Inside China: A Sculptor's View ... MUST READ!

[Joanne98]

I have been exchanging emails with Bill Hopen, a sculptor who frequently travels to China, often for months at a time. Bill writes ....


I've been to China a lot Mish, spent many months at a time there for the last eight years. China is already in a massive overcapacity real estate bubble. They are building three apartments for everyone that is lived in. Most apartments are empty and those that are rented do not come close to paying the interest on the loan.

There are huge department stores with products loaded on the shelves and staff everywhere and no one is shopping! Staff outnumbers customers five to one. It's surreal. They are ready, waiting for a great wave of shopping to come, but no wave is coming.

Eventually this "borrow and build" economy will be a pop heard round the world. China runs on construction, build build build, but there is no reason for that many places and spaces and big mall businesses with no consumers.
I asked Bill to fill in some more details about the cities he visits. Bill writes ...

The Shanghai/Pudong/Hongchow area,(30 million population) is mostly where I go, work, live for months at a time. I correspond with my expat friends who live there even when I'm back stateside.

I also have first hand knowledge about Lon Gong, in the Wenzho area (China coast across from northern Taiwan). It is one of those miracle cities that went from a near zero population fishing village to 300,000 in a few years, all fueled by farmers who made and or bought looms and created a textile center weaving blankets for world export.

My comments were about apartments in Shanghai. Middle class folks (e.g. a doctor makes about $20,000 a year) will often buy one apartment one to live in and one as "investment". Sound familiar? The extras are mostly empty, or renting for much less than 6% interest on the money to buy the unit.

We rented a luxury two floor roof top terrace apartment (20th floor) in a gated compound with gardens, sculpture, playgrounds, walkways, waterfalls, bamboo fish ponds, fountains, and underground parking for $800 a month! The apartment is fully and nicely furnished with beds HDTV, kitchen dishes...everything.

The guy we rented from said he would sell it for $650,000. This was a normal price judging from many "bargain" offers in the windows of many area Realtors.

The typical real estate secured interest rate was 6 to 6 1/2%, so that's at least $36,000 interest per year, yet we were able to negotiate a rent of $800! And there were lots of apartments available. People would approach us with incredible deals. You could tell they were hurting, had bought extra apartments and were struggling with paying the mortgages, and were desperate for any help from any rent they could get.

There simply were not enough foreign renters with US corporate salaries as they assumed there would be. I'm a hippie artist type, not a corporate executive. And how much rent can you get from a Chinese doctor who earns maybe $20,000 a year?

We would go shopping in these giant shopping center places, full of stuff, wow! Goods had very high prices, but no one buying; there were no bags in "shoppers" hands, and no one was checking out. Store staff standing around outnumbered shoppers.

Ai Qiu (my wife) and I went to store after store like this and had this eerie feeling like it was a stage set as opposed to a real money making business venture.

Year after year there are more places that go down and a new one sprouts up. However, it's all the same. There are no shoppers so there is no way is this a business making money. It reminds me of the "Field of Dreams" concept. "if you build it they will come", except the mythical rich consuming Chinese or foreign shoppers haven't shown up yet, nor do I don't think they'll ever show up.

The Shanghai skyline is like that too. Look at the highrises! There are more square feet of commercial office spaces being built in Shanghai every year than exist in all of the island of Manhattan! A brand new Manhattan sized city business district added to this city each and every year on top of the existing hi-vacant buildings.

I have no contacts in banking or real estate but I can imagine the implosion/bankruptcies are beginning to occur. China's a year or so behind the Miami condo market.

I asked Bill how he met his wife, Ai Qiu. Bill writes ...

Continued>>>
http://globaleconomicanalysis.blogspot.com/2009/02/inside-china-sculptors-view.html

Waiting for the Chinese shopper to save us? Don't hold your breath!

[Bigmack]

1. You're so VERY right - as in "correct -

this is a MUST read. Incredible window on a part of the world often touted as part of the coming "solution" to the current economic crisis. Ms Bigmack

[Frustratedlady]

2. Doesn't this mean China will call in their chits from the U.S. just to survive?

I guess they are lucky the government restricted the number of children, or they'd be in an even bigger mess.

[Joanne98]

4. That one child policy was always going to save them...

We tried to force them to get rid of it so they would stay a third world country. But it didn't work.

[On the Road]

3. The Only Thing I Would Take Issue With

is that Shanghai is no more representative of China than Manhattan is of the US. The conditions the writer mentions exist in a few large cities. In the scheme of things, most of the country is more like West Virginia than Shanghai.

With lower individual debt, China is better able to weather the economic storm than the US, but there is also more economic pain. A year or two from now will be a great time to get back into China.