WorkinginChina

Chinese Real Estate Is in the Headlines Again

This is a good overall article, but the reference to real estate is rather vague and one sided.

This article (and the referenced) talk about "Chinese real estate", but largely focus on Beijing (which is an extreme case because it saw a huge development boom in the run up to the Olympics) with a little reference to Shanghai. What about the other 400+ cities in China?

The Tier I cities (Beijing, Shanghai, Guangzhou and Shenzhen) only account for a small proportion of China's real estate stock and activity. There's over 100 cities with a population over 1 million in China. Although Tier II cities (such as Chengdu) and Tier III cities (such as Changsha) are less transparent, their real estate markets are in better shape. There has been a lot of supply, but no where near levels witnessed in Beijing and Shanghai. Also, demand is good because these cities are less exposed to the global recession and the majority of domestic companies not involved in exports are in good shape, growing, making money, and recruiting people.

From my observations working and living in China, the only firms struggling and having sleepless nights are foreign firms. Their CEOs in New York and London are currently in panic mode and pulling the reigns back on their China operations far sharper than is required. I know many people who have been laid off in the past few weeks in Shanghai and Beijing and a lot of them are now being poached and recruited by domestic firms.

But, the majority of domestic firms (the exception being those involved in the export business) are doing well and still recruiting. Yes things are tougher, but still far away from doom and gloom and better than anywhere else in the world. If anything, this is a fantastic opportunity for Chinese firms. They are cash rich in a cash desperate world and thus in the best position to snap up bargain assets (whenever and wherever that occurs) and foreign talent.

Chinese Real Estate Is in the Headlines Again

Interesting article by Jack Rodman. Either he knows absolutely nothing about China and is throwing out cowboy comments or every single real estate company, investment bank, and real estate consulting firm in China (foreign and domestic) are wrong.

"By Rodman's calculations, 500 million square feet of commercial real estate has been developed in Beijing since 2006"

What on earth was behind Mr Rodman's calculation?? I'm guessing his definition of "commerical real estate" includes office, retail, residential, logistics, manufacturing, subway stations, railway stations, airports, public toilets?

Yes Beijing is overbuilt and vacancy rates are high, but this is the most ridiculous and overstated figure I've ever seen. According to the 3 biggest real estate companies in the world - CBRE, DTZ and JLL - BJ's total grade A office stock (the good quality international standard buildings or spectular buildings as you call them) is about 20 million square feet, about 10% of Manhatten's grade A office stock.

Black & Decker to Leave China for India?

China does NOT have a competitive edge for 'skills'. Secondly, the problem is not just rising labour costs, the problem is much deeper.

China has a large unskilled workforce, but is extremely lacking in skilled labour. This is the number one problem cited by all multinational and domestic companies. 'That can't be right, what about all those millions of graduates China pumps out every year?' I hear you say. Actually the majority of China's graduates are equipped with useless skills and undesirable to companies (the exception being graduates from universities such as Qinghua University and Zhejiang Univeristy). Hence why several multinationals have to partner up with local universities and the government to create new courses and/or colleges.

Black and Decker is wise to move out of China for a number of reasons. Here are a few:

1) Labour costs have been rising at a ridiculous double digit rate
2) China's currency has strengthened considerably, thus eroding foreign exporter profits
3) Black and Decker is no longer welcome in China. Well, they are, but their labour intensive factories are not. The government has clearly stated over and over again it doesn't want polluting and/or labour intensive factories. They effectively want to move themselves up the value chain. Consequently the government scrapped incentives for exporters (though it has recently reinstated a couple as a result of its economy tanking) and local governments actually discourage them now.
4) The new income tax law that came into effect last year effectively added an extra 10% tax on all foreign firms in China, another cost for Black and Decker.

On Feb 03 06:04 PM APM wrote:

> So in 2001, labor cost in India and Vietnam was more expensive than
> in China? Why didn't they move the production to those places then?
>
>
> China's competitive edge is not just low cost. It is the combination
> of cost, skills, and strong work ethic of its workforce.

Why the Mixed Signals on China's Economy?

This post and comments are old news and shallow.

'Government just announced 20 million out of 130 million migrant (farmer) workers are out of their job.' Old News. What about the government's plan to tackle this? For example they are trying to provide these returning migrant workers with agricultural and infrastructure construction jobs. What about the government’s plan to boost rural spending through things such as the rural subsidy scheme – provides a 13% subsidy to rural buyers of home appliances such as TVs and washing machines – are expected to positively impact the economy in the second half of 2009

Why has no-one analysed or made reference to the latest economic indicators, forecasts and business activity? For example,

1. Retail sales for 2008 reached RMB10.8trn in 2008, up 21.7% y-o-y (sales of cars and white goods actually rebounded slightly in December)
2. Total Real Estate Investment reached RMB3.06 trn in 2008, up 20.9% y-o-y
3. Bank lending is increasing - money supply rose 17.4% in December
4. ING's recently released survey noted a pick up in investor sentiment
5. Exports are declining, but exports for those eligible for tax rebates actually rose (the government previously scrapped tax rebates, but is now reinstating tax rebates to help struggling manufacturers.
6. Retailers are now more cautious, but nearly all of them still plan to expand. For example, Carrefour just announced it's going to open 28 new stores this year, more than it did in 2008. E-Mart (a big chain from S.Korea) plans to open 10 stores this year. Wal-Mart also plans to open around 20 stores. Other retailers such as Mango, Giordano, Zara, and Gucci are all actively looking to expand and take new premises.
7. What about the long touted 'rise of China's domestic companies'? Some are of course negatively impacted, but not as severely as their western counterparts. Alibaba - the famous (in China anyway) B2B internet company - plans to increase its workforce by 30% in 2009.
7. The 'general' consensus among investors, property occupiers and developers is that things will be tough for the next 6-9 months, but will begin to recover near the end of the year
8. Why has no-one discussed the economic stimulus plan in more detail?!?!? half a billion US$??!
9. What about the rebuilding of Chengdu and Sichuan province?
10. What about massive infrastructure investment into rail, roads, air and ports. How will this benefit China and where exactly?

The comment 'in 1990's, the state owned enterprises (SOE) reform made about 40 MM people jobless, there were no major social unrest' makes me laugh. Do you really think 40 million people (the equivalent of some European countries) started skipping and cheerfully whistling down the street after being told they were being made redundant?

'Huge wave of urbanization still in the midst. There is a need for huge infrastructural build and government is doing exactly that.' Speaking of urbanization, you missed an important point - there is big real estate oversupply in China now. I'm not talking about just houses. I'm talking about everything - office, retail, logistics, residential. Demand is weakening and developers have just passed through a building spree (especially in BJ and SH in their glee to deliver nice shiny new buildings to show off to the world for the Olympics). This has therefore led to supply-demand imbalance and will place negative downward pressure on the respective property markets for some time. Indeed developers are delaying projects and struggling to offload property and land.