China Translated

Who is driving the new wave of investment in China’s property sector? In a recent article, Caijing provides an interesting character sketch of the new generation of property investors, looking especially at investors in the Shanghai luxury residential market. These are the main points from the article translated by me:

‘In the past, outsiders accounted for 70-80% of investment in China’s luxury housing market. Today, Shanghaiers are making 50% of the investments.

Aside from the rich Shanghai residents, there are also investors from Zhejiang (a neighbouring province). Zhejiang’s private sector businesses are looking for somewhere to park their capital and the Shanghai property sector is a good bet.

Zhejiang businessmen have seen their export markets dry up and so they don’t want to make investments in building more production capacity. If they have cash on hand they are putting it to work in the stock markets, property markets, buying shares on the Hong Kong exchange, buying steel.

One commentator from the Shanghai Academy of Social Science said that the flow of new bank lending and businesses own capital into the property sector had a lot to do with the lack of investment opportunities in the real economy.

One property sector insider told us about his relative, a business woman in Zhejiang. She had ended the lease on her factory, paid off her workers, sold her equipment, and invested everything in the Shanghai property sector, aiming to get a quick return and then take her profits and restart her business when external demand has picked up.

Another Zhejiang businessman, a shipbuilder, has recently pulled CNY20m from his equity investments and put it into property investments.’

I think there’s a few interesting take aways from these anecdotes. First, the new boom in the property sector is being driven in part by speculation. Second, concerns about overcapacity in the industrial sector might be overdone. Business people continue to make rational proft maximizing decisions about how to run their business. They won’t build a new production line if there is no demand for their products. Three, business people are also investors with a dynamic and resourceful approach to managing their portfolio and a willingness to shift their productive resources to where the returns are highest. That might mean bubbles in the equity and property sector markets when there are no investment opportunities in the real economy, but it also suggests that business people will shift resources back to their enterprises when the time is right.

Banking, Financial Crisis, Industry, Investment, Property, Regional, Stocks