Abe Mishima

China: A Look at the Real Estate Picture

In the US, as a result of the great society program of LBJ, the government subsidized public housing, and hundreds of thousands of units were built. This could be the blueprint for China. As an incentive for low income families to work harder or increase their education/skill level, the government could be providing economic incentives to people to move into these buildings. A sense of ownership encourages the populace to accept steady work, make payments on mortgages, and spend money responsibly. Unlike the US, where public housing abetted welfare, China is probably writing contracts to evict deadbeats asap should the unit owner default on payments. Does this mean that China can avoid the bubble that has enveloped real estate in democratic nations? Sure. If the owners cause a bubble, there will be consequences, e.g., relocation to farms and "re-education" per Chairman Mao's cultural revolution. Where does China get the money to prime their real-estate market? Simple, use the trade surplus. The US dollar still buys plenty of useful items, such as construction equipment, building materials, etc.

When and Where to Go in China

I'll step into FXI when FXP goes over 100. Neither FXI or FXP holds its gains very long, but since FXP is a bit dicier, getting in FXI when FXP is bumping the top of its channel is the prudent thing to do. Why am I using a reverse ETF instead of looking at the core ETF? Because I trust neither, and see FXP as the tail that wags the dog. Heavy volume in that ETF invariably affects FXI. Funny how activities we engage in here in the US affect an index based on Chinese stocks. I am aware of the adr's traded on US exchanges, but they represent only a fraction of the shares in each of the corresponding PRC companies. Again, the tail wags the dog here too. Talk about magnification! Good luck to any investors in these etf's or adr's. You have a tiger by the tail.