All around China, giant state-owned oil, chemical, military, telecom and highway groups are bidding up prices on sprawling plots of land for big real estate projects unrelated to their core businesses.
Check these companies out!
-Anhui Salt Industry Corporation: a state-owned company that has 11,000 employees, access to government salt mines and a Communist Party boss.
-China Ordnance Group: a state-led military manufacturer best known for amphibious assault weapons.
-Sino Ocean: the state-run shipbuilder.
These three state-owned companies have decided to put massive amounts of resources toward real estate development. So what they did is bid outrageous amounts for state-auctioned land and are now building luxury apartments/condos. Are you serious! So they government gives these companies money which in turn give it back to them which in turn forces the government to tighten down on real estate building. What the f*ck!!
Here are some of the deals:
1. China Ordnance Group, paid $260 million for Beijing property where it plans to build luxury residences and retail outlets.
2. In one of China’s biggest land deals yet, the state-run shipbuilder Sino Ocean paid $1.3 billion last December and March to buy two giant tracts from Beijing’s municipal government to develop residential communities.
“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”
Come on!
-NYT
What I find amusing is that while the government is aware the forming bubble and trying to stop it (as a part of this initiative, a few months ago they ordered 78 state owned company to shed their real estate divisions), they are much less capable of stopping local government, which form special vehicles and team up with companies to engage in speculation.
Grabbing the popcorn.
“These are the ones that have the money to buy the land,” says Prof. Deng Yongheng at the National University in Singapore. “Because in China, it’s the government that controls the money supply and the spending.”
and in the US... it's the Federal Reserve... which is totally not government
One you hear the saying, "government should not interfere with 'free markets'"; THIS IS WHY!!!
I guess you meant "when"? Or "once"? Doesn't really matter. I am more interested in what you mean when you say "THIS IS WHY!!!"
So yeah, a bubble is forming. Gee, that doesn't happen in free markets. And it seems to me that China has been doing pretty well over the last...oh, 30 years, state interventionism or not.
Yes, the real initial growth happened when the agricultural market was liberalized, and the large infrastructure investments' real impact is way less than what is touted by the government...but still, I would find it hard to build a strong argument that the Chinese government has been screwing up with their interventions.
My feeling on the issue is that their model is less efficient than the free market, but more stable over the medium term...it remains to be seen whether it's sustainable.
Oh, and before you accuse me of being a Chinese fanboy, I very much like this article (although it has its weaknesses): https://www.mckinseyquarterly.com/China/Private_ownership_The_real_sour…
Also, why "FINALLY REVEALED"? This hasn't really been news for some time.
the Young-Investor has again revealded a conspiracy.. and the story continues...
Ha yes please excuse my typos, I have been using a Swedish keyboard. Idiot.
McKinsey Quaterly, ohhhhhhhhhhh, how fancy. Very nice.
Here's the deal, no bs. I found the bases of this article from the New York Times (notice the "NYT" at the bottom), added some of my own spices, put it on a plate, and served to the WSO. BAM! I just wanted to see what others thought.
SO to answer the question about why I don't like the government interference in free markets its just because I always like a small gov't over a large one. Not even for the sake of economic reasons, just b/c I don't like someone/something sticking their nose in my sh*t. It's sooo stinky! Jeeze so personal.
Cool
2 Real Estate market will never be a free market, it just simply doesn't exist, for the simple reason that you don't have a free market in land supply. heck, You don't even have freedom to build, there is a thing called zoning code. Governments around world can have huge influence on the real estate price via land supply/zoning control. It's never a China only thing.
Chill, dude. I pointed out your typo, but I clearly state that I am more interested in what you are thinking, and not in how you are writing. I am not the one who started calling other people idiots.
And did you even bother to read the article? It actually supports the thesis that free markets are better than regulated markets, even and especially in China. So you would probably like it, given that it adds more fuel to your arguments. But no, throwing shit at consultants is way easier than actually doing some analysis of what they wrote.
If you state that you prefer free markets before even considering their economic implications, that's fine. I don't agree with you, because I come from a state where the free market reforms advocated by, among others, a delusional Jeffrey Sachs, failed miserably.
In my mind, there's a subtle difference between a free market and personal freedom. Basically, government intervention, as long as it doesn't lead to trampling on human rights, can be ok in my book, AS LONG AS IT WORKS.
Not saying that the Chinese manage to thread this balance: while their policies are for the most part working, they are failing miserably on the human rights side, relatively to what their propaganda claims.
To me, any blathering about "I wanna do whatever I wanna do and screw everyone else" pales in comparison to job creation and wage increases. But hey, that's probably because I am a socialist swine. (sarcasm sign)
Now, if you simply want to hear what people think, that's fine. If do it for the sole purpose of hearing people agree with you, and get all bothered when some don't, that's kind of ... not cool.
Frabjous: Maybe we got off on the wrong foot.
I was calling myself an idiot, I am a horrible speller. Look for a typo hear in my response ha.
I could actually only read a small portion of the article because I am not registered. Bummer.
So Jeffrey Sachs: he's from Michigan, taught at Harvard, and is on the board for Colombia. So you're either from Michigan, Massa, or New York. Hmmmmm
Going back to my post.
It is a known fact that a lot of the building material that China uses (i.e. steel and dry wall) can be some really cheap sh*t. I'm curious to see how a contractor from the US (or Canada, UK, etc.) would rate these infrastructures.
Lol, ok, sorry for getting defensive.
Regarding Jeffrey Sachs, unfortunately he is like Bono. Ok, better than Bono, because he has an incredible knowledge and insight in how the economy works, but this same strength is his weakness: he believes that an economist is perfectly capable of engineering an economy. In the 90s, he became one of the most prominent supporters of the shock therapy - rapid implementation of free markets reform in eastern europe (which is where I used to live), and they failed (of course, he blamed people not implementing his reforms correctly). In the last decade, he became the most prominent economist in the development aid field, making intricate plans for lifting humanity out of poverty, and promoting them to the UN, with the help of (among others) Bono and Sharon Stone. Yet again, most of his development aid schemes are failing for the same reason shock therapy failed: he doesn't take into account that human incentives can screw up any systemic reform, and the more complex the reform, the easier it gets screwed up.
^I did my bachelor thesis on that, and I am a strong supporter of his adversaries...so, yeah, I am biased.
Yeah, I am curious about that too...the amusing thing about this is that they are missing out their chance to build a good residential infrastructure. I mean, Italy and Spain have a lot of problems because they have a lot of buildings which are weak against earthquakes (due to cheating contractors), but they have absolutely no resources to rebuild...thus they must pray that nothing too ugle happens. China is in the incredible position of building up infrastructure while skipping a few phases, and they are using it in some fields (transportation, telecommunication), but it seems that they are failing to do so in real estate. Mhh...that is, until another bad press accident happens, and they chop off some constructor heads. Not that it would stem the tide of bad constructions.
Returning to China: the McKinsey quarterly subscription is free actually, so if you take the time to do it and turn off the annoying newsletter, there are a few quality articles in there.
Shock therapy will only work if there is still a functioning and stable environment where labor/capital/material can be re-allocated for better use. But what often happened was after the initial shock, you had high inflation/high unemployment, which resulted social unrest / unstable political climate, which meant no one dared to invest in there. So the second phase of the shock therapy, the re-allocation of those resources never happened.
It's just another one of these posts... really? a company enters into a non-core business is so unacceptable?
Well, did you know Berkshire Hathaway used to be a textile company? There is a word called Conglomerate, ever heard of it? guess not....
Tsong, I don't know from where did you get the "entering non-core business is unacceptable". I expressed no judgement on the fact that the government is forcing some of its companies to shed off the real estate division, and I think that Young Investor's main beef is with the government controlling money supply.
Personally, I think that the government being the owner of those companies, and without expressing judgement on how good that is, it has every right to order them around. So if the government wants to curb speculation in the real estate market, and uses this tool, they are welcome.
If I may branch a little bit into your argument about conglomerates and Berkshire Hathaway, however, there's a massive distinction: it all comes down to capabilities. In the seventies, everyone and their grandmother tried to became conglomerates, and we saw how that ended. If I recall correctly, Buffett bought Berkshire simply because it has a lot of excess cash, which he then used to start his famous investments. Really, if it wasn't for their distinctive capabilities of identifying undervalued companies for long term investment and working well with the managers, they should be considered an asset management company and not a conglomerate.
I agree on the shock therapy's failure due to over-simplification. I also suspect that a reason for those simplifications was (at least a little bit) ideology: academics assumed that the free markets being efficient, they would also settle into a new economy naturally and without hick-ups. I guess that Sachs' famed "success" in Bolivia helped persuade them.
Also, a massive element which contributed to the failure of the shock therapy is that in some countries the privatizations were massively rigged: people which had a lot of connections during the old order managed to snatch manufacturing companies for ridiculous prices.
We're cool Frabjous
Berkshire Hathaway is not a conglomerate! Maybe when you look at the definition of "conglomerate" is may meet some of the requirements, but no one considers it on.
I mean we could get into a very long conversation and discussion on the pros and cons of congloms but they have faded away in todays markets. Take a look at the classic cases of M&As of companies throwing down truck loads of money to buy growth in an industry they know nothing about. The stockholders hate it because the chance of success is like 5%.
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