownership.
Moreover, the asset management companies
are being forced to compete against the state-owned banks themselves, at
least one of which has told potential buyers it may cover as much as half
the cost of acquiring assets now being auctioned off here and in other
Chinese cities.
The loan problem lies at the heart of one
of China's biggest economic problems these days: its financial system often
fails to channel capital efficiently from savers into productive
investments. The result is that scarce investment capital and other
resources remain tied up indefinitely in businesses so unproductive that the
finished goods they produce may be worth even less than the raw materials
they use.
Zhu Rongji, China's prime minister and an
advocate of financial reform, has personally championed the sale of
nonperforming loans. But Mr. Zhu is expected to retire soon; Chinese
financial experts in Beijing say that progress on this front will be a
bellwether of how committed the next generation of leaders will be to
continuing economic reforms.
Fred Hu, a Goldman, Sachs economist who
is informally advising China's finance ministry on the asset management
corporations, said that continued delay in disposing of bad debts could cost
China enough to retard its growth rate by as much as two percentage points
in the coming years.
"The progress has been very, very
slow, almost at a snail's pace," he said. "It has taken too long,
and that has translated into lost opportunities."
One big problem is that banks were so lax
in issuing many of the loans that collateral was not properly registered or
titles of ownership not checked. This makes it almost impossible for buyers
to take the borrowers to court to force settlements.
"We went through and did an
incredible amount of work and said `whoa,' " said one investment
banker, who insisted on anonymity. "Seventy percent of the documents
had massive defects in them."
An even bigger problem is that many
state-owned factories occupy what is now prime real estate in downtown
areas. But these factories, many of them unproductive money losers dating
back to the 1950's, have work forces and well-connected managers whom local
officials are reluctant to antagonize by allowing loan buyers to foreclose,
bulldoze the factories and erect higher-value buildings like first-class
office complexes or shopping malls.
As a result, the nonperforming loans
owned by the asset management companies are nearly worthless. Two
consortiums led by Morgan Stanley and Goldman, Sachs are now in the final
stages of buying some of the least dubious loans, with a face value of $1.4
billion. But the investment banks will make an initial payment of just 8
cents on the dollar, with further payments up to a total of 20 cents on the
dollar if they find themselves able to collect an unexpectedly high fraction
of the loans' value.
To be sure, China's economy is growing by
8 percent a year, the fastest pace of any of the world's big economies. But
even Chinese government officials are warning that the growth may not be
sustainable, and that the expansion may slow soon.
Moreover, much of China's growth has come
from the roughly $350 billion in foreign investment that has poured into the
country over the last decade, which has by and large been efficiently
invested. By contrast, China's banking system has bad debts that are larger
- in comparison to the size of the economy - than Japan's, which has
suffered for more than a decade from the overhang of bad debts from its
speculative frenzy of the 1980's.
The debt problem, and China's halting
efforts to address it, can be best seen here in Shenzhen, a sprawling
industrial city near Hong Kong in the southern coastal
province of Guangdong. The province is one of China's
main economic engines,
accounting for two-fifths of its exports.
Yet it also has one of the highest rates
of loan defaults in the country, the legacy of a commercial real estate
bubble in the mid-1990's and a free-wheeling government-business culture in
which bankers frequently issued loans to friends or in exchange for bribes.
The Cinda Asset Management Corporation
has managed to foreclose on only a handful of properties here that were
used as collateral
for loans issued by one of China's Big Four state-owned banks, the China
Construction Bank. Cinda and China Construction Bank together are now
beginning to auction a mishmash of properties here and around the country to
which they have gained title through foreclosures.
Cinda has been saddled with mostly dregs,
like several exhibition halls in a small convention center that closed in
2000 and now is being used as a warehouse. China Construction Bank, by
contrast, has somewhat more valuable assets: two floors in a hotel and
office complex that closed about the same time, for example, along with 48
office suites in the 57-story Tower A of United Plaza, one of the city's
premier addresses.
But even those are proving tough sales.
In an unusual arrangement to attract buyers, the China Construction Bank is
offering to lend the money for up to 50 percent of the winning auction bids
for its holdings and Cinda's.
That is making it even harder for other
potential sellers in the property market. The Shenzhen K&C Industrial
Company, a manufacturer of television monitors for
closed-circuit building security systems, has been
mulling the sale of its
office suite on the 48th floor of Tower A, said Peng Nan, the company's
executive director.
But when the local real estate community
learned that China Construction was dumping its suites, the price for office
space in the building fell 50 percent, to 5,000 renminbi a square meter, or
$56 a square foot. Shenzhen K&C paid nearly twice as much for its suite
when the building opened in 1999, and refuses to sell it at a loss, which
might mean that the company has to stay put for a while, Mr. Peng said.
"If I sell this unit, I won't sell
for less than 10,000" renminbi a square meter, he said.
Low prices and subsidized loans from
state-owned banks are a big problem for the asset management corporations,
which paid the banks full face value for the loans. The corporations are
owned by the Ministry of Finance but raised part of the money in cash by
borrowing from China's central bank, the People's Bank of China. The
corporations raised the rest by giving 10-year bonds to the banks.
But the asset management corporations are
having so much trouble selling the loans that they have struggled even to
raise the money for the interest payments on the bonds.
They have no money to repay the central
bank, which has lent a sum equal to several times its capital base.
A new paper published by two economists,
Guonan Ma and Ben S. C. Fung, at the Bank for International Settlements, the
coordinating agency for central banks around the world, expresses particular
alarm. The asset management corporations have sold just one-eleventh of
their loan portfolios for cash over the last two years. Even though these
tended to be the best loans in their portfolios, the corporations collected
an average of just 21 cents for each dollar of face value.
The result is that the asset management
corporations have only raised cash equal to 1.9 percent of the original
values of all of the loans transferred to them by the banks, according to
statistics in the paper. While many
more deals have been
done for stock, it is not clear what if any value can be assigned to stock
in companies that have not paid interest on their bank debts since at least
the mid-1990's.
The researchers also warned that China
may have endangered the financial health of its central bank by relying on
it, instead of directly on taxpayers, to bankroll much of the cost of the
asset management operations. The central bank's exposure, "represents
no small risk to the institution and its further development as a modern
central bank," the paper says, warning that if the asset management
corporations fail, they could easily wipe out the capital of the central
bank.
Chinese experts play down this risk. In
China, as in other countries with bad-debt problems, the tab for the bank
bailout will eventually be picked up by the national treasury and therefore
ultimately by taxpayers, instead of by the central bank, they contend.
Western banks hope to help resolve the
situation - and make a profit for themselves at the same time. Michael
Berchtold, the president of Morgan Stanley's Asian and
Pacific operations,
said that his company believed it understood the risks. The Morgan Stanley
consortium includes Salomon Smith Barney, a unit of Citigroup; Lehman
Brothers; and real estate funds that they advise.
In many cases, it should be possible for
loan buyers to reach a settlement with the original buyer to pay off the
loan for some fraction of face value. If a Western enterprise can buy a loan
for 8 cents on the dollar and
sell it to the original borrower for 15 cents on the
dollar, one investment banker said, it can make a profit even as the
original borrower may improve its balance sheet enough to tackle
other inefficiencies.
The international investment banks have
found elsewhere that they have more expertise and more flexibility in
reaching loan settlements. The original lenders often donot want to set a
precedent by letting borrowers pay back
loans for much less
than the original value.
"Over the medium term," Mr.
Berchtold said, "we expect to
put
a meaningful sum to work in nonperforming loans in China.
- NEW
YORK TIMES 26 October 2002
Overseas capital is showing a strong interest in investing in
China’s tourism industry
Overseas capital is showing a strong interest in investing in
China's tourism
industry as the country has fully opened the tourism market to the outside
world and lowered the access threshold for overseas investment.
In the 2007 China Tourism Investment Talks held in Ningbo, Zhejiang
Province recently, overseas businesses occupied more than 30 per cent of the
seats of the talks, far more than the previous two talks.
Data shows that overseas investment in China's tourism industry averaged
30-40 billion yuan a year, making up 25 per cent of the nation's total
capital in the tourism sector, and they cover hotels, travel agency and
building of scenic spots. The development space of China's tourism industry
is conducive to luring foreign capital Its open attitude gives a boost to
the briskness of its
tourism capital market, and the rapid development of the tourism industry
creates a chance for overseas capital to flow in.
It is estimated that China's tourism industry will maintain rapid growth in
2007, with total tourism revenue to exceed 950 billion yuan (US$1128.3
million). Experts predicted that the industry will keep growing over 10 per
cent annually on average in the coming years. Among them, the individual
consumption in tourism will grow 9.8 per cent annually, and business tourism
will grow 10.9 per cent. By 2010, the tourism revenue will make up 8 per
cent of China's GDP.
According to forecast of the world Tourism Organization, China will become
the world's largest tourism destination and fourth largest tourist source
by 2020. Such a huge tourism market is due to attract more and more overseas
capital to seek for profits. Meanwhile, the country has a better soft
environment for tourism investment, such as improved infrastructure and
supporting facilities, matured operation mode and investment concept and
enhanced service of the government, and various emerging tourism projects,
which all are very attractive to foreign capital.
Layout of overseas capital in China´s tourism industry By origins of overseas capital, overseas
investment in China´s tourism industry mainly comes from 27 countries and
regions at present. Among them, Hong Kong, the United States and the United
Kingdom take the first three places in terms of investment amount,
accounting for 50 per cent, 11 per cent and 9 per cent of the total overseas
investment in the sector.
By region directly invested by overseas businesses, overseas investment is
mainly concentrated in the country´s eastern coastal areas, with Zhejiang,
Fujian, Jiangsu and Guangdong, attracting 27 per cent, 12 per cent, 11 per
cent and 10 per cent of the total respectively. By key overseas-invested
projects, the service sector had 212 projects invested by overseas capital
in 2006. Among them, 40 were large projects with contractual overseas
investment totaling US$1.403 billion and actual overseas investment totaling
US$440 million.
Generally speaking, overseas investment in China´s tourism industry will
continue showing a trend of accelerated growth. According to the State
Tourism Administration, China plans to build 12,697 tourism projects in 11th
Five-Year Plan period (2006-2010), and they will need 1783.422 billion yuan
of investment, including 138.561 billion yuan of overseas investment. By
region, 74.848 billion yuan of overseas investment will be channeled to the
eastern part of China, 24.414 billion yuan to the central part, 22.929
billion yuan to the western part, and 16.43 billion yuan to the northeastern
part.
Experts hold that the entrance of overseas investment will play an important
role in further expanding China's tourism industry scale, improving the
tourism industry system, upgrading the industry quality and promoting the
industry to upgrade.
- 2007 December 12 ASIA
PULSE
Jumeirah
to hit Chinese market
The Dubai-based luxury hotel group Jumeirah is planning to have at least 10
hotels in China in the next three years, local Gulf News paper reported on
Wednesday.
Jumeirah's development plans in China are part of its expansion strategy
in Asia to create a geographically balanced portfolio, according to the
report. The group currently manages 10 hotels in Dubai, London and New York
and will manage a residential development, Jumeirah Island, currently under
construction near Phuket.
"We are looking all over Asia for new developments but China is a key
market. Two-thirds of our 16 hotels in Asia will be in China," the
group's vice-president for sales Tricia Warwick was quoted as saying.
Jumeirah has so far three confirmed projects in China's Beijing, Shanghai
and Guangzhou. The 338-room Han Tang Shanghai is scheduled to open in
mid-2008. The group is also looking to open new hotels in Indonesia, Japan
and India and will open a regional office in Singapore in March 2008 to
oversee its development in the region.
Jumeirah is part of Dubai Holding, which is owned by Dubai Government. Its
portfolio includes the sail-shaped Burj Al
Arab, the world's tallest
all-suite hotel. - 2007 December 21
ASIA
PULSE
Chinese internet users are five times as likely to have blogs as Americans
The
wealth gap between urban and rural Chinese continues to increase, renewing
concerns among Chinese leaders that the growing disparity could lead to
social unrest. The per capita income of urban Chinese averaged RMB 17,175
($2,515) last year, compared to RMB 5,153 ($754) in the countryside, a ratio
of 3.33 to 1, according to the National Bureau of Statistics. That's the
widest gap since China reformed its economic policies in 1978. Most of
China's economic prosperity is found on the eastern seaboard, while the
rural interior has lagged.
- 2010 March 10Source: AFP
Deng Xiaoping was the one to
let One Million Students Go To America
Mr. Deng made use of his enormous authority
as a revolutionary hero and right-hand man of Mao and Zhou Enlai and managed a
political transition that other Communist nations haven’t been able to
achieve. As he began to support the opening of China, conservative Chinese
officials, taught for decades that imperialists had exploited China, dragged
their feet in allowing foreign firms to set up manufacturing plants. But they
found it difficult to oppose “experiments” far from Beijing and, when the
experiments produced results, they couldn’t stop their spread elsewhere.
In 1978, as soon as Mr. Deng began
negotiations for normalizing relations with the United States, he played host
to White House science adviser Frank Press. Mr. Deng was so insistent on
sending hundreds of students to U.S. universities immediately after
normalization that Mr. Press phoned Jimmy Carter, waking up the president at 3
a.m. Mr. Carter gave his approval and, since then, more than a million Chinese
students have gone abroad – and more than a third have returned home with
new technology and new ideas. - 2012 March 12
GLOBE
& MAIL
BUT their Operating
Business and Wealth is definitely China based. Their children
have become the largest growth segment on the planet and are international
shoppers. Educating the next generation at the world's best
schools is part of most family business plan.
