China Emerging_ 1978-2008 - Xiao-bo , Wu [58]
A market under the famous White Pagoda in Beijing.
of around 80,000 Wenzhou speculators is out there purchasing buildings. Over 90% of these purchases are being made to flip over for quick return. Conservative estimates indicate that more than 70,000 of these speculators are simply speculating. The principals in the business are white-collar managers and relatives of government officials. At a return of 15%, an investment of RMB 100 trillion can make RMB 15 billion in a year, which is a very fast way to make money. Real estate speculation is now the primary business of Wenzhou.” The article used the Chinese term chao, which means “stir-fry,” to refer to the activity of these Wenzhou buyers.
Wherever Wenzhou people went, the housing prices rose sharply. When the general price level of any given city had risen to a certain degree, they would stage an orderly exit and move on. Like a swarm of locusts, they would blanket the next city.
Urbanization across China was immediately followed by hordes of these housing buyers. The supply could not meet the demand in most cities, and so along with the rise in prices, came an onslaught of panic buying. This was a once in a lifetime opportunity for the construction industry. Real estate was where the explosive profits were to be made, akin to the situation in Japan, Hong Kong, and Taiwan in the 1970s. On the 2003 list of China’s 100 Richest published by Forbes magazine, people were amazed to see that forty of them were in real estate. Six of the top ten were in real estate. No
A visitor looking at the city map in Beijing City Planning Museum.
Notice announcing electricity cut-off at a shopping mall. Energy shortages have plagued the Chinese economy for a long time.
wonder there is a saying in China these days: “Once a person gets a taste for real estate, he’s addicted. He won’t be willing to do any other business ever again.”
“Made in China” and the real estate craze created an economic structure that was irrational, not the product of organic growth. It is true that a prosperous period had arrived again, but it was accompanied by a ferocious rise in the prices of all raw materials and resources.
The “electricity panic” was the epitome of this process. Provinces and cities across China started to face electricity shortage after the summer of 2003. The largest consumers of electricity, including Shanghai, Guangdong, Jiangsu, Zhejiang, and even coal-rich Shanxi, began to experience blackouts as electricity was cut. In order to deal with the crisis,
strange announcements such as “open two, shut down one,” “open five, shut down two,” and so on were made. There were even “open three, shut down four” electricity-use plans, which meant that an enterprise could stay open and use electricity for only three out of seven days in a week. During the other four days, it simply shut down. Other enterprises, especially those in places like Zhejiang and Jiangsu where small and medium-sized operations were the rule, were hit much harder. Such a situation had not been witnessed since 1978. Some markets in towns and cities, including the Bund in Shanghai, carried on their business in the evening in candlelight.
Hit by the “electricity panic,” the prices of all raw materials and resources that were already in short supply began to rise. Cement and steel prices went up at a rate of three increases per month. Steel producers were happy. In the Yangtze River Delta region, a saying about the “Five ones” was making the rounds: “It takes an investment of ten million renminbi to produce one ton of steel. Producing one million tons takes one year, and in one year you can get your full investment back.”
In order to satisfy this runaway domestic demand, China’s large stateowned resource companies began to scour the world for resources. They covered the globe, looking for oil, metals, and natural gas. All international
Liu Chuan-zhi