latimes.com/business/la-fi-china-bubble13-2010feb13,0,6024712.story
latimes.com
ASIA
China, worried about a real estate bubble, moves to restrain bank lending
The action, which shook global financial markets, could help cool a market in which housing is unaffordable to ordinary citizens. Banks will have to set aside more reserves with the central bank.
By David Pierson and Don Lee
February 13, 2010
Reporting from Washington and Beijing
Amid growing fears of a real estate bubble, Chinese officials moved Friday to restrain bank lending and put a lid on incipient inflation, a surprise action that shook financial markets around the world on concern that the leading engine of the global economic recovery could be slowing.
China's action will require banks to set aside more reserves with the nation's central bank, instead of lending the money to businesses and consumers. It was the second such step in a little more than a month and is aimed at curbing excessive borrowing, which has stoked government worries that China's economic gains could be undone by an overheated real estate market.
In the United States, stocks initially fell sharply on the news because of concerns that any slowdown in China could damp the U.S. economy. By the end of trading, however, Wall Street had recovered to post a modest loss on the day.
Some analysts had expected Beijing policymakers to raise bank reserve requirements in the second quarter. The earlier move may have been spurred by reports of stronger-than-expected Chinese exports and robust lending in January.
"The message coming out of China in recent weeks has been quite clear: Policymakers are becoming more concerned about containing inflationary expectations and managing the risk of asset price bubbles as a result of last year's aggressive expansion of credit," Jing Ulrich, a J.P. Morgan analyst in Hong Kong, said in a research note.
China's surging economy can be seen in rising home prices, reminiscent of the U.S. housing bubble a few years ago. In Beijing, developers can barely keep pace with demand as the amount of residential floor space sold in 2009 skyrocketed 82% from the year before.
New developments mostly target the wealthy, because builders can reap higher profits, shutting out ordinary Chinese such as Cheng Jingjing.
Cheng, a sports-equipment salesman, had set his sights on buying an apartment in a new Beijing suburb before local roads even had street signs. It was beyond his budget, so he thought he'd return after saving more money or in the unlikely event that prices fell.
"I made a big mistake," he said. "I didn't know prices would more than double."
The average price of an apartment in the capital is 15 times a typical resident's annual household income. The U.S. ratio is about 3 1/2 , as the housing crash made homes more affordable especially in places such as California's Inland Empire.
Some fear that China is headed for a similar crash, which could have far-reaching effects.
"If the bubble bursts, it will be a huge blow to China's financial system," said Yi Xianrong, a researcher at the Chinese Academy of Social Sciences.
In Shanghai, home prices have swelled 87% from the previous peak in 2007.
China's central government last year drew up measures to cool the sector. But pulling back may be difficult. Up to half of local government revenue is estimated to come from land sales.
The real estate industry accounted for about 25% of China's gross domestic product in 2009, taking into account secondary sectors such as cement and steel.
Driving concern is the abundance of liquidity in China's economy. Last year, the nation's banks unleashed $1.4 trillion, compared with $720 billion in 2008.
Other factors, however, suggest that China won't suffer the same fate as Japan and the U.S. when their property markets crashed.
For one, the Chinese aren't exposed to the low-to-no-down-payment loans that were popular in the U.S. Down payments in China average 60% -- 40% more than the legal minimum for first homes. Many banks are forbidden to lend if a mortgage equals half or more of a customer's monthly income.
"The amount of buyer leverage is far, far lower than the U.S.," said Arthur Kroeber, managing director of Dragonomics, a Beijing economic research firm.
The amount of credit extended to the Chinese property sector from 2003 to 2009 was equal to 40% of China's GDP, according to Newport Beach investment firm Pimco. In the U.S., the figure was 80% of GDP from 2000 to 2007.
Some believe China's urbanization and rising standard of living will absorb the new apartments.
"Given China's potential growth, its real estate market has plenty of room for enlargement over the long term," Koyo Ozeki, head of Pimco's Asian credit research team, wrote in a recent report.
Many Chinese see property as a solution to the country's limited investment options. There is no bond market in China, and the stock exchanges are volatile. Buying an apartment is viewed as a safeguard against inflation.
Those lucky enough to own multiple apartments face no added cost because China imposes no property tax. As a result, apartment space estimated at hundreds of millions of square feet sits sold but empty.
Guan Zhenhuan, 45, owns three apartments: She rents out one in Shanghai and lives in one in Beijing's university district; a third in a western Beijing suburb is empty. She visits the bare apartment once a month to inspect the linoleum floors and whitewashed walls.
"I have no intention of selling," said Guan, who owns a company that outfits buildings with electronic and mechanical equipment such as sound systems and elevators. "There's no other way to invest."
Most Chinese find themselves in positions like the one facing Cheng, the sports-equipment salesman.
The Beijing native wants to wed his girlfriend of seven years but has had to wait until he can buy a home. Ownership is commonly seen as a prerequisite for marriage.
Cheng's house hunt began three years ago. He found a stylish gated development near the western boundary of the capital. The suburb had few street lamps, no schools and a new expressway that ended abruptly at a pile of dirt. But Cheng could accept this; he didn't have the money for a prime location.
A sales agent welcomed him into the showroom replete with a diorama of the dozens of buildings, cabana-like meeting stalls and a bar stocked with wine. Cheng asked about a 1,000-square-foot apartment. At $130,000, it was $10,000 over his budget.
The months passed, and the call to wed grew stronger. Cheng, who earns $1,200 a month, found prices surging 50%, then 100%. He returned to his coveted apartment development knowing he could rely on some savings and financial help from his parents but was dismissed by an agent.
"There's nothing left to buy," she told him.
His girlfriend's parents sat him down and said they would bend the rules. Renting was now permissible.
"Housing is the biggest obstacle in my life," said Cheng, 27. "At this rate, I'll never be able to afford an apartment."
david.pierson@latimes.com
don.lee@latimes.com
Tommy Yang in The Times' Beijing bureau contributed to this report.
Copyright © 2010, The Los Angeles Times
Article on RE prices in Beijing
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momopi
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latimes.com/business/la-fi-china-consumer13-2010feb13,0,1116500.story
latimes.com
GLOBAL ECONOMY
Thrifty Chinese resist enticements to spend
An official push to promote consumerism as a way of reducing dependence on exports faces cultural hurdles.
By David Pierson and Barbara Demick
February 13, 2010
Reporting from Beijing
Click here to find out more!
To re-balance their economies, Americans need to save more and the Chinese must loosen their wallets.
But judging from homemaker Wang Fang's grocery cart leading up to the biggest holiday of the year here it's going to take some doing to persuade consumers here to shop til they drop.
Her annual splurge, timed to Sunday's Chinese New Year festivities, included a sack of rice, a jug of cooking oil and a bag of beef jerky. Wang's lone personal indulgence: a $40 foot-washing basin she bought using a gift card from her husband's state-owned gas company.
"Chinese people like to buy practical gifts," said Wang, 49. "So it's mainly food and drinks. We're not going to buy junk that lasts one or two years."
Debt-strapped Americans would do well to mimic Wang's self-restraint. But in macroeconomic terms Chinese frugality is not a virtue. China's economy is overly dependent on foreigners to buy its low-cost exports, a weakness that was exposed during the recent global downturn. The government is now trying to encourage its own citizens to spend, with the goal of building reliable domestic demand for Chinese products.
"We must . . . transform the current development model that is excessively reliant on investment and exports," Li Keqiang, the vice premier widely expected to be the next prime minister, said last month at the World Economic Forum at Davos. "We will focus on boosting domestic demand."
It won't be easy.
China's rapid rise might be the envy of nations across the globe. Yet for all the talk of its economic miracle, Chinese consumers are taking home a shrinking share of the pie. In the 1990s, household income accounted for 72% of the country's gross domestic product. By 2007 it had fallen to 55%, according to a study on Chinese consumption by consulting firm McKinsey & Co.
That's because Beijing has geared China's economy toward production rather than consumption. It's a formula that has provided millions of workers with employment but no quick path to the middle class.
Driving the disparity, experts said, is China's decision to subsidize manufacturing and exports at almost any cost to keep its factories humming. The government has showered its manufacturers with low-interest loans, export subsidies and other incentives to give them an edge over foreign competitors. Beijing has also kept its currency, the yuan, artificially low so that its goods remain cheap abroad.
That has been a boon for Chinese factory owners and other well-connected elites. The nation boasted 42 billionaires on Forbes' most recent list of global tycoons.
But wages for most Chinese workers have grown slowly, while their tax burden has risen to help finance all those business subsidies. Meanwhile, a weak currency has fueled inflation and makes imports more expensive for consumers at home.
The McKinsey study said the average Chinese worker has to put in seven hours on the job to earn enough to purchase the same amount of goods or services that an American worker could buy with one hour's pay.
Yu Yaocai, a 28-year-old junior high school teacher in Beijing, said he set a $300 budget for the holidays, about $40 less than his monthly pay. He said he would put the expenses on his credit card but would pay it off promptly when the bill arrived.
"I only buy something when I need to buy something," Yu said.
To be sure, living standards are rising here. China surpassed the U.S. last year in auto sales, and it's the world's No. 1 cellphone market. Still, more than half of China's 1.3 billion people remain in the countryside, where per capita income in 2009 was $758. City dwellers averaged earnings of $2,773 last year, about 15 times less than what the typical American earned.
Persuading Chinese consumers to spend considerably more of their disposable income will require a massive cultural shift. The Chinese savings rate is more than five times higher than that of the U.S. That's largely because citizens here can't count on the government to supply them with adequate education, healthcare or retirement benefits.
Hu Yuping, a homemaker from a rural suburb outside Beijing, said she's trained her family to survive on about $1 a day. It's the only way they can afford her son's college tuition, which costs $1,000 a semester.
Her husband had to give up a job as a taxi driver because of diabetes. Their savings helped pay his medical bills. To make ends meet, he's taken handyman assignments in his village.
"We don't buy anything big," said Hu, whose deep crow's-feet and graying hair make her look far older than her 46 years. "The last time we did was five years ago when we bought a television."
The central government has launched plans to shore up healthcare and pension plans, but the efforts are still not enough, experts said.
Chinese people "still do not feel secure about their future," said Zhao Ping, an economist with the Ministry of Commerce, who researches consumer spending. "Social security is not well-developed. People in the rural areas have to save money for old age; children [providing for their parents in their old age is] the traditional way, but people can't rely on that because of the one-child policy. The government is trying to improve the social security system, healthcare and retirement programs in rural areas. Only when the system is established will people have the confidence to spend more."
A host of multinational firms, including Walmart, General Motors, Procter & Gamble and Apple, are betting on it.
On a recent afternoon at one of the 156 so-called "hypermarkets" in China run by the French retailing chain Carrefour, hordes of shoppers elbowed their way through the aisles to stock up for the New Year's celebrations. Many said it was the most expensive occasion of year for them. Family meals had to be prepared and gifts had to be given to in-laws, colleagues and bosses.
The crowds weren't so thick in the electronics department, but traffic was jammed in the food aisles, where special red gift boxes of Peking duck, mixed nuts and rice wine were ready to be scooped-up by passersby.
"It's nutritious and the packaging is easy to hold," said He Liping, explaining why she bought her aunt a seasonally decorated box of organic eggs.
While thrift remains the watchword, some unapologetic consumers can be found in the upscale shopping districts that are springing up in the big cities.
Steven Chen, a 23-year-old musician, said his fashion icon was hip-hop star Kanye West. The Beijing native proudly described his ensemble while standing outside a designer T-shirt store: a Victorinox beanie, a Billionaire Boys Club jacket over a Uniqlo hoodie, Buffalo jeans and teal-colored Nike sneakers.
"If I have the money, I'll buy it," Chen said, describing his shopping addiction. "It's my own money so my parents can't complain. Though they keep telling me to save and buy a house."
david.pierson@latimes.com
barbara.demick @latimes.com
Nicole Liu and Tommy Yang in the Times' Beijing bureau contributed to this report.
Copyright © 2010, The Los Angeles Times
latimes.com
GLOBAL ECONOMY
Thrifty Chinese resist enticements to spend
An official push to promote consumerism as a way of reducing dependence on exports faces cultural hurdles.
By David Pierson and Barbara Demick
February 13, 2010
Reporting from Beijing
Click here to find out more!
To re-balance their economies, Americans need to save more and the Chinese must loosen their wallets.
But judging from homemaker Wang Fang's grocery cart leading up to the biggest holiday of the year here it's going to take some doing to persuade consumers here to shop til they drop.
Her annual splurge, timed to Sunday's Chinese New Year festivities, included a sack of rice, a jug of cooking oil and a bag of beef jerky. Wang's lone personal indulgence: a $40 foot-washing basin she bought using a gift card from her husband's state-owned gas company.
"Chinese people like to buy practical gifts," said Wang, 49. "So it's mainly food and drinks. We're not going to buy junk that lasts one or two years."
Debt-strapped Americans would do well to mimic Wang's self-restraint. But in macroeconomic terms Chinese frugality is not a virtue. China's economy is overly dependent on foreigners to buy its low-cost exports, a weakness that was exposed during the recent global downturn. The government is now trying to encourage its own citizens to spend, with the goal of building reliable domestic demand for Chinese products.
"We must . . . transform the current development model that is excessively reliant on investment and exports," Li Keqiang, the vice premier widely expected to be the next prime minister, said last month at the World Economic Forum at Davos. "We will focus on boosting domestic demand."
It won't be easy.
China's rapid rise might be the envy of nations across the globe. Yet for all the talk of its economic miracle, Chinese consumers are taking home a shrinking share of the pie. In the 1990s, household income accounted for 72% of the country's gross domestic product. By 2007 it had fallen to 55%, according to a study on Chinese consumption by consulting firm McKinsey & Co.
That's because Beijing has geared China's economy toward production rather than consumption. It's a formula that has provided millions of workers with employment but no quick path to the middle class.
Driving the disparity, experts said, is China's decision to subsidize manufacturing and exports at almost any cost to keep its factories humming. The government has showered its manufacturers with low-interest loans, export subsidies and other incentives to give them an edge over foreign competitors. Beijing has also kept its currency, the yuan, artificially low so that its goods remain cheap abroad.
That has been a boon for Chinese factory owners and other well-connected elites. The nation boasted 42 billionaires on Forbes' most recent list of global tycoons.
But wages for most Chinese workers have grown slowly, while their tax burden has risen to help finance all those business subsidies. Meanwhile, a weak currency has fueled inflation and makes imports more expensive for consumers at home.
The McKinsey study said the average Chinese worker has to put in seven hours on the job to earn enough to purchase the same amount of goods or services that an American worker could buy with one hour's pay.
Yu Yaocai, a 28-year-old junior high school teacher in Beijing, said he set a $300 budget for the holidays, about $40 less than his monthly pay. He said he would put the expenses on his credit card but would pay it off promptly when the bill arrived.
"I only buy something when I need to buy something," Yu said.
To be sure, living standards are rising here. China surpassed the U.S. last year in auto sales, and it's the world's No. 1 cellphone market. Still, more than half of China's 1.3 billion people remain in the countryside, where per capita income in 2009 was $758. City dwellers averaged earnings of $2,773 last year, about 15 times less than what the typical American earned.
Persuading Chinese consumers to spend considerably more of their disposable income will require a massive cultural shift. The Chinese savings rate is more than five times higher than that of the U.S. That's largely because citizens here can't count on the government to supply them with adequate education, healthcare or retirement benefits.
Hu Yuping, a homemaker from a rural suburb outside Beijing, said she's trained her family to survive on about $1 a day. It's the only way they can afford her son's college tuition, which costs $1,000 a semester.
Her husband had to give up a job as a taxi driver because of diabetes. Their savings helped pay his medical bills. To make ends meet, he's taken handyman assignments in his village.
"We don't buy anything big," said Hu, whose deep crow's-feet and graying hair make her look far older than her 46 years. "The last time we did was five years ago when we bought a television."
The central government has launched plans to shore up healthcare and pension plans, but the efforts are still not enough, experts said.
Chinese people "still do not feel secure about their future," said Zhao Ping, an economist with the Ministry of Commerce, who researches consumer spending. "Social security is not well-developed. People in the rural areas have to save money for old age; children [providing for their parents in their old age is] the traditional way, but people can't rely on that because of the one-child policy. The government is trying to improve the social security system, healthcare and retirement programs in rural areas. Only when the system is established will people have the confidence to spend more."
A host of multinational firms, including Walmart, General Motors, Procter & Gamble and Apple, are betting on it.
On a recent afternoon at one of the 156 so-called "hypermarkets" in China run by the French retailing chain Carrefour, hordes of shoppers elbowed their way through the aisles to stock up for the New Year's celebrations. Many said it was the most expensive occasion of year for them. Family meals had to be prepared and gifts had to be given to in-laws, colleagues and bosses.
The crowds weren't so thick in the electronics department, but traffic was jammed in the food aisles, where special red gift boxes of Peking duck, mixed nuts and rice wine were ready to be scooped-up by passersby.
"It's nutritious and the packaging is easy to hold," said He Liping, explaining why she bought her aunt a seasonally decorated box of organic eggs.
While thrift remains the watchword, some unapologetic consumers can be found in the upscale shopping districts that are springing up in the big cities.
Steven Chen, a 23-year-old musician, said his fashion icon was hip-hop star Kanye West. The Beijing native proudly described his ensemble while standing outside a designer T-shirt store: a Victorinox beanie, a Billionaire Boys Club jacket over a Uniqlo hoodie, Buffalo jeans and teal-colored Nike sneakers.
"If I have the money, I'll buy it," Chen said, describing his shopping addiction. "It's my own money so my parents can't complain. Though they keep telling me to save and buy a house."
david.pierson@latimes.com
barbara.demick @latimes.com
Nicole Liu and Tommy Yang in the Times' Beijing bureau contributed to this report.
Copyright © 2010, The Los Angeles Times
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momopi
- Elite Upper Class Poster
- Posts: 4898
- Joined: August 31st, 2007, 9:44 pm
- Location: Orange County, California
Some funny entries from user comments (for above article):
==========
The Chinese attitude toward money is almost identical to the work ethic of the Pilgrims. Unrestrained consumerism and living beyond our means has led our country into its current financial mess. The rich get bailouts using our tax money, and then they lay off workers. Frugality is one area where I think we should imitate the Chinese.
rtsgv (02/15/2010, 9:17 AM )
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The Chinese consumers can not help the US to get out of their jam. Most consumer goods are produced in China itself. Very little is being imported. However, the US can export heavy machinery, high tech equipment, information technology and services, military equipments etc. I understand many of these are not allowed to be sold to China.
jtom99 (02/13/2010, 5:15 PM )
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Wow! Really? Chinese are cheap and stingy? This just in... the Earth is round!
eddieme (02/13/2010, 10:23 AM )
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Perhaps we can do a cultural exchange with China by sending them some of our self described "professional shoppers" wandering the malls in Southern California. They can introduce the Chinese to such concepts as "retail therapy", squandering and spending beyond one's means.
OCMBA (02/13/2010, 9:08 AM )
==========
The Chinese attitude toward money is almost identical to the work ethic of the Pilgrims. Unrestrained consumerism and living beyond our means has led our country into its current financial mess. The rich get bailouts using our tax money, and then they lay off workers. Frugality is one area where I think we should imitate the Chinese.
rtsgv (02/15/2010, 9:17 AM )
Report Comment
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The Chinese consumers can not help the US to get out of their jam. Most consumer goods are produced in China itself. Very little is being imported. However, the US can export heavy machinery, high tech equipment, information technology and services, military equipments etc. I understand many of these are not allowed to be sold to China.
jtom99 (02/13/2010, 5:15 PM )
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Wow! Really? Chinese are cheap and stingy? This just in... the Earth is round!
eddieme (02/13/2010, 10:23 AM )
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Perhaps we can do a cultural exchange with China by sending them some of our self described "professional shoppers" wandering the malls in Southern California. They can introduce the Chinese to such concepts as "retail therapy", squandering and spending beyond one's means.
OCMBA (02/13/2010, 9:08 AM )
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