China Emerging_ 1978-2008 - Xiao-bo , Wu [59]
markets began to express alarm: “The starving tiger of China is upon us!” Clever international buyers immediately formed alliances and jacked up the price as a group. The Chinese soon realized that, “whatever you want to buy gets expensive, and whatever you want to sell gets cheap.” At the news about the discovery of a large oil field in China’s Bohai Sea, Premier Wen Jia-bao became so excited that he could not sleep that whole night.
The tremendous economic surge, particularly in the highly profitable sector of heavy chemicals, stimulated the state-owned and privately-owned enterprises into action. In the severe macroeconomic adjustments that were to follow, many of the privately-owned enterprises had to close down. In 2002, the total investment in the steel industry in China was RMB 71 billion, a rise of 45.9% over the previous year. In 2003, this figure rose to RMB 132.9 billion, a rise of 96%. Other industries rose likewise: Investment in electroplated aluminum increased by 92.9% and that in cement, by 121.9%. These phenomenal increases in the investment in natural resources and the concurrent overheating of the economy eventually came to the attention of policy makers. At the end of 2003, they blew the whistle.
A female worker on the assembly line.
A construction worker.
While a thunderclap of macroeconomic adjustments hit the country in the form of tightened interest rates, restrictions on bank loans, and other measures, the authorities also wielded their knife on a real estate market that was raising howls of alarm from the public. A rapid string of edicts was issued to address the situation. From March to May 2004, the State Council tightened the issuance of currency and the size of loans, increased controls on land use, put or tried to put a stop to the encroachments on agricultural land, straightened out funded projects that were either underway or had just been built, and strengthened credit risk management, making it more difficult to get hold of money. At the same time, all major newspapers in China began discussing real estate overheating, and suddenly, this industry became a political problem. People engaged in it were subject to much closer scrutiny, and some were prosecuted.
All these actions changed the earning expectations of investors as well as the price expectations of consumers when they purchased housing.
Liu Xiang, the 110-meter hurdler, won the championship at the 2004 Olympics. He and Yao Ming are China’s two most famous athletes.
Twenty years after the start of reform and opening up, people are no longer shocked and amazed by modern art.
More importantly, they had also brought about a radical change in the government’s attitude toward real estate development. This directly led to a swift market contraction. A dark cloud suddenly descended upon the real estate industry.
As tightening measures began to take effect, the stock markets responded by falling. By the end of 2004, the Shanghai Exchange index and the Shenzhen Exchange index had fallen by 15.4% and 16.6%, respectively, to end at 1,266.5 and 315.81, respectively. This was the lowest for these two exchanges since the year 2000.
International observers were at a loss about this storm of macroeconomic adjustments that occurred in China between the spring and summer of 2004. New York Times columnist Thomas Friedman wrote, “These days, leaders in America, Europe, Japan, and the key countries in Asia pray for the Chinese economy before going to bed every night. The world has gradually become hostage to China’s cheap labor, its need for raw materials and foreign investment, and its tremendous capital power. When the China bubble bursts, all kinds of bubbles around the world will go with it.” At the end of May, the Korean government held a series of emergency meetings to analyze the impact of China’s “braking” policies. Even the normally cautious Chairman