George Chen

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

When you walk around Hong Kong’s Central commercial and business district these days, you may notice a number of stores are holding “removal sales”, which means they can no longer remain in the same location. The reason? In most cases, just blame soaring rents.

Many analysts have forecast declines in residential and commercial property prices in Hong Kong for next year, although at a stable pace rather than a sharp drop. This may be true for some suburban areas where purchase options are more plentiful than those in downtown areas, but until that happens, prices are likely to keep rising, at least for the rest of the year.

A couple of years ago, mobile phone industry leader Nokia took a moderately sized space on Russell Road in Causeway Bay just opposite Times Square, one of the busiest shopping districts in Asia, for its flagship store in Hong Kong. Local media said the store used to be one of Nokia’s busiest in Asia, thanks to mainland Chinese travelers. But the good old days are going to end soon.

The Hong Kong Economic Times reported on October 27 that British luxury brand Burberry had signed a new lease with the owner of a site currently occupied by Nokia. Burberry is said to have agreed to pay HK $6.5 million (about US $836,600) per month for the two-floor 5,200 square foot space,versus the HK $1.8 million that Nokia is paying.

When the news came out, the reaction from the market was quite naturally, “Wow”. One reader on Sina Weibo, China’s most popular micro-blogging service, wondered: “How many coats and bags will Burberry need to sell to cover the monthly rent?” In Hong Kong, a coat or bag at Burberry usually sells for about HK $10,000-15,000. You can do your own calculations.

Burberry is not alone.

Bidding wars for prime retail locations in Hong Kong have been heating up in recent months. Some analysts call this a typical “changing hands season” for Hong Kong’s high-end property market. The only key to victory is price.

Asia’s leading fashion brand Shanghai Tang opened its first shop in the mid-1990s on the ground floor of the historic Pedder Building on Central’s Pedder Street. The same location will soon be home to a new name.

U.S. fashion brand Abercrombie & Fitch, known for welcoming customers to its flagship store on Fifth Avenue in New York City with muscular male models, will reportedly pay about $1 million per month for the location, 2.5 times more than the rent Shanghai Tang paid.

Despite the surprisingly fast rising rents in Central, Shanghai Tang, now owned by Richemont, one of the world’s leading luxury goods groups, is keen to stay in the Pedder Building, but has decided to move upstairs where rents are cheaper, local media reported.

Luxury brands are rushing into Hong Kong to tap the fast-growing demand from middle-class consumers from mainland China who swarm to Hong Kong to buy luxury products at prices far cheaper than in mainland China. U.S. upscale bag maker Coach is said to be planning to float shares in Hong Kong in the wake of Prada’s successful listing in the financial centre.

Local Hong Kong people and even some government officials and legislators in the former British colony have already complained about the quantity of money flowing into Hong Kong from the mainland, pushing property prices higher than the city’s towering skyscrapers.

Perhaps, the fast-growing retail rents willingly paid by global luxury brands can also be blamed on the luxury-loving mainland consumers who are becoming their best customers.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: The closing Shanghai Tang store in Central, Hong Kong, seen on Oct. 26, 2011. REUTERS/George Chen

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

I am hearing more complaints these days from trader friends about how boring the market is these days. Why boring?

Trading volume is low and there are apparently more risks than opportunities as investors seek clear signals about the central bank’s monetary policy direction and about what global funds think of China for the second half of the year.

With investors uncertain about the outlook for the Shanghai and Hong Kong stock markets, some are beginning to rethink their positions on Japan. Concerns about radiation are easing and I hear more people talking about the big potential for Japan’s market and economy to rebound amid massive reconstruction there. An old and new question then arises: can we bet on the Nikkei, again?

Australia also looks like a good bet to some rich Chinese investors. They say the property market alongside the long beaches in Australia offers profit-taking opportunities over the next few years.

Remember my recent column about many rich Chinese trying to emigrate in the next few years? Australia is always a popular destination. A number of local media reports also indicated some family members of top Chinese leaders already bought nice villas in the resource-rich country whose diplomatic relations with China have been up and down in recent years.

In China, an influential fund manager friend told me privately: “The property market in China is basically done this year and next year before Premier Wen Jiabao retires and we get a new government.” But he quickly added: “Premier Wen must do something to keep his promise to keep property prices under control, and he’s done almost all he can. The next government will be a different story.”

So, until we see clear signs of how much further China’s property market can go, some investors are naturally starting to shift their focus. Japan? Australia? What’s your say? I think the same logic can apply to China’s stock market amid record high banks’ reserve requirement ratio, now already 21 percent for most banks, and the country’s benchmark interest rate that Beijing keeps raising so far this year.

The fast-changing market sentiment about investors shifting focus in Asia may be a bad sign or even a sort of warning to the Chinese government, which is keen to fight asset bubbles but also doesn’t want to see huge foreign money outflows and a lack of confidence in its capital markets.

The Shanghai exchange remains keen to launch an international board to welcome HSBC “home”. If the main board of its local currency yuan-denominated A-shares sinks, how can you convince investors of the value of the new international board?

Li Daokui, an influential adviser to the People’s Bank of China, said yesterday that the valuation levels of most A-share companies were pretty low and he saw investment opportunities. To some investors, this is almost government propaganda to encourage buying.

However, he also warned that Beijing needs to raise interest rates further to rein in inflation and that’s not really good news for stock investors.

Remember what Warren Buffett said? Choose right and sit tight. However, Mr. Buffett may also be feeling a bit lost about his Chinese investment portfolio these days. Oh yes, that’s just another China story …

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A woman carrying an umbrella walks past an office building that includes a China Telecom office and a branch of the Industrial and Commercial Bank of China in central Beijing August 25, 2010 REUTERS/David Gray

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

These days I’m increasingly convinced that inflation is not just a China issue but a global problem and one that is becoming worse.

Yesterday when I posted a photo of rice noodles on my Chinese Twitter-like mini blogging account, I didn’t expect it would lead to quite such an active online discussion. I paid HK$16 (about US$2) for the bowl of noodles in the canteen of the University of Hong Kong (HKU). My friends from Geneva to New York to Shanghai “complained” that the price was way too cheap.

Well, the University Canteen is intended for students and I am indeed a HKU post-graduate student, part-time.

My friends in Shanghai told me a bowl of beef noodles costs about 30 yuan (US$4.6). In New York’s Chinatown, you might be charged US$4, according to a colleague, who is trying to break her daily Starbucks coffee addiction to save money in the Big Apple. Let’s face it — In many cases, a pay rise you receive won’t keep up with inflation these days. To address the problem, central bankers around the world — except the U.S. Fed — are apparently coming to a common understanding: that increasing interest rates is becoming a more realistic option.

The European Union is joining China to become the latest member of the international community to fight inflation via rate increases. The European Central Bank raised interest rates for the first time since the 2008 financial crisis on Thursday, signaling it is ready to tighten policy further if needed to help balance rising prices.

Given the big picture for globalization nowadays, the rate rise in Europe will certainly have an impact on a variety of domestic sectors in China. I believe your inbox will soon be full of research notes from investment banks helping you analyze the impact, so I won’t elaborate here.

But I do have a question for China, and maybe for Europe, too. Can rate increases really help China and the world solve the inflation problem? What we learned from the G20 meetings is that a key problem to solve  is global imbalances and there are some “imbalance indicators” that China already rejected. From a microeconomic perspective, such imbalances refer to the income gap, which rate increases don’t really help.

According to a Reuters poll of leading economists and analysts in China this week, the country is expected to see at least one more rate increase and the central bank is likely to raise banks’ required reserve ratio three times this year, possibly as soon as this month. Nevertheless, most analysts polled said it would still be a challenge for Beijing to keep its pledge and stop inflation rising above 4 percent.

This week is certainly a very busy week for China and the global market. Just one day after China’s central bank increased its benchmark lending and deposit rate on Wednesday to help curb inflation, the government announced it will raise gasoline prices by 500 yuan per tonne and diesel by 400 yuan per tonne from Thursday.

According to some research notes, after the newest gasoline price hike, retail prices for No.93 gasoline, the most commonly used type in China, is 7.79 yuan/liter, and the price level is expected to rise over 8 yuan in the coming months and may hit 10 yuan or exceed 10 yuan by the end of this year.

That is to say Chinese drivers will soon pay more for gasoline than their counterparts in the United States. Is that the price must China pay to be the world’s No.2 economy, and the price that Chinese consumers should pay for?

The news has not gone down well with everyone. One Chinese netizen on Sina Weibo, the Twitter-like mini blogging service, which is very popular in China, joked: “My feeling is that I just happened to pick up 1 yuan on the street, like a beggar, and then I was robbed 100 yuan by a policeman.”

Some analysts are starting to wonder if China’s inflation is starting to get out of control and many banks like Goldman Sachs now estimate China’s March Consumer Price Index readings will exceed 5 percent. And considering that the government felt the need to hike the gasoline price tax, April’s data may look even uglier, possibly heading toward 6 percent in terms of growth on year.

The rate hike won’t cool off growing public angers on rising property prices in China either. Most ordinary Chinese have to face the reality — if you’re not rich, you just can’t afford to buy, even if the central bank raises interest rates 10 times a year. And those who are rich don’t care how much mortgage rates are raised, they can pay in cash.

Don’t just blame China — almost the same thing is happening in the West. A friend in Paris told me prices had risen more than 50 percent from last year for some downtown properties — even faster than in Shanghai and Hong Kong.

Let’s talk about noodles again, which are certainly far more affordable to buy than a flat. If such day-to-day products are cheaper in Hong Kong than most places in mainland China, what about traveling to Hong Kong to buy your necessities if you earn Chinese currency yuan, which is growing stronger than the Hong Kong dollar, which is pegged to the U.S. dollar? If you live in the nearby southern Chinese boomtown of Shenzhen, this is already happening.

In the global battle with inflation, everybody has their own way of dealing with the situation. So I will keep going to my university for the cheap (and delicious) noodles. What about you?

George Chen is a Reuters editor and columnist based in Hong Kong. He’s also a part-time post-graduate student, studying international relations at the University of Hong Kong.

Photo: Chinese spicy rice noodles I bought in the canteen of the University of Hong Kong on April 7, 2011. Reuters/George Chen

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

What might you do in the next 48 hours in China? A number of things — how about rushing to nearby supermarkets to stock up on soap and shampoo if you are a price-sensitive consumer?

No kidding!

Retail prices for those products are set to rise sharply in China from next month. At least two industry leaders — Procter & Gamble and Unilever — were reported by Chinese media to have decided to lift detergent and soap prices by up to 15 percent next month.

State television on Monday showed images of empty store shelves in some cities as residents raced to hoard P&G and Unilever products before the price rises went into effect.

However, officials and statisticians in Beijing seemed less worried about rising inflation. Last month, we heard that the spokesman of powerful economic the planner, National Development and Reform Commission, said inflation should peak in February. Then Yi Gang, deputy governor of People’s Bank of China, the central bank, assured investors that the government was confident that inflation would not to exceed the 4 percent target for the year.

It’s easy to speak but difficult to act. We know your target but the question is, of course, how will you make it happen? I mean in the market, for Chinese consumers, and not just for the sake of the statistics that are rapidly losing credibility among ordinary Chinese people as real life fails to improve.

In Hong Kong, things are no easier.

We were told by the subway operator last weekend that ticket prices are going to rise soon, again. And properties, always a concern of local residents? A new project up for sale in West Kowloon is asking more than HK$15,000 per sq ft.

I was told there is a brand new segment of potential buyers these days — rich Japanese families who have fled Japan and are now seriously considering living in Hong Kong for a while.

In Shanghai, just another financial centre, the city government yesterday finally announced a plan to control property prices. It said property price rises should not exceed the city’s economic growth this year. That still means a roughly 8-10 percent increase, despite the tough measures by the cabinet and local government.

It may be too early to say whether the inflation problem in China and Hong Kong is out of control but it is certainly approaching a sensitive level that has already affected the lives of ordinary people, and will thereby cause social unrest to some extent.

What’s your say? If you live in China, let us know how inflation has affected your life.

Update on March 30: I saw an interesting report on China’s news portal Sina.com last night — economic planner the NDRC finally commented on how some multinational corporations such as P&G and Unilever are raising retail prices for daily consumer products by up to 15 percent without notifying the NDRC.

Apparently, the NDRC feels miffed. It said the government would “investigate” such price increases. Oops! Sounds like the beginning of an interesting new drama about doing business in China.

George Chen is a Reuters editor and columnist based in Hong Kong.

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

While the rest of the world is trying to help Japan deal with the aftermath of its earthquake and tsunami, some parents in China and Hong Kong are on a single-minded quest to buy up as much made-in-Japan baby formula as they can.

On my way to work on Monday morning, I saw a long queue of anxious-looking people in front of a grocery store. Over the following three days, the queue got longer and longer and more and more anxious.

They were all after the same thing – baby formula from Japan. This is simply because some Chinese parents believe their babies are accustomed to drinking Japanese milk and they are concerned that radiation may affect the quality of exports from Japan in the coming months.

Hong Kong media reported that retail prices for some Japanese baby formula have risen more than 30 percent this week. At present, the market price is about HK$250 (US$32) for a standard container (200g / 7oz) and some retailers are reportedly limiting purchases to six per person to avoid angering latecomers.

In this case, parents called on relatives, even elderly grandparents, to join the queue on their behalf (which works if you have many relatives and friends who are willing to help). Of course, Hong Kong parents are not alone in this concern. A fast-growing number of parents in mainland China are on a similar quest and they don’t mind paying HK$2,000 (US$256) for a round-trip ticket from major mainland cities to Hong Kong to buy made-in-Japan products.

Meanwhile, people in Hong Kong, may have to face an even bigger disappointment soon as a result of Japan’s earthquake – the possibility of property prices rising even further and faster.

Local property agents say they have noticed some landlords want to increase rents, especially in downtown areas such as Admiralty and the Mid-levels, which are within minutes of Hong Kong’s Central financial and business district, where many international banks have their regional headquarters.

Global financial firms including Blackstone, BNP Paribas and Royal Bank of Scotland are relocating foreign staff, especially senior executives, from Tokyo to neighboring bases to avoid the possibility of radiation exposure. These executives are typically asked to head to Singapore, Hong Kong and Beijing, with most apparently happier to choose Hong Kong, if not Singapore.

Rents in Hong Kong are already make the city one of the most expensive places in the world in which to live. The government has been trying to cool prices since late last year. With more rich but timorous bankers being relocating to Hong Kong from Tokyo and so far no indication of when they might return to Japan, the outlook for the property market in Hong Kong looks bullish.

I’m not saying this isn’t a positive  trend, but given what is happening to the lives of ordinary people in Hong Kong and China, the crisis in Japan is becoming a crisis for Asia, if not the rest of the world.

If the nuclear crisis cannot be contained and people lose confidence in crisis management and post-crisis protection, a chain reaction may be seen in many areas beyond dairy and property prices.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Policemen maintain order as customers wait outside a store called “Japanese Milk Powder” before it opens in Hong Kong March 16, 2011. REUTERS/Bobby Yip

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.

Chinese officials from Premier Wen Jiabao on down to small city mayors have been telling the public they will try their best to keep property prices under control and have indeed done much in the past 12 months via tightening monetary policy and government restrictions on property purchases. The result? Unfortunately, the more they talk, the more disappointed Chinese people feel.

The People’s Bank of China, the country’s central bank, has so far raised bank required reserve ratios (RRR) nine times since January 1 last year. The most recent on February 18 brought the RRR to a record 19.5 percent. The theory is that as banks place more money with the central bank, market liquidity should tighten and buying power for everything, not just property, should weaken.

China’s central bank has also raised its benchmark interest rate three times since October 19, most recently on February 8. Again, in theory, raising both deposit and lending rates can offer defense against fast-raising inflation, cooling some overheated sectors and also discouraging people from buying property, given the higher mortgage rates.

However, we all know that what works in theory doesn’t always carry over to the real world. So, what’s happening in the real world these days?

Property prices in Shanghai, China’s financial capital, rose more than 1 percent year on year in January. The increase came after the city announced a controversial new property tax plan that angered the growing middle class. For Hong Kong’s neighbor, Shenzhen, price levels rose 2 percent, surprising even local officials who had expected a greater impact from the city’s most recent restrictions to limit property purchases by non-residents.

In Hong Kong, a new apartment project in the popular downtown nightlife area Soho went on sale last week. A 400-plus sq ft unit was offered at about HK$18,000 per sq ft — and although you have to pay up front, you also have to wait a few months before you get the key. About three months ago, after the former British colony announced its toughest policy efforts including a high additional transaction tax targeting property speculators, a three-year-old apartment sold for about HK$12,000 per sq ft.

Now, even the city’s property agents are shocked by the pace of the increase. When Hong Kong property prices matched the peak seen in 1997 late last year, many people expected a crash. Now the 1997 peak looks more like the new bottom from 2010.

This week, China’s top five banks decided to scrap mortgage rate discounts for first-home buyers in some big cities such as Beijing and Shanghai as part of the latest round of efforts led by the government to cool the red-hot property market. Last year, they removed discounts for buyers of second and third homes. Can this zero-discount policy for first-home buyers, which is widely considered the last effort by Chinese banks to help the government rein in property prices, really have an effect this time? I doubt it.

So, what’s the core reason preventing property prices in China from falling at the government’s behest, despite the toughest policy curbs in the past one to two years? The answer is simple – there’s just too much money about. If you think even deeper, the true and sad story is that all this liquidity is in the hands of too few people in China and those people simply don’t care about mortgage discounts or other policy curbs.

The more challenging question is: why is so much money is held by so few people? This may be part of the so-called “deep-rooted and underlying problems” that government leaders from President Hu Jintao to Hong Kong’s Chief Executive Donald Tsang are studying. Can they solve it? It will take time, and we’re unlikely to see a solution before the end of the Hu administration.

The “deep-rooted and underlying problems” are about why the income gap in China is expanding instead of shrinking as China becomes the world’s No.2 economy. It’s also about the way some people can make money so quickly and easily while others cannot. In other words, does corruption contribute to the rise in property prices? Is today’s market dominated by “special interest groups” rather than genuine home buyers who just want a place to live?

From this perspective, interest rate increases and other property market restrictions simply aren’t game-changers as these factors are not the key rules for the game in the capital markets. Sad but true, expecting property prices to fall 50 percent in a year just because the Big Five banks remove mortgage rate discounts for first-, second- and third-home buyers may be, I have to say, too naive.

I suspect the only time property prices will become more acceptable is when Beijing is able to narrow the income gaps between the super-rich, the middle class and the poor.

We don’t care whether property prices fall or not, what we care about is whether we can afford to buy the property. When the general public becomes richer as individuals, and even these high property prices become more affordable, we may hear fewer complaints.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A couple is accompanied by a sales agent (R) in front of the model of a property development, at the 5th China (Shenzhen) Real Estate Fair in the southern Chinese city of Shenzhen May 4, 2010. REUTERS/Bobby Yip

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

Karl Heinrich Marx spent most of his lifetime studying how to distribute social wealth fairly, and later Vladimir Ilyich Lenin concluded that violent revolution should be the way. In China, Mao Zedong picked up some ideas from Marx and Lenin and a “new China” was eventually created. We all know what has happened since then.

Today in Shanghai and Chongqing, two of the richest cities in China, the local governments discussed how to distribute and balance social wealth, ideally for every citizen in the country. They decided to use financial tools rather than revolution, hence the new property tax.

Chongqing Mayor Huang Qifan said could help the city increase its revenue from the property sector to 200 million yuan (about 30.4 million U.S. dollars) this year. Huang was considered a Liberal as he helped Shanghai open up its Pudong New Area, the emerging Wall Street in China.

The reaction? An online poll on China’s top portal Sina.com showed this morning that nearly 60 percent of respondents voted against the property tax plan and more than 40 percent said they did not expect the new tax to lower property prices. Many analysts and officials in other cities are now interested to see how Shanghai and Chongqing are going to collect the tax –0.6 percent for Shanghai and 0.5-1.2 percent for Chongqing, both announced late on Jan. 27 and effective from Jan. 28 — in a peaceful and practical way.

Others cast doubt over the policymaking process — shall we have a consultation with taxpayers or at least go through local lawmakers, who are considered “representatives of the people”, for ideas before making a decision?

The mayors of Shanghai and Chongqing, picked by the central government as the two pioneer cities for property reform, both said the new tax they plan to collect, largely from the fast-growing middle-class, will mainly be spent on building more cheap, affordable public housing for low-income people, hence redistributing social wealth. A very socialist idea.

In my humble view, three factors are worth bearing in mind: First, all things considered, I don’t think the new property tax will bring prices down (read my column “Property under attack in China” on Jan. 27). Second, the property tax is a strong political signal from the government aimed at winning the hearts and minds of the poor, but it could certainly hurt the feelings of the middle-class.

Third but not least, watch out, Hong Kong, Australia, Canada and so on, you may see more Chinese immigrants buying property, little by little, if not in a rush from tomorrow.

So, should we pay a bit more attention to Hong Kong developers? Maybe they’ll see better earnings this year if there are more property buyers from the mainland. Oops! What is Hong Kong Chief Executive Donald Tsang going to do to keep the city’s property prices from climbing?

That’s another story, but at least most people in Hong Kong don’t believe that socialism can really work.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: Portraits of Russian and Chinese communist leaders (from-L) Karl Marx, Friedrich Engels, Vladimir Lenin, Mao Zedong, Zhou Enlai, and Deng Xiaoping are displayed at a bookstore in Chengdu, capital of China’s southwestern Sichuan province, July 19, 2004.REUTERS/Bobby Yip

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

While U.S. President Barack Obama hopes to see a quick property market recovery to boost investor confidence, China’s intentions for its own property market are the diametric opposite – not because it wants to damage investor confidence, but rather to cool growing social unrest prompted by fast-rising property prices.

On Jan. 26, Chinese Premier Wen Jiabao hosted a cabinet meeting to discuss the latest property market situation. As a result of the top-level meeting, Wen announced his new “eight-point” guidelines, considered by many analysts as the toughest so far and probably his last major effort to curb property prices:

1. Local governments should set 2011 property price-control targets and make them public

2. Land supply for affordable public housing should be stepped up and the pace of construction increased

3. Properties sold within five years of purchase will be subject to a sales tax based on the selling price

4. The minimum down payment requirement on second homes will rise to 60 percent from 50 percent

5. Land supply for residential property this year should be no less than the average annual figure from the previous two years

6. Home-purchase limits will be adopted nationwide. Local governments should limit home purchases by non-local residents and those who have already purchased more than two homes

7. Local government should take responsibility for stabilising property prices (in other words, those who fail to do their job could be punished)

8. Increased education to encourage more sensible property investment to create a more stable market for the long term

Wen, whose nickname is “Grandpa Wen” for his usually warm public personality, has pledged to rein in property prices before the end of his final term in office in 2012. But time is short and progress has so far been limited, so he has decided to take action once again.

Among the eight points, the most important is of course to raise the down payment minimum for second-home buyers. Local media have already reported a sharp rebound in property transactions, one or even two times more than usual since the beginning of the year in some big cities such as Shanghai and Beijing. With the anticipation of more policy curbs, Chinese home buyers feel compelled to sign deals more quickly and more aggressively.

Early this week, official think-tank the China Academy of Sciences released its 2011 forecasts, including an estimate that property price growth may slow but will still rise about 12 percent on average. Such forecasts should serve as clear cautions to Premier Wen if he wants to keep his promise before he retires.

Ironically, property prices have risen more than ever before since Wen took power. Of course, you can’t blame him. All this, I say, is a natural process and the result of strong economic growth and increasing personal wealth.

But just like a coin, everything has two sides. Those who get rich (as late Chinese leader Deng Xiaoping said “let some people get rich first”) are happy to get their homes. Those who miss the chance … oops … perhaps Premier Wen can do more to get them on track.

For global fund managers, who are still talking about the beautiful China story: Wake up, please, because 2011 looks like a truly strange and difficult year for China, if not for the whole world. Chinese banks are under pressure, thanks to endless reserve ratio increases. Property is now under attack.

Commodities prices continue to rise in global markets and most people say it’s too complicated to understand how commodities and futures products work. So, tell me which is relatively speaking the safest area to put money?

Perhaps property if you are a firm believer in yuan appreciation, which could be even faster this year for the sake of Sino-U.S. relations? I do believe President Hu Jintao doesn’t mean to disappoint President Obama after his successful state visit.

Apparently, Zhang Xin, CEO and co-founder of leading Chinese developer SOHO China, is still a big fan of the business. There is little reason to expect new measures by the Chinese authorities to rein in property prices will be any more effective this year than in 2010, she told our reporters in Davos.

What happened in 2010? It was considered the toughest policy year for real estate in China. And the result? Property price rose more than 20 percent on average.

“So what, you say? Do what I do. The property market is already out of the government’s control. It’s too late,” a fund manager summed up the recent property policies for me when we had lunch recently. Then he ordered another glass of wine despite complaints about his lower bonus this year, given mediocre fund performance in 2010.

My fund manager friend is probably what Deng was talking about — those who get rich first. He’s now looking to buy his third home in Shanghai.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A man walks past portraits of China’s President Hu Jintao (R) and Premier Wen Jiabao by Chinese artist Ye Zhifu outside a gallery in Beijing, January 18, 2011. REUTERS/Jason Lee

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

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 top-tier mainland 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 to argue that China is becoming more like a command economy, rather than the market-oriented economy it claims to be.

More interestingly, 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 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 announced 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“.

Local friends tell me Hong Kong can be a nightmare for the poor but a paradise for the rich. The city is home to the super rich, like 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 box-like space and eat twice a day.

Li, born in the southern Chinese province of Guangdong near Hong Kong in 1928, fled to Hong Kong in the early 1940s to avoid turmoil on the mainland, just like all the other refugees. He was forced to quit school to work 16 hours a day at a local plastics trading firm to make a living before the age of 15.

Today, out of Hong Kong’s 7 million residents, it is said over 1 million of them are poor people whose household income is around 1,000 U.S. dollar per month, according to an unofficial survey backed by some local lawmakers. Many of them work very long hours every day, just like what Li used to do, in order to make that much.

I’m pretty sure one thousand dollar can get you a comfortable life in many rural cities in the mainland, but it means almost nothing in Hong Kong, one of the most expensive cities in the world.

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. But 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 may shake Hong Kong’s long-standing position as a leading free market.

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.

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo (top): Hong Kong Chief Executive Donald Tsang attends a news conference following his policy speech in Hong Kong October 13, 2010 REUTERS/Bobby Yip

Photo (bottom): Hutchison Whampoa Chairman Li Ka-shing reacts as he attends a news conference in Hong Kong March 30, 2010 REUTERS/Bobby Yip

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

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 Hong Kongners 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!

George Chen is a Reuters editor and columnist based in Hong Kong.

Photo: A construction worker carries a bucket of paint as he walks among high-rise apartment blocks in Xiangfan, Hubei province December 8, 2010. REUTERS/Stringer