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China: High GDP, 64 million empty apartments.

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Re: China: High GDP, 64 million empty apartments.

#21

Post by fleitz »

nkassis wrote: post #18

Would it not work if they did what Henry Ford was doing. Price them so the workers can buy them? That way the money stays in your pockets while the workers enjoy a better life? Win-Win.

Henry Ford did not price his automobiles so workers could afford them, he paid his workers so they could afford automobiles.

The reason he could do this was because of the productivity gains incurred by assembly line techniques. Incidentally, the assembly line techniques also reduced the prices of automobiles to the point where an overpaid worker could afford them.

Possibly the most overlooked aspect of what Ford did is the standardization of the 40 hour work week so that his employees would have the free time necessary to make an automobile make sense.

Re: China: High GDP, 64 million empty apartments.

#22

Post by wisty »

joss82 wrote: post #13
whatwhatwhat wrote: post #9

How many apartments are vacant in the US, just as a comparison, does anyone know? That would make the number much more meaningful. Also, are these apartments dirt cheap and do they speak english in these areas at all? Maybe they could be a haven for startups, which are somewhat less bound by geography, if they were extremely cheap. I might just be dreaming though.

You may be dreaming, but you're not the only one. What would be the hurdles to get a startup running in China? The Great Firewall? It's a big country so it's always possible to find a place that fits your personal taste. For example Sanya is a tropical island. Not much infrastructure there yet though.

Hurdles?

1) Language, especially when getting stuff like visas, work permits, incorporation, etc. You can stay on non-work (or business) visas, but it's not terribly legal.

As for the English standard, imagine you have a country with 1 point something billion people, and speaking English was discouraged until about 20 years ago (except if you were in intelligence). How do you teach it? Only young people tend to be fluent. Most English teachers have never left the country, or had much one-on-one interaction with people who can speak good English. Students are great at certain elements of formal written grammar, if it's in an exam setting. Vocabulary can be OK. But fluency can be a problem.

2) Red tape. It's non-existant for the old woman selling wonton soup by the side of the street (as long as she can run faster than the local city management, or can afford to give them lots of free soup), but not likely to be fun for foreign businesses.

3) Talent. I'm sure it's there, but you won't know how to find it. You can't tell if people are bright, unless you can communicated easily. Also,expect programmers with great geometry, good algorithms, and no idea how to work in a team; kinda like most countries, really.

4) Honesty. Chinese believe that "actions speak louder than words". If you don't understand this, and you won't, you won't understand why everyone is telling white lies to you. People may explain this as "face" related, or "high context communication", but to some people it looks very dishonest.

Re: China: High GDP, 64 million empty apartments.

#23

Post by fleitz »

iwwr wrote: post #20
nkassis wrote: post #18

Would it not work if they did what Henry Ford was doing. Price them so the workers can buy them? That way the money stays in your pockets while the workers enjoy a better life? Win-Win.

The problem is the expenses in building these things are capitalized (or worse, booked at a greater value), so when they do sell at the much lower value, the developers/banks/government will need to take a loss. So long as the selling can be delayed, the losses can be hidden. If these were just private entities, they'd take the losses and go on, but the government purse is much larger.

The losses aren't hidden, it's what one would call a long term investment. Because the Chinese government isn't beholden to a two year election cycle they're able to think over a much longer term horizon. Whether this is good/bad in the long term remains to be seen, as a more dynamic business environment might threaten their long term vision.

64 million surplus homes in China could be filled in a heartbeat. China is not America where everyone for the most part already has a pretty decent home. The current US estimates are similar per capita, but the issue is that US doesn't have a massive supply of peasant farmers who would like much better houses in the city.

China has started to reach the point where it is fueling the demand for it's own goods similar to what happened to the US in the 20s and continued in the 50s and 60s as a generation moved from the farm to the city. In the US the fuel was lend/lease and marshall aid, for China it's trinkets for Wal-Mart.

At 100,000 USD a pop the surplus represents 6.4 trillion dollars, if you assume the units are overvalued similar to USD real estate meaning they have a 3.2 trillion dollar bubble. A 3.2 trillion dollar bubble is similar to the costs of the US bubble plus a war in Iraq and Afganistan. The only difference is the Chinese have peasants who will ostensibly drastically increase their economic output and the fact that building modest housing probably has a better ROI than war.

Re: China: High GDP, 64 million empty apartments.

#25

Post by iwwr »

fleitz wrote: post #23
iwwr wrote: post #20

Earlier quoted context omitted.

The problem is the expenses in building these things are capitalized (or worse, booked at a greater value), so when they do sell at the much lower value, the developers/banks/government will need to take a loss. So long as the selling can be delayed, the losses can be hidden. If these were just private entities, they'd take the losses and go on, but the government purse is much larger.

The losses aren't hidden, it's what one would call a long term investment. Because the Chinese government isn't beholden to a two year election cycle they're able to think over a much longer term horizon. Whether this is good/bad in the long term remains to be seen, as a more dynamic business environment might threaten their long term vision. 64 million surplus homes in China could be filled in a heartbeat. China is…

For every year they sit empty, they depreciate physically and they also need regular maintenance. Those are actual resources being used. And if the buildings are in the wrong location altogether, it may be cheaper to just tear them down than try to find a market for them.

Re: China: High GDP, 64 million empty apartments.

#26

Post by joe_the_user »

trevelyan wrote: post #3

Nicely done video, but I think it gets the story wrong. The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. The Shanghai stock market meanwhile has huge problems with adverse selection (bad companies pay to list -- successful companies list in Hong Kong or the United States). There are no property taxes in most of China, so people with money park it…

The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China.

Now wait a sec. The bubble is illogical. That it involves individuals making rational choices in a distorted market doesn't exempt it at all.

In fact, it is a fine illustration of how distorted, artificial markets produce irrational results despite each person making choices that are logical for them.

Re: China: High GDP, 64 million empty apartments.

#27

Post by ycombiefan »

fleitz wrote: post #23
iwwr wrote: post #20

Earlier quoted context omitted.

The problem is the expenses in building these things are capitalized (or worse, booked at a greater value), so when they do sell at the much lower value, the developers/banks/government will need to take a loss. So long as the selling can be delayed, the losses can be hidden. If these were just private entities, they'd take the losses and go on, but the government purse is much larger.

The losses aren't hidden, it's what one would call a long term investment. Because the Chinese government isn't beholden to a two year election cycle they're able to think over a much longer term horizon. Whether this is good/bad in the long term remains to be seen, as a more dynamic business environment might threaten their long term vision. 64 million surplus homes in China could be filled in a heartbeat. China is…

actually war is quite profitable for defense companies

Re: China: High GDP, 64 million empty apartments.

#28

Post by blantonl »

Could this type of economic activity by China be characterized as similar to the "New Deal" that the US embarked upon in the 30's? Except in this case China is attempting to stimulate their economy to "keep up" with western society?

The sheer level of organization and determination to build all these assets only to have them go uninhabited surely means that there are very conscious decisions being made at very high levels.

I suppose capitalism keeps this kind of stuff from happening in the US, since no one is going to put their own money on the line when no one is going to buy. But the flip-side of that argument could be made in that Freddie and Fanny (Government backed entities) were formed to entice the American public to finance and build the American dream home. And we see what happened over the past few years...

Those of you that are Economics or Econ/Poly Sci type folks... what is the reasoning for this type of Government behavior? I'm curious as to why China would embark on such a quest.

Re: China: High GDP, 64 million empty apartments.

#30

Post by stretchwithme »

joe_the_user wrote: post #26
trevelyan wrote: post #3

Nicely done video, but I think it gets the story wrong. The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. The Shanghai stock market meanwhile has huge problems with adverse selection (bad companies pay to list -- successful companies list in Hong Kong or the United States). There are no property taxes in most of China, so people with money park it…

The bubble is not illogical to start with. Thanks to currency controls most people have no way to invest outside China. Now wait a sec. The bubble is illogical. That it involves individuals making rational choices in a distorted market doesn't exempt it at all. In fact, it is a fine illustration of how distorted, artificial markets produce irrational results despite each person making choices that are logical for the…

Yep, its the artificial markets.

People have no way of investing outside of Earth either, but that doesn't mean investment bubbles have to happen.

Instead of building things people don't need, in a natural market, things are made that people are willing to pay for with their own money.

The building boom in China has been directed by government. Banks were told to loan.

The government also created the housing boom in the US, through cheap money and loosening lending standards.

In both cases, the government created incentives to do stupid things. And the markets responded as markets do to incentives.

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