Xi'an from top of Wild Goose Pagoda - note construction along horizon
This will be short.
It was moderately big news last week when China overtook Japan to become the number two largest economy in the world. The United States is still number one although it is predicted that within ten years China will overtake us as well.
One of the things that astounded me in China is the amount of construction. Everywhere you go roads being built. Enormous office buildings and/or apartment/condominium buildings rising everywhere. The horizon a forest of new buildings growing like bamboo.
Yes the Chinese economy is humming along and growing like crazy. And there are some things we can learn from them as we slog through the mire of our own economic almost depression. But underneath the Chinese economic landscape is a ticking time bomb.
Real estate.
Fueled largely by speculation. People buying properties for no other reason that to own property that they will sale at a later date for an enormous profit. The family that met me when I first left the airport their apartment – which they bought a few years ago for about $300,000(?) is now worth more than $1 million. Several times people in China mentioned to me their great concern about the red hot real estate market. Soon no one but the rich will be able to afford their own home. In the larger cities that is.
Forbes has an interesting article on this problem. One in four city apartments are unoccupied – which means they are being held by real estate speculators. The government is in a “darned if we let this continue and darned if we try to control it” dilemma. During my journey through China I read articles in China Daily about steps the government is taking to control the situation. But it may be too late.
Chinese leaders, in the months ahead, have an impossible task. They must keep powerful property developers happy, not alienate hundreds of millions of Chinese who think they should be able to own their homes, and somehow repeal the law of supply and demand.
This leads me also to reflect upon the situation in the United States. Why does it seem that you cannot own your own home unless (a) you are a highly paid professional and/or (b) both spouses work? There are three major expenses that for decades have been rising faster than inflation: (1) housing (2) health care (3) higher education. To what extent was #1 fueled by speculators?
