Chinese Economics Thread

[bladerunner]

Dear davemanff

Will someone be kind enough to remove this, this is an economics thread, we come here to learn about and discuss economics, not spout off religious propaganda.

Actually I was hoping we could have discussed the phenomena of CCPS acceptance of Christianity and its growth in parallel with Chinas economic change im much the same way as we discuss GDP growth or the profitability of this or that industrywhile paying careful attention to the aspects I had high lighted in my first post on the matter

"the recommendations of the prominent Chinese economist, Zhao Xiao, that market economies benefit from active religious groups seem to have been adopted by the CCP leadership. Perhaps eying the benefits that a strong, state-approved Christian voluntary sector could bring to China, in late 2007 President Hu Jintao announced "the knowledge of religious people must be harnessed to build a prosperous society".

Im sure being a Aussie you would know what "economic rationalism" was all about as you fellas invented the phrase like us kiwis invented "Rogernomics" and the UK, had their Thatcherism. Well IMO the Chinese economic reforms of the last thirty years had some of these traits, with "Derugulation" claims of a "Free Market Economy" reduction in sizeof the "Welfare State". We have also seen the allocation of scarce resources for chosen industries (often described as cherry picking or picking winners)
I suspect all of this has come as a big shock to a large segment of the populace, so use to feeding from the same iron Bowl under Mao, so its quite understandable to use the church to pick up the pieces, and help the people who have fallen through the cracks

@ Assassins Mace

If anyone has a problem with this, then your motives are suspicious.

I dont and never have a problem with the way the authorities are handling the Church Groups. Anyway as far as the RC's/Pope is concerned, if its good enough for Henry to breakaway and establish his own model its good enough for China.
Meanwhile you and Player have ignored the good that the missionaries have done as mentioned in my first post, they laid the foundations of a wine industry. While wine production doesnt figure highly, in the economic charts, give it time. After all it wasnt so long ago that processed Chinese apple juice wasnt on the charts, and now it dominates the American market

P.S. Dam I cant find any "Hunan Red".

 

[bladerunner]

Actually contrary to this article below the affluent chinese are actually buying fine wine as a investment and the fear is, that they are causing a wine bubble, as reported in our morning newspaper.

Using an example the article states that due to Chinese Ddemand a bottle of Lafite Rothschild 1982 has risen by more than 60% a year compared to golds 25%. In fact the same wine has appreciated 1000% over the last ten yrs.

Gold while more expensive than "Lafite" (first growth) by weight, the wine is the equivilent of 4ozs of gold on todays prices, 10yrs ago it would have been the equivalent of what 1.5ozs of gold was fetching then.

THe point of my story, if you cant afford to buy gold or pay millions of dollars for works of art, how about a couple of bottles of Lafite Rothschild. At least you can drown your sorrows if the wine bubble bursts.

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[Red Moon]

Well, bladerunner, I can't really blame you for this one, but the last three pages on this thread are awful.

As to religion in China, I don't think there's really much of a change. They don't care. What they don't want is "movements", and sometimes religion is used as a pretext for politics, and religious organization is used for political ends, in China or anywhere else.

 

[bladerunner]

Well, bladerunner, I can't really blame you for this one, but the last three pages on this thread are awful.
.

Thats a relief

Yes the topic never went close in the direction I was hoping.

Oh well so there is some truth to the advice "never discuss religion"

 

[Hendrik_2000]

Not too long ago, vice premier Li Keqiang said he didn't trust provincial GDP date . the western media right away jump on this statement and gleefuly trumpeted that Chinese GDP is fake . But is it? Apparently he was quoted out of context . What he meant is the provincial data and not the national data

First posted by Coco milk in Mainland China forum

The Truth About China's GDP Numbers
by: Jim Trippon December 13, 2010

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Some people will grab at any opportunity to bury their heads in the sand. It's hard for some to accept the fact that China is rising and U.S. influence is on the decline. A century ago it was just as inconceivable to many Britons that the sun was setting on the British Empire. The American century had begun. That's why scores of Internet pundits pounced on the latest WikiLeaks allegation that China's GDP figures were "man-made." "Fraud," they declared. Smugly they wrote that they knew it all along.

To many it must have seemed an open and shut case. The source of the quote was none other than vice premier Li Keqiang, the very man slated to become China's next premier, after Wen Jiabao steps down. Mr. Li's famous comments were made at a dinner in Beijing with then-U.S. Ambassador Clark Randt on March 12, 2007. Li'ss remarks focused on the challenges he faced when administering the province of Liaoning. Because of its legacy of failed state-owned enterprises, Liaoning was burdened with a huge number of unemployed workers.

As the Communist Party secretary for the northeastern province he often received inflated growth reports from party members who were eager to fill a quota or please their superiors. Li, to his credit, ignored the inflated numbers and relied on hard-to-fake indicators.

According to the leaked cable, Li used three metrics for a realistic view of growth:

1. Electricity consumption (which was up 10 percent in Liaoning in 2006)
2. Volume of rail cargo, which is accurate because fees are charged per unit of weight
3. Loans disbursed, which is accurate because interest fees are precise

Horrified U.S. commentators took one look and cried foul. One shocked China pundit called China's double-digit growth statistics a "sinister fairy-tale." Another concluded that China's growth figures were "fabricated" and wondered "if the growth story in China isn't dramatically overstated."

Scary stuff. But only if you ignore the details.

The Truth About the Chinese WikiLeak

The same pundits who claimed to be shocked by the leaked cable conducted their own cover-up. Li's comments referred only to provincial GDP figures. Any experienced China-hand knows very well that provincial statistics are always inflated.

Every year, China's provinces publish their local growth figures, and the end result is a mathematical impossibility. Last year all but two provinces exceeded the national growth rate. Everyone understands that such numbers are absurd. It's a little like the fictional students of Lake Wobegon, MN who are all supposedly "above average". The joke is on the reader.

Those who rushed to accuse China of fraud ignored that simple fact that provincial GDP figure are discarded when China's national GDP performance is measured. Why cloud a good argument with facts, after all? "Mmm – Kool Aid", one pundit jibed sarcastically, referring to the tainted punch that killed hundreds in Jonestown, Guyana years ago. But such crude sarcasm masks the fact that Li's comments were made during a discussion about the need for accurate figures about the state of the national economy.

Chinese leaders often refer to the nation's economic state as "complex" and "difficult". Indeed, those who understand China's many challenges know that its leaders face widely conflicting demands. Accurate data is vital to decision-making. There is nothing to be gained by issuing exaggerated claims about GDP growth.

So Why Do the Chinese Get ItWrong?

Actually Beijing does make mistakes with its GDP figures every year. It underestimates the number almost every time.

China's vast, entrepreneurial service economy is hard to track. So two years after official GDP figures have been issued, service economy figures are often added on. The corrected GDP figure is usually in the vicinity of $200 billion higher than previously thought. That's more than the GDP of many countries. Such late releases rarely get much attention. They come too late to have any effect on China's economic health or prestige. Often in the past Beijing has low-balled its growth projections, perhaps for the simple reason that it is safest to under-promise and over-deliver. An upside surprise makes everyone much happier than the reverse.

Looking forward to 2011, Beijing estimates that its economy will grow by 10 percent. A "fairy tale?" Well, the World Bank also estimates that China's GDP will indeed expand by 10 percent in 2011.

So, what about some hard numerical indicators like those that Li relied on for better provincial statistics?

* China's passenger-car deliveries to dealers rose to a record in November. Sales of passenger cars including multipurpose and sport- utility vehicles increased 29.3 percent to 1.34 million in the month
* China has long since surpassed the U.S in vehicle production with as many as 18 million units expected this year
* China represents more than 100 percent of incremental demand for all six of the most important metals: steel, iron ore, aluminum, copper, zinc and nickel
* China also uses 10 percent of the world's oil and generates 18 percent of the electricity, analysts at HSBC report
* HSBC says China's cement production will grow by 10.4 percent in 2011
* A 2010 report by the Brookings Institution says consumer driven domestic consumption will account for up to 50 percent of GDP by 2015, up from 33 percent last year, guaranteeing high growth going forward.

I could go on, but you get the point. China's explosive growth is real. And, it is affecting every economy in the world. Only a human version of an ostrich would hide its head in the sand and pretend that China is not real, that it is somehow perpetrating a fraud on the world's economists.

There may be wishful thinking among those who do not wish to see the end of America's days leading the global economy. But even proud Tokyo has admitted that China's growth is real. China has risen to number two, leaving Japan in third spot.

America still has China in its rearview mirror. But it would be a mistake to misjudge that speed at which China is gaining on the U.S. Especially out of pride, sarcasm or plain ignorance.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

 

[Schumacher]

Not too long ago, vice premier Li Keqiang said he didn't trust provincial GDP date . the western media right away jump on this statement and gleefuly trumpeted that Chinese GDP is fake . But is it? Apparently he was quoted out of context . What he meant is the provincial data and not the national data............................................

I agree. I think it's actually good to see China's top planners are fully aware of the shortcomings of some provincial data.
As for the ostriches who would rather die than to believe the national GDP of China, they can always look at export figures to China of global resources exporters or manufacturing powerhouses like Germany and Japan.
Sales figures in China of the likes of GM, Caterpillar etc can also paint of good picture of the trends and size of China's economy.

 

[AssassinsMace]

They're in denial and just shooting themselves in the foot. What does it do to so eagerly believe it except comfort their delusions that they don't have to repair what is broken in their superior system. They choose to believe and select information that serves their agenda. Their problem and China moves on. But then you hear from those that believe China has to restrain itself in some sort of affirmative action for Western countries. You hear it when they say China is exploiting the Western financial crisis. No, it's called business as usual. You might just see the US suffer the stagnation of Japan. The reason why their economy is a deer-in-the-headlights is because the influential business elite class refuses reform.

 

[bladerunner]

Quote Hendrik's2000 article
A 2010 report by the Brookings Institution says consumer driven domestic consumption will account for up to 50 percent of GDP by 2015, up from 33 percent last year, guaranteeing high growth going forward.

Hmm How much reliance can you place upon these economic projections. For instance McKinsey Global Institute (MGI), McKinsey & Company's economics research arm. paints a slightly different picture. I also agree with some of the reasons given for why domestic consumption may not increase as rapidly as some would have us think.

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As the global crisis ebbs, China's leaders realize more clearly than ever that they must unleash consumer spending to achieve sustainable growth. Stoking Chinese consumption has vaulted to the top of national—indeed global—policy agendas. China has already embarked on measures that will shift the focus of its economy away from heavy industry and exports and toward services and consumer products. But if China's leaders committed themselves to a more aggressive program of comprehensive reform, they could raise private consumption above 50 percent of GDP by 2025. Clearing that threshold would bring the consumption rate in line with those in the developed nations of Europe and Asia, vaulting China's economy into a new phase.

These are among the findings of If you've got it, spend it: Unleashing the Chinese consumer, a new report by the McKinsey Global Institute (MGI), McKinsey & Company's economics research arm. McKinsey estimates that comprehensive reform would also enrich the global economy with up to $1.9 trillion a year in net new consumption by 2025, boosting China's share of the worldwide total to 13 percent—four percentage points higher than its share without further effort.

Private consumption in China totaled $890 billion in 2007, making the country the world's fifth-largest consumer market, behind the United States, Japan, the United Kingdom, and Germany (which China recently surpassed as the world's third-largest economy).

But relative to China's population and level of economic development, its consumers punch far below their weight. The country's consumption-to-GDP ratio—36 percent—is only half that of the United States and about two-thirds those of Europe and Japan.
n fact, China's consumption-to-GDP ratio has dropped by nearly 15 percentage points since 1990 and continues to deteriorate in the aftermath of the financial crisis.

The sources of China's low consumption rate are both behavioral and structural. The country's households have an extraordinarily high ability to save: The average Chinese family squirrels away an astonishing 25 percent of its discretionary income, about six times the savings rate for U.S. households and three times the rate for Japan's. Indeed, China's savings rate is 15 percentage points above the GDP-weighted average for Asia as a region.
Structural features also restrict consumption's share of the national income: Chinese households command only some 56 percent of it, compared with more than 60 percent in Europe and more than 70 percent in the United States. No effort to raise Chinese consumption rates significantly can hope to succeed without addressing the structural factors that both channel income away from consumers and discourage them from spending even their modest share.
Perhaps the most common explanation for the Chinese consumer's reluctance to spend more freely is the frayed social safety net. Many argue that the country's consumers oversave and underspend because they lack adequate health insurance and can't count on government- or employer-sponsored programs to provide for them in retirement. Over the long run, mending the social safety net would ease anxieties about the future and bolster consumer confidence.
But McKinsey doesn't believe that better health and pension guarantees would raise private consumption significantly before 2025. Even a fully fledged program to expand China's health and retirement benefits wouldn't raise private consumption's share of GDP significantly as government will have to provide the majority of the funding. We estimate that, at best, such improvements would boost private consumption by only a percentage point above the 2025 base-case projection.
Measures to make goods and services better and more easily available could encourage consumption much more than would fixing the social safety net. China's consumer infrastructure is incomplete. Too few products are tailored to the needs of those who would use them. Prices remain high compared with income levels: A Chinese worker toils more than seven hours to buy the same amount of goods and services a U.S. worker earns in only one. In rural China—home to more than half of the country's billion consumers—consumers buy only 18 percent of their goods through organized retail establishments, compared with 50 percent in urban areas.

Even when high-quality products are readily available, China's consumers hesitate to buy them on credit. At 3 percent of GDP, outstanding consumer debt in China falls well below that of other large developing countries, such as Brazil, at 12 percent, or Russia, at 7 percent. China's credit infrastructure is underdeveloped. Only the most affluent urban families can obtain mortgages, which thus account for just 23 percent of the value of new homes in China, compared with 65 percent in the United States.

Similarly, concerns about financing the cost of a university education drive much of China's saving: An April 2009 survey of urban Chinese households commissioned by MGI found that this was the number one reason for saving, eclipsing concerns about medical expenses and retirement. McKinsey estimates that, in aggregate, measures to facilitate consumer spending—through better and more easily available products and expanded access to consumer credit and to financing for a university education—could raise consumption's 2025 share of GDP by 2.8 to 4.7 percentage points.
Over time, a stronger social safety net and improved access to better goods and services will encourage China's households to save less and spend more. But the country can't hope to increase its consumption rate meaningfully unless it reverses a major current trend: Households have a relatively small and shrinking share of the national income. Any significant rise in household incomes will in turn require far-reaching policy changes that would transform some of the economy's most basic structures.

China's current growth model tilts overwhelmingly in favor of large industrial companies, which typically are state owned or led, benefit from preferential financing from state-controlled banks, and enjoy considerable monopoly power. The result is an economy dominated by capital-intensive manufacturers with strong incentives to pile profits back into ever more plant and equipment improvements rather than disburse them to households as dividends or wages. Labor-intensive producers—small and medium-sized enterprises—and the services sector get short shrift. Over the past two decades, the corporate share of China's national income has risen to 22 percent, up from 14 percent, even as the share of households has fallen to 56 percent, down from 72 percent.

Ultimately, China can't hope to unleash the power of its consumers unless the economy creates more jobs and pays higher wages, so fiscal and regulatory policies must change. Banks should be encouraged to support the services sector as well as small and medium-sized enterprises. Dividend policies for state-owned enterprises should be changed and the development of equity markets encouraged. By 2025, a comprehensive effort to restructure the economy along these lines could add 3.5 to 6.0 percentage points to consumption's share of GDP, breaching the 50 percent barrier.

"In years past, China has demonstrated a remarkable ability to make major economic changes rapidly in pursuit of broad national objectives. It can do so again by shifting to a new economic paradigm that unleashes the spending power of its consumers. A more consumer-centric economy would allocate capital and resources more efficiently, generate more jobs, spread the benefits of growth more equitably—and grow more rapidly—than China will if it remains on its present course. Foreign ties would become more harmonious because the trade surplus would narrow and the country's consumers would make a greater contribution to global growth," says Jonathan Woetzel, a director in McKinsey's Shanghai office.
"
Today, there is a huge gulf between the retail and consumer experience available in China's larger and wealthier cities and that in smaller cities and rural areas. To address this gap, China can pursue a number of actions such as supporting the development of modern store formats, channels, and distribution networks (e.g., secondhand and leasing markets for cars, online shopping for many categories) and encouraging the continued development of both international and domestic players throughout the consumer industry," says Alex Peng, a partner in McKinsey's Beijing office.
Download the full report (PDF - 839 KB)

According to the leaked cable, Li used three metrics for a realistic view of growth:

1. Electricity consumption (which was up 10 percent in Liaoning in 2006)
2. Volume of rail cargo, which is accurate because fees are charged per unit of weight
3. Loans disbursed, which is accurate because interest fees are precise

Hmmm THe problem with that is that Western sources often claim that it takes more fuel, electricity, and raw energy to produce a dollar’s worth of output in China than in the U.S. (or something like that) therfore electricity usage may be a misleading gauge. It also has dificulty in controlling the direction of bank loans.

 

[Hendrik_2000]

[But relative to China's population and level of economic development, its consumers punch far below their weight. The country's consumption-to-GDP ratio—36 percent—is only half that of the United States and about two-thirds those of Europe and Japan.
n fact, China's consumption-to-GDP ratio has dropped by nearly 15 percentage points since 1990 and continues to deteriorate in the aftermath of the financial crisis.

I don't really trust those number The reason why consumption rate is low because the single biggest component of consumption which is purchase of Home is not included in the consumption rate . Plus the goverment only used statistic from the largest store and discounted other retail data . Something is wrong in this statistic . China record on average 18% increase in consumption for straight 5 years and yet this does not reflect in the increase in consumption very odd Read this report

Consumption uncovered
July 2009: Chinese consumption is not growing at the lightning pace retail sales figures would have us believe, but it is still a strong contributor to overall growth, says CLSA's Andy Rothman
Andy Rothman

Is it possible that Chinese household consumption is rising by an amazing 17%, as signaled by the real rate of retail sales growth? In short, no - although consumption is still expanding at a healthy pace.

This growth is driven by several factors: a rapidly increasing level of consumer confidence, based on steady improvement in macroeconomic data; the absence of household debt; strong income growth in the past few years; mild deflation to mitigate the absence of wage growth this year; and strong demand for goods and services by the large number of Chinese who only recently earned enough money to move into the consuming class.

All told, household consumption is likely to account for about one-third of this year's GDP growth. Retail sales - as the only broad indicator of consumption released by the National Bureau of Statistics (NBS) on a monthly basis - is widely relied upon as a bellwether for the speed and direction of this consumption.

However, the astonishing retail sales growth rates released recently have prompted doubts about the quality of the data. There is confusion as to how retail sales can grow so rapidly during an economic downturn - especially when same-store sales growth at many listed retailers has fallen to low single-digits from about 30% a year ago. The finger is often pointed at the role of government purchases and wholesale activity in all this.

There is inevitably some confusion as to what the NBS includes in its calculations. For instance, it says wholesale activity isn't counted, but it does count retail sales by companies that hold a wholesaling license.

Similarly, the NBS says its data does include government purchases from retail shops, but it is unable to calculate the share of government sales in total retail sales. As a result, the national accounts government consumption data used to calculate the state consumption contribution to GDP comes from government agencies, not retailers. It shows that the growth rate of government consumption has usually been in line with the real growth rate of retail sales, which suggests that state procurement has no real distorting effect on retail sales figures.

Auto and gas sales and home purchases, on the other hand, are areas that certainly do have a distorting effect on retail sales. Yet the extent of the distortion is unclear.

The NBS only provides a detailed breakdown of sales for larger stores - those with annual sales above US$733,000 - that account for 31% of total retail sales. With autos responsible for one-quarter of nominal sales at these larger outlets, and contributing a surprising 42% of first-quarter sales growth, the impact on overall sales is clear. It does not make sense that autos accounts for a larger share of total household consumption than food, beverages and tobacco (16% of the total and 16% of growth), even at larger stores.

But there are two reasons why this distortion may not be as large as it seems. First, we have no data on sales of autos - or any other product category - at the smaller-size stores that account for 69% of all retail sales. It is safe to assume, though, that autos play a much smaller role.

Second, it is clear that consumer auto sales have risen sharply - from a base of close to zero - over the past decade. Autos accounted for only 5% of retail sales by larger firms in 1997, with the share rising to 14% in 2003 and 25% in the first four months of this year. And a far greater share of these autos - about 85% - are now being bought by individuals. In 2000, according to one industry source, 80% of all sales were to government agencies and companies, with individuals accounting for just 20% of purchases.

Home sales are not included in China's retail sales data, but purchases of construction and decorating materials by individuals (not by building companies) are included. Given that home sales have risen sharply so far this year, it is worth asking whether a consequent uptick in these sales is distorting the overall trend. Apparently not. Constructions and decorating materials accounted for less than 1% of total retail sales at larger stores in the first quarter. The contribution to retail sales growth was only 3%, up from zero contribution in the first quarter of 2008.

It is possible to cross-check the accuracy of China's retail sales figures against consumption data. This information is also provided by the NBS, but comes from a quarterly survey of household spending patterns. There are various disparities between the two. Retail sales calculations use numbers collected from point of sale and therefore include purchases by governments, companies and other organizations. The household survey doesn't include this information. Neither does it include construction materials bought by individuals.

Equally importantly, the very fact that the household survey talks directly to consumers means it is able to capture spending on services like education, health care and entertainment, as well as consumption of goods produced and consumed in the same household, such as farmers who grow their own food.

Put side by side, retail sales and household consumption exhibit the same basic trends. However, the slowdown in the survey data is much sharper (growth was 52% slower in March 2009 compared to the June 2008 peak) than the slowdown in retail sales (growth was 38% slower in March 2009 compared to June 2008). The difference between the two has also widened recently, retail sales having grown on average 65% faster than household expenditure over the last four quarters. During the same four quarters one year ago, the difference was 41%.

The last piece in the jigsaw is consumer sentiment, which can be gauged from independent studies conducted by CLSA. While Chinese consumers became much more pessimistic in the second half of 2008, they now appear to be increasingly optimistic. CLSA found that the share of households expecting business conditions to improve over the next six months rose to 44% in May, up from 14% in December. Meanwhile, the share of households expecting their family income to decrease over the next six months fell to 16% in May from 38% in December.

This growing confidence is tied to a steady improvement in the macro data. The CLSA Purchasing Managers' Index was above 50 - indicating expansion - for the second consecutive month in May. At 51.2 in May, the index is now approaching its historical average of 51.7. There has also been a sharp reduction in layoffs. Indeed, in April manufacturers expanded headcount for the first time in nine months, and this stabilized at 50 in May.

All this is consistent with improving retail sales data. Factor in the various distortions - some of which are severe and some relatively tame - and evidence provided by the household survey, and Chinese consumption is not hitting the lofty heights suggested by the real rate of retail sales.

But I do believe urban household consumption is growing in the still very healthy 7-9% range, while rural household consumption is expanding a percentage point or two faster (although again, not as quickly as the 18% suggested by real rural retail sales figures). This is in line with my GDP growth forecast for 2009 of 8%.


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[bladerunner]

Hendrik_2000;132787]I don't really trust those number The reason why consumption rate is low because the single biggest component of consumption which is purchase of Home is not included in the consumption rate .

Perhaps households aren't seen as day to day consumables in the strictest sense and thus classified differently. (Does anyone here have the answer) The following opinion piece which outlines the dificulty of definining home ownership from a western point of view may give some insight as to why home purchases aren't included.
(By the way over in NZ we don't include the cost of oil/petrol when determining annual inflation )

Anyway the Mckinsey report also states "Ultimately, China can't hope to unleash the power of its consumers unless the economy creates more jobs and pays higher wages", .
I also remember reading something along these lines some time back where it was suggested that " Over the last ten years, Chinese wages, as a share of GDP, have dropped by about 12%?" --and IMO thats the opposite of what is needed to strengthen domestic spending. Sure companies like Foxconn and other foreign conglomerates Honda Toyota? have increased wages dramatically, But a across the board wage increase, might see a drop off in exports before a really stable consumer market is established.


Home ownership rates in China and the different ownership titles

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Summary
In 2002 it was announced that Chinese rates of home ownership had reached 80%, this was repeated recently by The Economist newspaper in passing. Deeper analysis reveals that this is not all that it seems.

Analysis
If anyone had asked me a week ago what home ownership rates in China I would have made a half educated guess of 40 to 60%, let’s say 60% in Shanghai, Shenzhen and Guangzhou and half that or lower for other cities. So when The Economist recently mentioned in passing that home ownership among China’s urban households was 80% I nearly fell off my chair. Could this really be true and how could my half educated guess be so far wide of the mark?

In global terms 80% home ownership is extraordinarily high. According to the London Times (

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) only 70% of UK households own their own home on the other hand the European Foundation for the Improvement of Living and Working Conditions (Eurofound) says that the EU states of Estonia, Hungary, Lithuania, Slovakia, Slovenia, Bulgaria and Romania all have home ownership rates of over 80%, the highest rates in the EU. Mass privatisation of housing in formerly and currently (with Chinese characteristics) communist States the quick explanation then, or…?

The most likely source of the 80% figure, it seems, comes from a statement from the Ministry of Construction, as reported by Xinhua, which actually states that 4 out of 5 urbanites (not households) own their own home and 94% own some kind of accommodation. If that was not enough, this report is not dated 2007, it actually dates back to August 2002

(

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) and

(

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). I

quote ‘between the mid 1990’s and 2002 80% of China’s public housing was sold to local residents’. Sale of 80% of public housing does indeed translate into 80% home ownership among the same group of people. Assuming the equivalent figure is even higher today, this gives China one of the highest rates of home ownership in the world. All news to me.

A crucial breakthrough in my clarification of what this might really mean in my Google assisted research came in an excellent paper published by no less august institution than the Joint Centre for Housing Studies at Harvard Universityhttp://www.jchs.harvard.edu/publications/international/w05-7.pdf, dated July 2005. This paper confirms my understanding of the difference between fully transferable property rights that come with commodity housing (shangpin fang) and usage rights (shiyongquan). For the latter the rights are inheritable but there are restrictions on other forms of transfer including paying back to the work unit (danwei) from which they originally came, ownership of a sort then but probably not really in quite the way that I suspect The Economist thought. Nice to have Havard to back me up.

Bear in mind that the same 2002 report states that ‘67% of the people who had bought public homes wanted to improve their living conditions by purchasing new homes or exchanging houses’ but their ability to do so is restricted. Those that own usage rights find they have to pay a premium to sell, again this matches my experience in trying to manage transactions of old houses in Shanghai under multiple occupancy which apart from anything else require payment of a land premium (budijia) to be able to convert use right ‘ownership’ in the form of a brown book into a saleable title, green book.
I don’t know anything about ownership rights in eastern Europe and I don’t intend to use up the rest of my weekend finding out, but in the PRC it seems that ‘home ownership’ is not quite what the term might suggest. So back to the Economist and the question of 80% home ownership among urban households. Having sought truth from facts, I cannot say that they got it wrong but let us diplomatically assume that of that 80% half is usage rights and half is commodity housing with fully transferable title. This allows us both to be more or less correct and let us furthermore forget my assumption that the 80% figure is 5 years out of date.

The assertion that this figure had been put to use on was that a property market crash would be ‘much nastier for China’s economy than a share-price crash’. Given the complexity of real estate ownership rights in China it is very difficult to draw any real conclusions from the 80% home ownership figure and given my forecast for Shanghai commodity property prices to double over the next 5 years or so property should be OK for now. Stock Markets on the other hand have been known to crash during economic boom times.

The true significance of this is that we lack quality statistics with which to accurately measure home ownership, price increases etc and that policies are being drawn up without a clear picture of the real situation. The result is that new taxes, slowing land sales, delayed development approvals, tighter credit etc is all inexorably contributing to hitting my 100% in 5 years forecast.
Analyses are solely the work of the authors and have not been edited or endorsed by GLG.


Contributed by a Member of the GLG Real Estate Councils