George Chen

My Shanghai holiday

March 10, 2011


By George Chen
The opinions expressed are the author’s own.

While Chinese lawmakers gathered in Beijing for the annual parliamentary meeting, I returned to my hometown Shanghai for a holiday.

Why property prices in China won’t fall

February 25, 2011


By George Chen
The opinions expressed are the author’s own.

Let’s face it — it appears there is only upside for property prices in China.

Two cities, one problem

January 5, 2011
Shanghai and Hong Kong are often considered twin cities from a historical and economic perspective, and the two cities do face many similar challenges. One of the most burning issues is the ongoing property struggle between the government, investors and developers in the two Asian strongholds of business and investment, and of course home to growing populations. The Shanghai property stock index jumped more than 5 percent on Jan. 4, the first trading day of 2011 and the surge of Shanghai-listed property stocks gave a strong boost to the Hong Kong market. Given the bigger influence and impact of China’s economic development in Hong Kong since it returned to Beijing’s control in 1997, some traders often joke that the Hang Seng Index is like Shanghai’s mistress these days – your happiness depends on your master’s mood. Usually, if the Shanghai market rises, Hong Kong’s benchmark Hang Seng Index will follow suit. When the Shanghai index falls, the HSI can fall further and faster. This week, Chinese property counters, trading at low valuations compared with their historical averages, mostly soared after local media reports indicated that the authorities could delay a new property tax because of disputes between the central, city and provincial governments, and property owners and investors. Apparently, the new property tax issue in mainland China, which some in the market had expected to be implemented as soon as possible to further curb rising prices, is running into the typical bureaucratic holdups. On average, property prices in the four first top-tier Chinese cities – Beijing, Guangzhou, Shanghai and Shenzhen – rose more than 20 percent in 2010, according to local media reports, with Beijing recording the fastest rise of 42 percent on year. It’s understandable for the Chinese government to seek to control property prices via tax, an old-fashioned solution that has prompted some analysts argue that China is becoming more like a command economy, rather than the market-oriented economy it claims to be. More interesting, even Hong Kong, known as one of the world’s leading free markets, has drawn up a special bill to allow the local government to impose an additional stamp duty on short-term property transactions. So, what is a short-term property transaction from the viewpoint of the Hong Kong authorities? Buyers who sell within two years of purchase are considered potentially speculative. The special bill has won the hearts of local residents who are struggling to climb onto the property ladder, even for less than 300 sq ft, but the bill also faces growing criticism and objections from market activists, developers, pro-business lawmakers and of course, property investors. The Donald Tsang administration announced the new property tax last November, but the bill is pending approval from lawmakers of the former British colony before it can be put to work. Some activists and analysts believe the special bill will hurt Hong Kong’s image as a market-oriented free economy, which is the core reason Hong Kong remains a top destination for foreign investment. The Real Estate Developers Association of Hong Kong (REDA) issued an open letter to the media including Reuters last night saying the industry group supported the objectives behind the introduction of the new “Special Stamp Duty” targeting short-term speculation but was concerned the new rules would also affect “genuine home buyers”. Last year, when Hong Kong implemented the city’s first-ever minimum wage policy, at least HK$28 per hour (US$3.6) for low-income workers, The Economist magazine published an article commenting that the introduction of a minimum wage “marks the further erosion of Hong Kong’s free-market ways”. Let’s not be emotional. We know how poor Hong Kong people can be. Local friends tell me Hong Kong can be a nightmare for the poor but a paradise for the rich. The city is home to Li Ka-shing, who rose from poverty to become one of the world’s richest men, as well as the very poor who can only afford to live in a cage and eat twice a day. For a very long time, the poor didn’t really resent or complain about the rich, partly because many traditional Chinese are what might be called believers in destiny. With the rise of the younger generation, the atmosphere of dissatisfaction is apparently growing in the city. Technically and from a more academic perspective, moves such as the Special Stamp Duty on short-term property transactions and  the minimum wage policy could much to shake Hong Kong’s long-standing position as the world’s leading free market. Are we talking about capitalism or socialism for the future of Hong Kong’s economy? If Shanghai, one of the richest cities in mainland China must take the route of so-called socialism with Chinese characteristics to develop its economy and markets, it will be interesting to see what Hong Kong does next to please both Beijing and global investors.

DonaldBy George Chen
The opinions expressed are the author’s own.

Shenzhen, new home for Hong Kongners?

December 10, 2010
When people from the southern Chinese boomtown of Shenzhen began rushing to neighboring Hong Kong to buy cheaper daily necessities just few months ago as mainland inflation rose high and fast, some Hong Kong residents were apparently unhappy. This time, it may be the turn of Shenzhen residents to complain about the buying power of Hong Kong people. For what? Real estate. Hong Kong media including the Chinese-language, pro-Beijing newspaper Wen Wei Po reported that average prices for new properties launched for sale in Shenzhen last month rose more than 16 percent on year, partly driven by buyers from Hong Kong after the former British colony, now led by Chief Executive Donald Tsang, issued special tax in early November aimed at curbing property price rises by targeting short-term speculators. Some Hong Kong housewives have already complained of a surge in local dairy product prices after more Shenzhen parents went to Hong Kong to buy baby formula and  related products. A large package of baby formula may be about 100 yuan (about US$15), but a new apartment in Shenzhen is now worth several million yuan. If you talk about luxury villas, prices are closer to 10 million yuan or even above, yet still much cheaper than the equivalent space and location in Hong Kong. Some people may argue the trend of Hong Kong people going to Shenzhen and other second-tier cities in nearby Guangdong province to buy property is nothing particularly new, but the recent tigtening property policy move in Hong Kong has certainly given the phenomenon greater impetus. Since the new tax policy was implemented, local media have reported a drop in new property transactions in Hong Kong, while the number of Hongkongers going to Shenzhen for property has surged. According to one agent interviewed by local broadcaster Phoenix TV, if you have visited Shenzhen in recent weekends, you are likely to have bumped into many visitors from Hong Kong scouting locations with their property agents. Technically, it could become more difficult for non-mainland Chinese to buy property in Shenzhen as the local government is also planning its own price-curbing policies to ensure affordable flats for local residents. But many sales agents apparently have a different view. Property agents are encouraging rich Hong Kong people to purchase real estates in Shenzhen for one simple reason — as the Hong Kong government is asking for an additional 5-15 percent tax if you sell your property within 6-24 months of purchase, why not just go to Shenzhen to buy something and bet on the fast appreciation of the yuan. In 24 months, how much further will the Chinese currency have risen? And the Hong Kong dollar? Could be a sound strategy? Many Shenzhen developers even organize virtually free weekend trips for Hong Kong people “to enjoy a day in Shenzhen”. You pay just HK$100 (about US$13), basically to cover the bus ticket, and join a group with a professional property guide to tour some of the newest developments in Shenzhen. Post-tour dinner or massage, which the city is really famous for? It’s your call!

China property

What the iPad means for China

December 8, 2010
What does the iPad mean for Chinese consumers? Let me offer you a choice before you read this column – do you want the good news first, or the bad news? In fact, it’s the same story. For those who recently bought a first-generation iPad, here is the bad news – Foxconn Electronics, manufacturer of Apple Inc products, plans to begin shipping a new version of the iPad tablet, known as iPad 2, by as early as the end of February, according to a Dec. 7 news report by DigiTimes. The report, citing unnamed sources from the Taiwan-based components maker, said the iPad 2 would mainly be supplied by plants in Shenzhen belonging to Foxconn, parent of Hon Hai Precision Industry. An initial shipment of 400,000 to 600,000 units is expected. And the good news? Of course Hon Hai investors and those who want an iPad but have yet to buy one should be happy. For Apple fans in China, the next big question is of course when the new iPad 2 will arrive in the world’s No.2 economy. Consumers there have already complained about long back orders for the iPad and iPhone 4 since the two products were launched earlier this year. As such, specialist “Apple smugglers” from Hong Kong to mainland China should be happy to see new arbitrage opportunities! Chinese gadget makers may soon catch up with this opportunity to add whatever new functions the iPad 2 may have to their own “iPad killers”. Hong Kong- and Shenzhen-listed ZTE Corp launched a  tablet PC in October that sells for a far lower price than its Apple counterpart, and we should expect more Chinese competition for Apple in 2011. Or should I say innovation? Despite fast-rising inflation, Chinese consumers have yet to stop buying new gadgets, as higher salaries means more disposable income. Products such as the iPad also fit the show-off culture of the so-called “new money” class in China — those who are much richer than the middle-class and who become rich within just a few years for various reasons, such as successful property speculation — so Apple should not be worried that Chinese consumers will tighten their budgets for non-necessities and high-tech devices next year. During a recent visit to my hometown Shanghai, I was told by a senior Shanghai government official that the iPad was a very popular Christmas and New Year gift within government and business circles. Hardly a surprise. To those who have already bought an iPad, don’t be too disheartened – pass it on to your son or even grandson. Like a Qianlong dynasty vase is now worth tens of millions of dollars, first-generation iPads may someday be a national treasure too!


Ferragamo for Morgan Stanley, a good match?

December 2, 2010
By George Chen The opinions expressed are the author’s own.

Salvatore Ferragamo

By George Chen
The opinions expressed are the author’s own.

Hong Kong is a real shopping paradise where people in the financial industry apparently have privileges not just because they can probably afford to buy more top brands, but they can also buy them exclusively and at a discount, at least for this Christmas.

In Shanghai, prices fly high

November 18, 2010


By George Chen
The opinions expressed are the author’s own.

The other day one of my colleagues in Shanghai was happy to see her favorite fashion brand, Gap, finally arrived in China. That same day, November 11, China announced that inflation rose to a more than two-year high of 4.4 percent. It is no wonder then that, these days, Chinese people are complaining that almost everything is becoming more and more expensive including, of course, fashion.