Weblog with daily updates of the news on a frugal, fair and beautiful China, from the perspective of internet entrepreneur, new media advisor and president of the China Speakers Bureau Fons Tuinstra
China’s consumers are still nervous, the economy is weak, but looking good in the longer run, says Shanghai-based business analyst Shaun Rein at CNBC. Consumers are trading down now, but both real estate and infrastructure are not helping the economy, he adds. In the next decade, China’s middle class will grow from 400 to 800 million. Rein saw many of his clients move temporarily to Japan but is sure they will return to China.
China’s economy is dealing with some tough years, writes leading economist Arthur Kroeber, author of China’s Economy: What Everyone Needs to Know®, in ChinaFile, especially now that it does not have enough tools with debts and the property crisis like it did in the past. “So we need to brace for the consequences of the Xi model: slower growth in China, a big rise in Chinese technology exports, and more protectionism in the rest of the world,” he writes.
Arthur Kroeber:
China’s economic malaise results from a combination of political decisions, structural factors, and policy mistakes. The central reason for it is that Xi Jinping has decided to make national security and technological upgrading—not economic growth—his policy priorities.
The broadening definition of national security, and the increased influence of security interests in economic policy, have soured private investor confidence. The focus on technological upgrading has led to an economic strategy that relies almost exclusively on industrial policy. This means that the government devotes most of its attention to the supply side of the economy: boosting production of semiconductors, clean energy equipment, electric vehicles, industrial machinery, ships, and other products seen as needed to increase the country’s technological capability and self-sufficiency. Virtually no serious effort goes into figuring out how to unlock domestic demand—especially from households, which now save about a third of their income, one of the highest savings rates in the world.
These policies mean that China’s economy will have two faces in the coming years. The chronic shortage of demand will mean disappointing GDP growth—probably 3-4 percent on average over the rest of the decade—and a constant struggle to shake off deflation. But at the same time, its technology-intensive sectors will thrive, thanks to both government support and China’s uniquely competitive manufacturing ecosystem. The result will be persistent high trade surpluses and, probably, a strong wave of protectionism from countries that want to preserve their own industrial capacity.
This policy stance also makes it very hard for China to solve two of its biggest structural problems: the collapsing property market and the huge and growing debt burdens of local governments. The last time China faced a challenge of this scale was the late 1990s, when nearly half of all bank loans went bad. At that time, it responded with a combination of financial engineering to postpone the reckoning of bad debts, well-targeted infrastructure stimulus, and aggressive deregulation of manufacturing and housing which unlocked huge new sources of entrepreneurship and household demand. As a result, China grew out of its problems and by 2010 became the world’s second-biggest economy.
A similar approach today would recognize that deregulation of services—which account for more than half the economy, and all net new employment—is the main path to boosting consumer demand and accelerating economic growth. Too much of the service economy is either in state hands, or burdened by stunting regulations. But such a policy would conflict directly with Xi’s desire to keep the state’s finger on all economic levers. So we need to brace for the consequences of the Xi model: slower growth in China, a big rise in Chinese technology exports, and more protectionism in the rest of the world.
The number of philanthropists on the annual Hurun Philanthropy List keeps on growing, despite the financial problems many have. The Country Garden founder and his daughter top in 2023, says Rupert Hoogewerf, chairman and chief researcher of Hurun Report with 34 tycoons making the 100 million yuan threshold, according to the South China Morning Post.
The South China Morning Post:
The founder and chairman of indebted property developer Country Garden top a list of 34 Chinese business magnates who each promised to give away at least 100 million yuan (US$13.7 million) to charitable causes in the last year…
The troubled, debt-ridden real estate sector is still the “main source of donations” on the philanthropy list, as well as the main source of wealth on Hurun’s list of rich individuals, said Rupert Hoogewerf, chairman and chief researcher of Hurun Report…
“Whilst philanthropy is not keeping up with wealth creation, the number of individuals donating 100 million yuan or more in a year has risen to 34 this year from two 20 years ago,” Hoogewerf said.
China’s economy looks better for 2024, says business analyst Shaun Rein, as multinationals are moving back their investments to China away from other destinations. Both consumer confidence and real estate are still in bad shape, but sentiments are moving in the right direction, he says at CNBC, despite the geopolitical tensions with the US.
Geopolitical tensions and the crisis in real estate have hurt consumer confidence over the past 18 months, says Shanghai-based business analyst Shaun Rein at ABC. He does not expect a big-scale stimulus, since the government is short of money to spend, but a slow recovery of retail is emerging, he adds.
China’s economy is not going to recover for the next two years, says renowned investor Jim Rogers to The Deep Dive. For the first time, the country is deeply indebted, faces a global bear market, and has not been able to solve the downturn in its real estate, he tells at the Deep Dive.
Almost half a year ago the real estate giant Evergrande started to fall apart under its 300 billion US dollar debts, but the collapse – expected by many – has not yet emerged. Financial analyst Sara Hsu explains in the Commercial Observer why this collapse has not happened.
The Commercial Observer:
“The real estate market in China represents China’s main means of savings since the financial system remains underdeveloped relative to that of developed nations. Therefore, the government has a significant interest in reducing the impact of real estate downturns,” said Sara Hsu, clinical associate professor of supply chain management at the University of Tennessee at Knoxville. Hsu has written for over 30 publications on the Chinese economy. “This means that there will likely be policies put in place to reduce price volatility in the housing sector.”
China’s economic growth for 2022 is now pegged at 4.8 percent, 0.8 percentage points lower than previously expected and a marked slowdown from the 8.1 percent growth achieved in 2021, the country’s central bank announced recently. Judging from the numbers, China’s economy is experiencing lagging growth, but an anticipated financial market crisis hasn’t materialized…
“Overseas investors are angry but the amount of Evergrande’s debt borrowed from overseas investors is far less than that borrowed onshore, so the fallout will not be extensive,” she said.
Maybe the question is not whether an exploding debt bomb at a Chinese company will spread financial shrapnel abroad, but whether a similar risk lies in other economies. Is there some version of Evergrande lurking in the U.S.?
The same situation is less likely to occur in the U.S. since banks tend to lend based on close examination of credit risk. In contrast, Chinese banks still lend to some extent based on government policy direction, which in recent years has included property and infrastructure construction, according to Hsu.
Investors worldwide have been watching developments at Evergrande, China’s second largest real estate company, as it struggled to repay its gargantuan debts. But while the problems are serious, financial analyst Sara Hsu does not expect a full collapse of the giant, she tells the commercial observer.
The Commercial Observer:
Evergrande is part of a sector that comprises as much as 28 percent of China’s economy, per the Financial Times. While real estate has been in a “bubble” for the last 15 years, cracks are starting to show as a result of the government “cracking down on risky property developers,” said Sara Hsu, visiting scholar at Shanghai-based Fudan University. “I think many people are aware of the real estate bubble in China, but it has not been vulnerable because the government hasn’t allowed it to be.”
The problem is that with few other good assets to fund, “investors continue to purchase properties and prices continue to rise,” added Hsu, who is an expert in Chinese fintech, economic development, informal finance and shadow banking…
So what’s going to happen to Evergrande?
Hsu thinks the government will step in to prevent a collapse and to stabilize things.
“The government is likely to force Evergrande to repay as much of its debt as possible, and [will] step in at the last minute to shore up obligations that might create systemic risk if they are defaulted upon,” she said.
Decision-makers in China’s consumption are increasingly singles, with women becoming another major force to take into account, says marketing expert Ashley Dudarenok at the state-owned broadcaster CGTN. Mostly women decide on the purchase of a house, at the end of 2021 likely to be 82% of the deciding purchasers.
Real estate giant Wanda Commercial got a US$4.4 billion investment from Tencent, a major tech player. A move that is very smart for Wanda, says business analyst Ben Cavender, as it wants to get ready for a now successful IPO in Shanghai, according to Reuters.
Reuters:
The 34 billion yuan deal for a 14 percent stake in Wanda Commercial could also help the unit get back on track with a plan to relist in Shanghai after a bold and ultimately expensive decision to withdraw from the Hong Kong exchange in 2016.
“From Wanda’s perspective it seems a good deal. They’ve overextended with expansions and acquisitions over the last couple of years,” said Ben Cavender, Shanghai-based principal at China Market Research Group, adding that Wanda Commercial had now become a more “attractive mainland IPO candidate”.
The stake will be bought from existing investors who had been part of the $4.4 billion buyout fund created for Wanda Commercial’s delisting in 2016. Those investors had been promised up to 12 percent annual interest if it failed to relist in Shanghai within two years.
The Shanghai IPO has, however, been held up by mainland regulatory measures to tighten liquidity in the real estate sector. Wanda said in a statement that with its new investors it was looking to take the unit public “as soon as possible”.
The Tencent-led group includes major retailer Suning Commerce Group 002024.SZ, e-commerce firm JD.com Inc JD.O and rival developer Sunac China 1918.HK, which bought some of Wanda’s theme park assets last year.
“The tech companies are seen as the darlings of China’s emergence as a global superpower. So, reputation-wise I think this is a good move for Wanda,” Cavender said.
What is Beijing's worst nightmare? The trade war? The troubles in Hong Kong? No, says political economist Shirley Ze Yu. China's real nightmare is a collapse of the property market, she writes in the South China Morning Post. "China’s property market is the grey rhino, overfed on massive liquidity steroids."
Shirley Ze Yu:
“The only force that can defeat China is from within. No exterior force can.” On October 2 this year, the Communist Party’s leading journal of political theory, Qiushi, published in full a 2018 speech by President Xi Jinping, highlighting in stark language China’s coming challenges as the People’s Republic enters its 71st year. Indeed, in 2020, China’s primary economic risk is most likely to come not from the trade war, but from its inflated property market.
“Black swans” and “grey rhinos” dominated China’s financial lexicon this year. Few in the population know what they are but most know what they mean. They mean fear.
China’s property market is the grey rhino, overfed on massive liquidity steroids. One injection was the massive stimulus introduced in response to the 2008 global financial crisis. Another injection was from the six consecutive interest rate cuts in the 12 months to November 2015.
Awash in liquidity, Chinese stock markets took off too, but by late 2015, the bubble had burst and the benchmark Shanghai Composite Index tumbled about 50 per cent from its 2015 peak. Real estate, however, partied on.At the annual Caixin Summit earlier this month, China’s top economic policymaker Liu Shijinsaid that the targeted 6 per cent growth in gross domestic product is still “within reach” this year but for next year, worryingly, “drastic measures would be needed”.
Experts have drawn comparisons between China’s overheated property market and Japan’s housing bubble that burst in 1991, plunging the economy into the “lost decades”. Like Japan, China has risen to become a major trading nation thriving on a massive trade surplus. Both are today among the world’s top creditor nations with a culture of high savings rates and heavy reliance on bank lending, creating a highly leveraged economic growth model.
Former United States Federal Reserve chairman Ben Bernanke concluded that Japan’s post-bubble deflation was due to ill-timed and ill-measured monetary-policy responses from its central bank. China, however, has attributed this to the Plaza Accord, a 1985 currency pact that set off Japan’s currency demise.
With Japan’s fate in mind, China is expected to resist any attempt by the US to introduce a Plaza Accord 2.0 in the interim trade deal under negotiation. Any clause on exchange rate stability will therefore remain symbolic in both language and execution.
China's Hurun rich list is signaling yet another economic shift, says Hurun chairman Rupert Hoogewerfat CNN. This time the rich from tech firms are replacing those from manufacturing and real estate, according to the latest annual rich list.
CNN:
China's wealth is becoming increasingly concentrated in the hands of tech entrepreneurs, although some pharmaceutical moguls and pig farmers are breaking into the ranks of the super rich.
There were fewer millionaires and billionaires on the Hurun Report's rich list for a second year in a row, but their average wealth increased as China's shift towards the digital economy saw manufacturing and construction tycoons drop off the bottom.
There has been a "changing of the guard" among China's wealthiest people over the years, said Rupert Hoogewerf, Hurun Report's chairman, commenting on the list that was published Thursday.
"Tech entrepreneurs are replacing those from the traditional powerhouses of manufacturing and real estate," Hoogewerf said. "Wealth is concentrating into the hands of those who are able to adapt to the digital economy," he added.
Alibaba (BABA) founder Jack Ma held onto his title of China's richest man with a net worth of $39 billion, with Pony Ma of Tencent (TCEHY) rising one spot to take second place with $37 billion.
The Hurun Global Real Estate Rich List, released last week, shows that China has the most real estate billionaires, followed by the US. The country's building boom caused by massive urbanization explains the top position, says Rupert Hoogewerf, chief researcher of the Hurun rich list to Barron's.
Barrons:
With 139 of the world’s 239 real estate billionaires, China accounted for a whopping 58% of the world’s total, leaving other countries far behind, according to the Hurun Global Real Estate Rich List released Thursday. The runner-up, the U.S. has 26 real estate billionaires, followed by the U.K., with 17.
Hong Kong had the highest concentration of real estate billionaires in the world with 25.
“The urbanization megatrend in China has driven the biggest wealth explosion in the history of world, with the result that most of the world’s largest real estate developers today come from China,” Rupert Hoogewerf, chairman and chief researcher of Hurun Research Institute, publisher of the list, said in a statement.
Chinese developers swept the list’s top four spots. Xu Jiayin of Shenzhen-based Evergrande Group ranked first with a net worth of US$37 billion. Li Ka-shing of Hong Kong conglomerate Cheung Kong Holdings came in second, with US$29 billion.
Third place went to Lee Shau Kee of Hong Kong-based Henderson Development, with US$27 billion. Yang Huiyan of Foshan-based Country Garden landed fourth with US$23 billion. She was the only female real estate billionaire in the top 10.
The richest U.S. real estate billionaire was Donald Bren, chairman and sole owner of California-based developer the Irvine Company. He had a net worth of US$17 billion.
U.S. President Donald Trump came in at 82nd place with US$3 billion.
Technology is already a major contributor to China’s economy, underscored by the dominance of internet-based businesses and online advertising. China accounts for US$1 out of every US$4 dollar generated globally across application stores, according to analytics company AppAnnie, with Chinese app users spending more than 200 billion hours in apps in the fourth quarter of 2017, more than 4.5 times more than the next largest market India, and way ahead of the US in third place.
“China is picking five to 10 private technology companies to make them national champions, while also giving them the roles that were formerly assigned to state companies, including the collection of information, big data sharing, and censorship,” said Shaun Rein, the managing director of Shanghai-based market intelligence company China Market Research and author of The War for China’s Wallet: Profiting from the New World Order.
More than 20 property tycoons have dropped out as delegates to China’s legislative and consultative conference this year.
Among them are Hu Baosen, chairman of construction firm Jianye Group, Longfor Properties’ chairman Wu Yajun, Yuexiu Group’s chairman Zhang Zhaoxing, New World Development’s chairman Henry Cheng Kar-shun, Shui On Group’s chairman Henry Lo Hong-sui, and Fosun Group’s chairman Guo Guangchang, whose conglomerate includes a property business.
Demand for houses, both inside and outside China, fuels a strong spike in house prices, says the latest Hurun Global House Price Index 2017 Half-Year Report, set up by its chief researcher Rupert Hoogewerf. It is the first report taking the value of the Chinese Renminbi as a starting point, as most Chinese investors would do, Hoogewerf tells International Investment.
International Investment:
The report is different than some others that rank global markets on the basis of affordability in that it considers the annual house price changes and rental yields alongside the change in the value of the Chinese renminbi, the currency with which Chinese investors typically start out with as they look to invest.
Also unlike some other reports, it focuses on the most popular Chinese investment destinations, with the result that there may be cities in the world with higher property rises than those included in its database but which aren’t included because they aren’t considered of interest to Chinese high-net-worth individuals.
With respect to the rapid house-price rises in these Chinese cities, Rupert Hoogewerf, the British founder, chairman and chief researcher of the Hurun Research Institute, noted that they are generating “real concern in China about the impact on the future economy”.
“Although there are measures in place to curb excessive growth, by restricting high prices on new developments, for example, there is an underlying demand for housing that is fueling further potential price hikes.”
Among high-net-worth Chinese, Hoogewerf went on, “global asset allocation”, led by real estate, remains a major trend, in spite of Chinese government efforts to curb overseas investment by its citizens.
Traditionally Shanghai, Beijing and Guangzhou were benchmark cities when looking at the housing market in China. But when you want to know where global wealth is growing fastest, you might have to look at a few unfamiliar names, including Wuxi, overtaking Hong Kong as the most expensive city, says Rupert Hoogewerf, chief researcher of the latest Hurun Report, according to the South China Morning Post.
The South China Morning Post:
Complied by research house Hurun Report, the study highlights growth in global home prices in the 12 months to June 30, with 42 of the 50 cities under the spotlight from 12 countries it examined, being hit with price rises of more that 10 per cent in the period.
The five cities to suffer the fastest growing prices were Toronto, Reykjavík, Wuxi, Hong Kong and Zhengzhou, the provincial capital of Henan Province.
Six Chinese cities were named in top 10, while that total of 21 makes the country the most listed, followed by the US (Seattle, Orlando, Dallas, Denver, New York, Sacramento and Miami), Germany (Berlin, Hanover, Stuttgart, Frankfurt, Munich and Hamburg), Canada (Toronto, Hamilton, Victoria and Vancouver), Australia (Melbourne, Sydney and Canberra), Ireland and New Zealand with 2 cities each...
Maybe surprisingly, the eastern Chinese city of Wuxi – around 140 kilometres or a 2-hour drive, west of Shanghai – overtook Hong Kong, recently dubbed “the world’s most expensive housing market”, to become the Chinese city so see the highest growth in home prices, as it is much less known than other major population centres such as Beijing and Shanghai..
Wuxi, in the southern Chinese province of Jiangsu, borders two other large cities, Changzhou to the west and Suzhou to the east, and saw a 22. 9 per cent rise in prices in the period, exceeding Hong Kong’s 20.8 per cent rise, according to Hurun Report, which is best-known for its rankings of the richest people in China.
The other four Chinese cities in top 10 are Zhengzhou, the capital of east-central China’s Henan province (+20.2 per cent), Changsha in Hunan province (+18.5 per cent), Guangzhou (+17.9 per cent) in Guangdong province and Shijiazhuang (+16.1 per cent) in Hebei.
“Global asset allocation is one of the biggest trends now for China’s high-net-worth individuals, led by real estate,” said Rupert Hoogewerf, chairman and chief researcher of Hurun Report.
Jinan, Hefei, Wuhan, Xiamen, Hangzhou, Xi’an, Fuzhou, Nanjing, Tianjin, Nanning, Chongqing, Beijing, Qingdao, Nanchang and Shanghai are those ranked outside the top 10 but also among the top 50, said the report.
Chinese investors are still flocking into the Royal Albert Docks in London, says property consultant Sam Crispinin the South China Morning Post. Doomsday scenario's with rigid capital control from Beijing and the Brexit is not stopping those investments.
The South China Morning Post:
Firms from China, Taiwan, Hong Kong and India have acquired or reserved 60 per cent of total office space, or 33,388 square metres, in the first phase of the Royal Albert Dock project, Sam Crispin, chief executive officer of ABP’s Hong Kong sales unit told the South China Morning Post.
Costing £1.7 billion (US$2.2 billion), the revival of the 137-year-old dock in East London, seen as the city’s third financial and business district, aims to attract Chinese and other Asian firms looking to expand into Europe. ABP, founded in 2003, is a privately held Chinese developer of economic zones, including the Royal Albert Docks project.
Beijing’s crackdown on capital outflows and debt-fuelled overseas acquisitions by aggressive conglomerates has not deterred companies interested in moving into Royal Albert Dock, said Crispin, who led PwC’s urbanisation team and real estate business advisory services before joining ABP this year.
“The concern is where Chinese banks have been lending to fund overseas acquisition, whether that’s a risky thing to do or not, and how future acquisitions will be funded in what’s perceived to be a less risky way,” he said.
The latest State Council directive issued on Friday restricting Chinese overseas investments in property, hotels and sports clubs is likely to have limited impact on the project, Crispin said on Monday, as ABP primarily targets “companies that already have operations in Hong Kong and other Asian countries” and hopes “to attract owner occupiers.”
Unlike landmark buyers such as sauce maker Lee Kum Kee, which bought London’s “Walkie Talkie” tower in July, potential and existing Chinese buyers of ABP’s project are mostly smaller firms, financed in a less risky way and making “smaller investments that are below the radar” of Beijing, Crispin said.
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China’s economy looks better for 2024, says 
