Monday, 13 May 2013

China Heading For Epic Disaster...


Almost every Sunday lunchtime, Ellie and I go to this lovely Chinese restaurant in Norwich for some Dim Sum. If you haven’t tried it, try it. It’s great. Now my parents have known the owners for years and they started off as a really small restaurant and have now grown into a rather large outfit. The same goes for a lot of the other notable Chinese cuisines around here. But one thing I've noticed is that over the last 5 -15 years, there’s been a large influx of Chinese families moving over here. But there’s a stark difference between these families compared to the Polish and other nationals that have migrated over here. The Chinese families tend to be rather wealthy. I’m aware that my findings may be influenced by my social group and contacts, but this apparently isn't just localised to little old Norfolk. I've slowly been spreading my feelers out across the UK for months now and it’s the same story. When comparing the wealth of immigrant families, the Chinese sector grossly outweighs the other nationalities in terms of wealth.

But why?
More light was shed on this when I had a rather candid drink with my friend. He’s Chinese, his family moved over here in the last 20 years and they are very wealthy. He said that in China the Government are extremely strict with all sorts of freedoms we take for granted such as heavily filtered internet etc but also with investments. Chinese citizens are banned from investing overseas and are only allowed to invest in a small selection of products which their Government sees fit. (And I thought the FSA was bad!). But 15 years ago, their Government allowed the public to invest in property.

 As a result there is a property bubble which is grossly bigger than our Western Housing Bubble which popped in 2007/8. This new investing freedom opened the flood gates for the rising middle class and they began investing with 3 generations worth of family savings. This effectively started China’s historic growth out of poverty and so they wanted more growth. The Government then shamelessly promoted to their public that everyone should buy a house or 10 and that property prices always rise! (We've heard this one before). As a result, the average middle class family now owns between 5-10 apartments! It’s now got to the point that they’re building 16 cities (the size of Birmingham) a year!

Not only that, they’re building 82 new airports by 2015 and over 20 of them will be BIGGER than Heathrow. This has created dozens of ghost cities and districts. There are at least 3 districts (the size of East Anglia) whereby every town and city within it whereby every building has been bought, but are empty. 71 million empty uninhabited homes to be precise…(that’s the same as having the UK, France and Italy completely uninhabited).

The top 10 cities with the worst price bubbles in the world are in China and the average house price in Shanghai is more than 55 times the average wage. I met an IFA the other day who said that ‘this whole Chinese property bubble is a myth’….just look at the stats!
However they've hit a temporary road bump. Though the 2008 crisis only slowed their property bubble ever slightly, it evidently gave their Government a reality check and so in 2011 they forced a 1-investment-house-only-policy. Similar to their 1 child policy. This then reduced the amount of money going into their bubble, house prices plunged and it affected their work force of 50 million construction workers first. They were simply not getting paid, so lots of them walked away. This has left dozens of cities being half built and developers bankrupt. But it wasn't enough to pop this ‘hyper bubble’. Unfortunately they are still inflating it and are continuing to build the world’s tallest building, 4 space ports and a 860 mile long aqueduct. The aqueduct alone is costing them $62 Billion.  I’m afraid that the whole of their middle class and a big chunk of their upper class will be completely wiped out when it finally does ‘POP’. I feel especially sorry for their middle class who will lose 3 generations worth of family savings and more…

However there is a Silver lining which may save some families. In 2011 the Chinese Government added a new product to their public investment basket – Silver bullion. Not only that, they’re encouraging citizens to buy as much as they can, and boy they’re buying a lot of it…