George Chen

A turning point for China?

July 28, 2011

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

Is the train crash tragedy becoming a turning point for China’s political and economic development?

Will Beijing be Italy’s White Knight?

July 13, 2011

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

Let’s talk about Italy.

Italy is about art — Leonardo da Vinci, Michelangelo Buonarroti and more names. Italy is about luxury — Prada, Salvatore Ferragamo and more brands. Italy is also about food.

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.

Property under attack in China

January 27, 2011
Property under attack in China 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 said. 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.

Hu, Wen

Inflation, the new civil war in China

December 28, 2010
Mao Zedong led his Communist comrades to defeat the Chinese Nationalists in a civil war, founding a “new” China in 1949. Today, the Hu Jintao administration is fighting a new civil war and the enemy is inflation. Beijing announced the latest interest rate rise — the second of 2010 – on Christmas Day, effective on Dec. 26, also the birthday of Chairman Mao. I suspect, central bankers in Beijing didn’t really want to celebrate the holiday, they just wanted to give the market a surprise Christmas gift. I asked some friends in the financial industry if the rate increase was a surprise. The responses were very mixed. The 0.25 basis point increase for the benchmark deposit and lending rates was a sort of uniform move. If the central bank had gone for a 50 basis point rise, that would have been a very big surprise. The timing of the increase was a surprise, especially after Beijing raised bank required reserve ratios about a week earlier. We thought Chinese officials also needed a break after a very busy month but they have proved themselves to be unpredictable one again, not to mention tireless. Just one day after Beijing raised the interest rate, Hu Xiaolian, deputy governor of the People’s Bank of China, published an article on the PBOC’s website, saying the central bank would make good use of a combination of monetary policy tools next year, including interest rates, bank reserve ratios and open market operations, to make interest rates more market-oriented. How often will these tools be implemented? She didn’t say in the article, but now many analysts are predicting the next rate increase could take place in two or three months – within the first quarter. Clearly, China has entered a new cycle of rate increases. Many economists believe the newest rate rise shows Beijing’s determination to curb inflation, giving that task greater priority than maintaining economic growth. Some analysts also said the cabinet and some ministries were finally on the same page for tackling inflation after earlier disputes over how to balance the interplay between GDP and CPI. To be honest with you, I am not a big fan of interest rates. If you really rely on interest rates to improve living standards, it’s almost like living in a daydream. Hong Kong broadcaster TVB interviewed some residents of nearby Guangzhou city after the announcement of rate rise. Most of them the move and even the prospect of more increases in 2011 would not do much to help them feel better about inflation, which is rising much faster than the pace of rate rises. Can Beijing raise interest rates once a month? I don’t think so. Will inflation continue to rise above 5 percent in coming months? That’s my guess. The core cause of China’s high inflation is food but people are also very interested to see how much property prices can fall. Premier Wen Jiabao does realise that curbing property prices is much harder than controlling food prices. In a rare state radio interview yesterday, Wen acknowledged that the measures Beijing took this year to cool the property market were “not very well implemented” and changed his tone on getting housing prices to return to “a reasonable level”. Previously, he was usually more straightforward in his statements about wanting to see prices under control during his final term, which ends in 2012. Besides inflation, it will also be interesting to see how Beijing deals with yuan appreciation. With higher deposit rates for yuan, a hopefully more bullish stock market in 2011 and prices of houses and villas rising across the vast nation regardless of policy curbs in 2010, do the factors sound perfect for seeing the yuan increase in value too? In fact, as many economists have already pointed out, a stronger yuan can also allow China to import commodities and other items more cheaply, helping  the government get to grips with inflation. My grandmother, more than 80 years of age, once told me there were still many old people in China who miss the days when Chairman Mao was the leader and the distribution and balance of wealth were considered by some to be better shape than they are nowadays. Deng Xiaoping wanted to “let some people get rich first”, and today we see more and more people complain of feeling increasingly poor. It was not easy for Chairman Mao to win the civil war for control of mainland China, and the new civil war on the economic front is going to be a real test of the intelligence and strength of the younger generation of Chinese Communists.


Beijing’s Christmas gift to Europe

December 23, 2010
Beijing’s Christmas gift to Europe If the heavy snows engulfing London’s Heathrow Airport are the last thing Europe wants to see, then a big cheque from Beijing could be the best Christmas gift the continent — once the centre of the world, but apparently no longer — could receive this year. The Chinese government is ready to buy 4-5 billion euros (US$5.3-6.6 billion) of Portuguese sovereign debt to help the country ward off debt market pressure, the Jornal de Negocios business daily reported on Dec. 22. Without citing any sources, the paper said a deal reached between the two governments would lead to China buying debt via auction or in the secondary market during the first quarter of 2011. The news of Beijing seeking to invest in Portuguese bonds soon helped the euro gain ground against the U.S. dollar and bounce up from an all-time low against the Swiss franc on Wednesday. It also boosted U.S. investor confidence in bank stocks at home. The potential new credit crisis in many European nations such as Greece, Spain, Portugal, Ireland and even Italy has been a growing global concern for capital markets. Beijing’s help could certainly ease such worries to a large extent if the news can be officially confirmed. China’s central bank has chosen to remain silent on the report, so far. Premier Wen Jiabao, often dubbed Grandpa Wen at home for his easy-going personality with ordinary people, visited a number of European countries including Portugal and Greece earlier this year. At the time, Wen’s trip was already considered a new sign of China’s growing influence in Europe, with Beijing expected to help with its national debt problems as nobody would think of turning to the United States for such a role in the wake of the financial crisis. Will Portugal be the last European nation to get Beijing’s help? Unlikely. Greece is also understood to be on the waiting list to for capital for its new sovereignty bond issue. However, if such aid continues, Beijing may face twin pressures from the United States and its own people. Beijing has complained about the U.S. government’s so-called “carrot and stick diplomacy” since the days of Mao Zedong, the country’s first Communist state head, Now it’s becoming less arguable whether China will take the same approach with so-called “friendly countries”. The United States may monitor Beijing’s financial aid for Europe closely to check for links between the money and human rights issues. Domestically, Beijing is concerned about social stability, in particular after inflation hit repeated highs this year. Some local media reports suggested that university students in some third- and fourth-tier cities had started to protest about increasingly expensive food bills on campus. Does this remind you of anything from more recent Chinese history? On the other side, the Chinese economy itself is far more open than when “New China” was founded by Chairman Mao in 1949, as the country still relies heavily on external trade. When we look forward to 2011, the global market environment to a very large extent is clearly linked to developments in the European debt issue. Beijing is helping Europe extricate itself from this potential new credit crisis as it also wants to avoid any negative external impact on its own economy next year. Something pretty interesting I found out this week about China, which I also take as a good sign of Beijing’s more open-minded attitude towards the world: When China’s top banking regulator Liu Mingkang met a group of Hong Kong reporters briefly in Beijing just few days ago, Liu said “Merry Christmas” and asked the Hong Kong media types to pass on his wishes to the people of Hong Kong. Liu studied in London for some years in the late 1980s, so he must know what Christmas means in the West, even though Chinese Communists should not believe in any religion. Just five or six years ago, Chinese media were still very careful about reports concerning Christmas. Even if they mentioned it in articles, it should not be carry any religious overtones. Not so many years ago, a Communist official could even be sacked or demoted for speaking about Christmas or related matters in public if he was not careful. Today, Liu wishes you all a merry Christmas and Beijing is actually offering the whole of Europe a Christmas surprise via its commitment to support Portugal’s debt issue. Clearly, the world has truly changed within just few decades. So, are the rules of the game now being set by global politics and markets?