Saturday, February 11, 2006
Japanese Press Probes 'China Bubble'
Bubble or boom?
The world wants to know.
While Western news media still use words like miracle and boom to describe China's fast-growing economy--the world's fastest--Japanese newspapers are increasingly inclined to see it as a bubble bound to burst. An opinion article "Could China's Red-Hot Economy Collapse?" in the Feb 11 Asahi Shimbun is an interesting example. The article, attributed to Professor Lim Hua Sing at Waseda University's Graduate School of Asia-Pacific Studies, draws parallels between the current overheated, asset-based Chinese economy and Japan's fatal boom of 15 years ago. Excerpts appear below.
The Chinese economy has been steaming ahead for several years, fueled mainly by a construction boom and rapid growth in the auto industry. A lot of momentum is also coming from strong exports (especially to the United States) and two big upcoming national events: the 2008 Olympics in Beijing and the world exposition in Shanghai in 2010.
Observers have been warning for some time about the overheating of investment in the construction and auto sectors. Many point out that Chinese industry is awash in excess capacity, causing a large output gap between actual and potential production. The Chinese steel industry, for instance, produced 350 million tons of steel in 2005 but has the capacity to produce 470 million tons annually. When new plants currently under construction go online, production capacity will top 600 million tons.
The Chinese auto industry is overcrowded, with more than 120 companies. The domestic auto market grew explosively by 50 percent between 2002 and 2003.
Again, there is excess capacity: the industry can churn out more than 8.70 million vehicles, but only 5.72 million cars were sold in 2005.
For many Chinese workers, cars remain a luxury beyond their reach. The average annual income of Chinese workers is about 5 percent that of their Japanese counterparts, yet Japanese cars are sold in China at prices three times higher than in Japan. The big question is how long the Chinese car market can continue to expand.
The current building boom is also troubling. Rare is the vacant lot in Beijing where a new building is not being put up. The construction frenzy seems to be leaving little space for those public facilities essential to a comfortable living environment, such as green zones and parks.
In Shanghai, there are mounting concerns about land subsidence, stemming from a growing forest of high-rise buildings and excessive exploitation of underground water.
Luxury houses and condominiums are sprouting up in many parts of the nation. Sales of high-end condos and mansions with price tags well above 100 million yen are robust.
After a recent international conference in Shanghai, I took a quick post-conference tour around one of the city's upscale neighborhoods. The average house was a two-story, 460-square-meter mansion, built on a 660-square-meter plot, with three garages and a 25-meter swimming pool, going for an eye-popping 38 million yuan (about 540 million yen). There was even one palatial mansion worth 200 million yuan (about 2.85 billion yen).
Assuming that the monthly pay of professors at Beijing or Tsinghua University is about 4,000 yuan, the 38-million yuan price of the average house in this district is equivalent to 800 years' worth of salary.
Professors from Canada and Australia who joined the tour said similar houses in their countries would cost them more like 10 years' worth of annual income, while a professor from Singapore estimated that in his country it would be about 30 years' worth.
Although the buyers of these fancy houses are not necessarily Chinese, their hefty prices inevitably limit the size of the potential customer base. They symbolize the wide and growing income gap between a small number of newly rich urbanites and the rest of China, as well as the growing asset-price bubble.
Like the rapidly deteriorating environment, this is one of the increasingly urgent problems facing a nation whose economy has now grown steadily for the last 27 years.
The Chinese government has been trying hard to curb the expansion of its own bubble economy, one driven by excessive capital investment and industrial production. The government has instituted restrictions on lending by banks and other financial institutions. It has also started taking steps to stem the rise of property prices.
These steps will help ease the red-hot Chinese economy into a sustainable cruising speed. There is still, however, a pretty good chance that the bubble will continue at least until the Beijing Olympics in 2008 and the Shanghai expo in 2010.
The world wants to know.
While Western news media still use words like miracle and boom to describe China's fast-growing economy--the world's fastest--Japanese newspapers are increasingly inclined to see it as a bubble bound to burst. An opinion article "Could China's Red-Hot Economy Collapse?" in the Feb 11 Asahi Shimbun is an interesting example. The article, attributed to Professor Lim Hua Sing at Waseda University's Graduate School of Asia-Pacific Studies, draws parallels between the current overheated, asset-based Chinese economy and Japan's fatal boom of 15 years ago. Excerpts appear below.
The Chinese economy has been steaming ahead for several years, fueled mainly by a construction boom and rapid growth in the auto industry. A lot of momentum is also coming from strong exports (especially to the United States) and two big upcoming national events: the 2008 Olympics in Beijing and the world exposition in Shanghai in 2010.
Observers have been warning for some time about the overheating of investment in the construction and auto sectors. Many point out that Chinese industry is awash in excess capacity, causing a large output gap between actual and potential production. The Chinese steel industry, for instance, produced 350 million tons of steel in 2005 but has the capacity to produce 470 million tons annually. When new plants currently under construction go online, production capacity will top 600 million tons.
The Chinese auto industry is overcrowded, with more than 120 companies. The domestic auto market grew explosively by 50 percent between 2002 and 2003.
Again, there is excess capacity: the industry can churn out more than 8.70 million vehicles, but only 5.72 million cars were sold in 2005.
For many Chinese workers, cars remain a luxury beyond their reach. The average annual income of Chinese workers is about 5 percent that of their Japanese counterparts, yet Japanese cars are sold in China at prices three times higher than in Japan. The big question is how long the Chinese car market can continue to expand.
The current building boom is also troubling. Rare is the vacant lot in Beijing where a new building is not being put up. The construction frenzy seems to be leaving little space for those public facilities essential to a comfortable living environment, such as green zones and parks.
In Shanghai, there are mounting concerns about land subsidence, stemming from a growing forest of high-rise buildings and excessive exploitation of underground water.
Luxury houses and condominiums are sprouting up in many parts of the nation. Sales of high-end condos and mansions with price tags well above 100 million yen are robust.
After a recent international conference in Shanghai, I took a quick post-conference tour around one of the city's upscale neighborhoods. The average house was a two-story, 460-square-meter mansion, built on a 660-square-meter plot, with three garages and a 25-meter swimming pool, going for an eye-popping 38 million yuan (about 540 million yen). There was even one palatial mansion worth 200 million yuan (about 2.85 billion yen).
Assuming that the monthly pay of professors at Beijing or Tsinghua University is about 4,000 yuan, the 38-million yuan price of the average house in this district is equivalent to 800 years' worth of salary.
Professors from Canada and Australia who joined the tour said similar houses in their countries would cost them more like 10 years' worth of annual income, while a professor from Singapore estimated that in his country it would be about 30 years' worth.
Although the buyers of these fancy houses are not necessarily Chinese, their hefty prices inevitably limit the size of the potential customer base. They symbolize the wide and growing income gap between a small number of newly rich urbanites and the rest of China, as well as the growing asset-price bubble.
Like the rapidly deteriorating environment, this is one of the increasingly urgent problems facing a nation whose economy has now grown steadily for the last 27 years.
The Chinese government has been trying hard to curb the expansion of its own bubble economy, one driven by excessive capital investment and industrial production. The government has instituted restrictions on lending by banks and other financial institutions. It has also started taking steps to stem the rise of property prices.
These steps will help ease the red-hot Chinese economy into a sustainable cruising speed. There is still, however, a pretty good chance that the bubble will continue at least until the Beijing Olympics in 2008 and the Shanghai expo in 2010.
