Very interesting (and rather ominous) op-ed on China’s property market in today’s FT by George Magnus, former chief economist of, and now independent economic adviser to, UBS.
There have been murmurings about the health China’s property market for a while, but, says George, now we should really be paying attention.
- While official figures show that property prices in 70 cities were 8% higher in March than a year ago, in reality prices have actually fallen since 2013.
- As a result of chronic over-supply, starts, completions and sales of property have fallen markedly.
- Inventories of unsold homes in Beijing are reported to have risen from 7 to 12 months supply in the year to April.
- In ‘tier two’ cities, the overhang of unsold homes has risen to about 15 months.
- In tier three and four cities, this has risen to 24 months.
- The anti-corruption crackdown by Beijing has dis-incentivised the elite to build up ostentatious property wealth. This is taking its toll on the market (in China the richest 1% of households is estimated to own about a third of residential property).
- The tightening of credit terms, including funding for property developers, is also bringing downward pressure to bear on the market.
Beijing may have the means to stave off the immediate impact of a property crunch (e.g. extra spending on infrastructure, faster urbanistaion inland, relaxation of restraints on home buying). But the problem is, taken too far, this could derail the longer term objective of moving the Chinese economy towards consumption.
George Magnus is author of Uprising: Will Emerging Markets Shape or Shake the World Economy? (2010).
For more information on George, or to book him as a speaker, please contact Leo von Bulow-Quirk at firstname.lastname@example.org, or on 0044 (0) 20 7792 8000.
The emerging consensus among economists is that immigration provides a net benefit to a state’s economy. It increases demand and productivity, helps drive innovation and lowers prices, although there is little agreement on the size of the impact on economic growth. If this is the case, then the US economy could get a lift if President Barack Obama succeeds in enacting what could be the biggest overhaul of the nation’s immigration system since the 1980s. By helping more immigrants enter the country legally and allowing many illegal immigrants to remain, the United States could help offset a slowing birth rate and put itself in a stronger demographic position than ageing Europe, Japan and China. “Numerous industries in the United States can’t find the workers they need right now, even in a bad economy, to fill their orders and expand their production as the market demands,” said George Magnus, Senior Economic Adviser for UBS and author of the international bestseller ‘The Age of Ageing’, “boosting legal migration and legalizing existing workers could add $1.5 trillion to the US economy over the next 10 years”.
A recent study commissioned by UBS found that harsher regulations on US immigration in many states adversely affected production, increased financial burdens on business and even negatively impacted already struggling real estate markets. “Relaxed immigration rules could encourage entrepreneurship, increase demand for housing, raise tax revenues and help reduce the budget deficit,” George continued. “Immigration would need to double to keep the working-age population stable at its current 67% of total population. A change of that magnitude may prove politically sensitive, but the focus should be on attracting highly skilled and entrepreneurial immigrants. Canada and Australia do so by operating a points system for immigrants rather than focusing on family connections, and this is something the US needs to emulate.”
Prolific economist and brilliant speaker George Magnus sees clouds on the (not very distant) horizon for China. In an FT op-ed today, he argues that manufacturing trends are moving in the US’s favour. China’s traditional strengths, such as low labour costs, efficient assembly lines, supply chains and economies of scale are fading in the face of rising wages, weak rule of law, poorly enforced intellectual property rights, skills shortages and the stifling of enterprise by large state-led corporations.
By contrast, the US remains the world leader in technology and innovation. Moreover, with the rise of additive (or ‘3D’) manufacturing, the advantages of proximity to target markets and centres of technological excellence will outweigh those of outsourcing to foreign countries.
How China’s new leadership will deal with this shift is one of the big questions facing the global economy in the foreseeable future.
Check out George’s acclaimed book, Uprising, here.
On Monday night we co-hosted another thought-provoking discussion at Asia House, focusing on the two big economic beasts of the region, China and India. There was a great turn-out for the discussion between Alan Rosling, former executive director of Tata Sons Ltd and George Magnus, senior economics advisor to UBS, moderated by the Sunday Times’ David Smith.
China is often seen as the ‘one to watch’ to become the major super-power on the global stage but, as George Magnus pointed out, it is very difficult to predict what will happen in a country with such a dramatically ageing population. While it took the West 100 years to double its proportion of over-60s from 7% to 15%, China has reached that level in 20 years, and with a significantly lower average wage. This makes it difficult to draw parallels and anticipate what happens next.
This was only one of the topics raised in the fascinating discussion that covered everything from corruption to co-operation between the two states and the big question – which would be the more successful in the long term. On this, the mood in the room was that India would overtake China.
Another milestone in the rise of Asia: Mahindra & Mahindra, the Indian manufacturer claims to have overtaken John Deere as the world’s biggest manufacturer of tractors.
Here’s more, lifted from today’s Financial Times: “Anand Mahindra, the group’s managing director, said India’s buoyant rural economy and joint ventures in China had helped Mahindra Tractors to take the number one position in the number of tractors sold during the past two years. The growth of Mahindra Tractors reflects the emergence of Indian companies in taking dominant global market positions traditionally held by multinationals from the developed world. “The data is very clear on this,” said Harvard-educated Mr Mahindra. “The acquisition of Punjab Tractors, our Chinese [tractor] companies doing well and the substantial growth in the Indian market put us very clearly in front [of Deere] in being the world’s largest manufacturer of tractor by volume.”
Mahindra & Mahindra’s success in China is interesting. The relationship between India and China will be fundamental to all of our experience of the 21st century; if they can become deeply integrated trading partners (rather than Pacific rivals) both stand to benefit enormously, and Asia is likely to be a fundamentally stable region. The Sino-Indian relationship is something we will be exploring at Asia House next week (Monday 16th January), when we have the economists David Smith (Sunday Times) and George Magnus (UBS), and former Tata Executive Director Alan Rosling discussing how this relationship might develop. If you’d like to come along please email Ed Shawcross on email@example.com.