Thinkers
Michele Wucker

Ringing in the New Year from Beijing -- The Gray Rhino Tracker January 2019

Burgess COMMENTARY

Peter Burgess

Ringing in the New Year from Beijing -- The Gray Rhino Tracker January 2019

Ringing in 2019 from Beijing

Welcome to 2019! I hope the year has started off well for you and brings many good things your way.

I’m just back from a quick trip to Beijing for a few speeches and media appearances. It was an interesting time, given concerns over the trade war with the United States and the Chinese government’s efforts to manage a slowing economy.

From reading most Western media, you’d think all of the economic slowdown was the fault of the trade war. Only a few Western commentators “get” that China’s slowdown is the result of sensible, deliberate policies.

China’s economic team rightly has sought to slow down borrowing, keep financial bubbles from getting bigger, and bring the shadow economy into the light. Now it's focused on managing the side effects of those initiatives.

Many observers in China felt that anti-financial risk measures had hit small and medium businesses harder than the giant state-owned enterprises. So, early this year, China’s government adjusted bank reserve requirements to try to direct more money into the “real economy,” particularly the businesses that had been feeling pinched.

China’s property market has been getting a lot of attention in the Western media, including The New York Times. It’s being talked about even more in China (as you might expect!) Participating in a panel at the Netease Impact Summit, I was amazed --as I got the sense the audience was too-- at how lively the debate got over the property market and possible measures to manage it.

Luckily the moderator, fellow Young Global Leader Tian Wei, the anchor of World Insight, showed great skill in managing the conversation!

But the property market is actually two gray rhinos for different reasons: one involves the people who bought real estate, and the other involves the people who didn’t because they don’t have the resources.

Most of the attention has been focused on falling prices and how that will affect people who have bought homes. Big-volume speculators are angry, too, but I often comment in China about the importance of avoiding the mistake the United States made: helping the big guys when real estate prices fell but not providing enough support to the rest of the country hurt by the consequences of the subprime crisis.

The other real estate gray rhino, which hasn’t been getting as much attention, is that more and more people can’t afford to live in the big cities, a reality that in turn affects both workforce dynamics and demand for different types of homes. The weakening of real estate prices will actually help with that one.

In most economic booms, we don’t pay enough attention to housing affordability and its knock-on effects. Affordability isn’t a problem for China alone, nor is it unique in feeling the pain of falling real estate prices.

It’s just dealing with market weakness before most other countries are because it’s been trying to let the air out of its financial bubbles instead of letting them grow bigger so that they do even more damage when they burst.

The trade war and the uncertainty it has caused certainly doesn’t help the economy. But it’s a mistake to view it as the main reason for China’s sagging real estate market. And it’s folly to assume the rest of the world won’t be facing the same challenges soon.

Chong Keung Graduate School of Business, Beijing
The three ‘gray rhinos’ are actually pointing to China’s future economic certainties Xu Xiaonian, Global Times, January 6, 2019
'Chinese ministries have been told to improve the quality of the hundreds of so-called 'specialty towns' that have sprung up in the past two years while guarding against reckless investments that burden local governments with more debt.'

Empty Homes and Protests: China's Property Market Strains the World
Alexandra Stevenson and Cao Li, The New York Times, December 30, 2018 “The prospects of the property market are grim,” said Xiang Songzuo, a senior economist at Renmin University, said during a lecture at Renmin Business School this month. “The property market is the biggest gray rhino.”

HK housing market may see an orderly correction Ko Tin-yau and Julie Zhu, EJ Insight, December 20, 2018
In assessing the prospects of Hong Kong’s housing market, one hears all sorts of theories and various speculations. Cutting through the noise, we can say there are two “gray rhinos” that will determine the market direction. The two factors are government efforts to boost land supply, and changes in long-term interest rates.

China Needs Bailout, Capital Plans for Crisis Event: PBOC's Ma News Staff, Bloomberg, December 6, 2018
'People’s Bank of China adviser Ma Jun has probed the economy for triggers of financial turbulence, and proposed measures including direct bailouts of enterprises and bank re-capitalization should a crisis hit. Property bubbles, local government contingent debt, the heavy reliance on land sales for financing or the shadow banking sector could set off a major crisis in China, according to Ma’s article published on the Wechat account of PBOC-affiliated magazine China Finance.'

ZAOJIU 'Uncertainty and the Fourth Industrial Revolution' Ascertaining the Uncertainties conference January 19 Singapore Austin College 'The Pursuit of Imagined Communities: Nationalism Versus Globalism and Its Meaning for International Trade' Jno. E. Owens Conference February 11 Sherman, Texas Open to the public; no registration required TED Salon February 21 New York City By invitation only

Book Michele to speak via SpeakersConnect

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