Saturday, March 27, 2010

The Debts of the Lenders: China's Growing Bubble

The US - China relationship used to be marked about hand wringing recriminations about human rights and Taiwanese arms sales. Those still exist but have been relegated to the backburner before the realpolitik of economic change. China's insistence on keeping a yuan-dollar peg has resulted in a growing amount of inflation and speculative bubbles building up within the country's borders. Shut off from access to Western capital outlets (and after the events of 2008 can you really blame the country's regulators for being suspicious of US-British style finance), Chinese speculators have instead poured money into the country's dual vehicles of wealth acquisition - the stock and property markets.

Indeed, these market malinvestments have resulted in some pretty distorted changes:

SHANGHAI, China — In what may be the hottest real estate market on the planet, one fact of life seems extra cruel. In Shanghai, young women expect their boyfriends to buy a home before proposing.

“There’s a joke that goes Shanghai women can’t find husbands because they want a house, a car and a RMB1 million [$150,000] income,” said 28-year-old (male) sales rep Su Bei.

In truth, choosier women even go as far as to require that a spouse-to-be have paid off the mortgage entirely before popping the question.


HONG KONG—One is a China state tobacco company. Another, a Japanese ramen chain. And finally, there is an obscure Hong Kong semiconductor maker.

What they have in common: They are some of the latest companies to jump onto the real-estate bandwagon as prices soar to gravity-defying levels in Hong Kong and mainland China. Some experts see the growing involvement of nontraditional players as yet more troubling evidence of froth in both property markets.

Last week, a small maker of diodes and transistors called Sino-Tech International Holdings Ltd. shocked investors by announcing that it was "diversifying into the property sector," buying a luxury three-story residence in Hong Kong's swank Peak district for more than HK$280 million (US$36 million) in cash, one of the biggest sums ever for a property here.

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