China's real estate bubble

And what's worse, to build all these massive cities, they've had to tear down what was there before, clearing rice fields and displacing by some counts tens of millions of villagers. On the edge of Zhengzhou, Gillem and I came upon a strange sight.

Lesley Stahl: I'm just watching what they're doing, these-- do you have any idea?

Gillem Tulloch: I think they're trying to recycle the bricks.

These villagers were salvaging what's left of their homes, bulldozed to make room for more empty condos, already encroaching in the distance.

Lesley Stahl: There are all these empty apartments over here. Can they conceivably move into those up-scale places?

Gillem Tulloch: Most people in China live on about less than $2 a day. And these apartments probably cost upwards of $50,000 or $60,000 U.S. So it's very unlikely.

Lesley Stahl: What will happen to them, do you think?

Gillem Tulloch: I mean, they'll be forced to relocate somewhere. I have no idea where they'll go.

These are the immediate casualties of the building boom. And there's another problem: analysts warn that all this building has created a bubble that could burst.

Lesley Stahl: So if the bubble bursts, who's left holding the bag?

Gillem Tulloch: There are multiple classes of people that are going to get wiped out by this. People who have invested three generations worth of savings -- so grandparents, parents and children - into properties will see their savings evaporate. And then, of course, 50 million construction workers who are working on all these projects around China.

The prognosis of a bubble about to burst isn't only coming from financial gloom-and-doomers. We heard it from the most unlikely source.

Lesley Stahl: Are you the biggest home builder in the world?

Wang Shi: I think. Maybe.

Lesley Stahl: You may be?

Wang Shi: Yes. Only the quantity, not quality.

Wang Shi is modest, but his company, Vanke, is a $53 billion real estate empire, building more homes than anyone in China. He was born on the frontlines of communism, and joined the Red Army. But he secretly read forbidden books about capitalism, so that when China liberalized its economy, he rushed to the frontlines of the free market. Even he thinks today's situation is out of control.

Lesley Stahl: Are homes in China too expensive today?

Wang Shi: Yeah.

Lesley Stahl: Here's a number I saw. A typical apartment in Shanghai costs about 45 times the average resident's annual salary.

Wang Shi: Even higher, even higher.

Lesley Stahl: What does that mean for your economy if it's just too expensive for the vast majority of people to buy?

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[KostaCN]

All's well here in China, particularly the housing industry, prices rising but lending exposure low due to high deposit premium, (40-60%). Social support for home ownership is high due to one child families where newlyweds get funding from 2 family's parents plus grandparents.
Ethically and by law children accept, support and accommodate elders as a social responsibility.
Moreover the costs of ownership are low due to non-recurring property taxes, very low central heating costs (about $5/year/meter square), and very low condo fees (about $0.50/year/meter square).
As for China's funding of US debt, everyone knows USD is funny money but as long as cement, steel, copper and energy flows into China it's OK.
One important factor in this economy is that land is a renewable resource in that all properties (land) are prepaid leaseholds that revert to the state after an average of 50-70 years, so the concept of private property value should be depreciated over this term.
I think there is an equilibrium of cost-of-ownership between the western world and its property taxing compared to the depreciated time-value of Chinese housing, however, there is talk of instituting a 20% capital gains tax in China for ownerships beyond the primary residence so as to deflate housing speculation.
Regarding general economics in China, the advent of 15-25% annual monetary inflation in the western world obviously exports monetary inflation on China as it has to maintain cost parity and indeed construction labor rates have gone from about $15/hr to $60/hr in the last 2 years, food prices have doubled. Nonetheless almost every family has at least one quality car.
Massive construction projects are beyond imagination to the western world, from rail systems, roads, bridges, ports, apartment towers - the country is developing at an incredible rate with remarkable skills and practical quality.
The Chinese are exceptionally wealthy but astute investors, the blogosphere indicates that 90% of investors in the stock markets have lost substantial sums and although banks pay 4-6% on term deposits the best returns have been housing speculation, and for those who have excesses pure gold bars are sold at all department stores and shopping plazas.
Having lived in China the last 3 years originally from Canada, I would say the quality of life is similar and less expensive particularly if you choose a rural environment by the coast where there is fresh air and quality produce.

[PATlui888]

Why don't 60 minutes do another follow story on the CHinese Bubble for HK?? They will find that as facinating, I bet!!!

[Turnleft1]

Come on bubble birst! - Take your greed with it. The Chinese are already buying up houses in the US and doing the same thing, leaving them vacant. It's turning our communities into US ghost towns - Look around you fools.

[smarchcomments]

and all the while, the smart people solution here is to pump our bubble right back up. Good thinking, Fed.

[Julie_Julie_Peking]

I am a Chinese and living a China. I feel very shocked and upset after watchching this video. The report is definitely biased... And Wang Shi told the big big lie. Wang Shi, as a major developer, he's claimed in major Chinese Media that housing pricing would keep rising. Most Chinese people believe his comments and rush to buy the apartment. But, let's be honest, who is the biggest winner. It is always the developer. I really think that Mr. Wang Shi should be honest both in front of the Chinese media, and in front of foreign media.

[smarchcomments]

It's a terrible situation you are stuck with over there. Here too, though. Nobody with power is ever honest. Keep dreaming.

The only solution is to stop handing over and concentrating power into the hands of the few.

[PATlui888]

Wow, this confirm my view how naive people (whether Chinese, US or European)when it comes to investment (real estate or equity)!!!
Know Julie knowing what U kmow, what are U gonna do about it?
Don't blame it on someone else, whether the real salesman, the real estate CEO or the Gov't! U must decide & take resposoblity yrself!!

[julianpenrod]

China is the second largest economy with a mercantile system apparently only slightly off from the Communist model they were using for years. It was a mainstay of anti-union, greed riddled Capitalists that "Communist or Socialist related economies cannot ever be anything better than gutter level failures". And it was backed up by the craven insistence of the "news" media never to show that China, Russia, Cuba actually had happy populations, because cultural immersion is more im[portant for many, if they at leat have a subsistence level income, which all those countries did have. Maybe many didn't have color TV's, but they were happy because their culture provided them enough that they didn't need color transmissions to be happy, unlike many Americans apparently!
And it has to be repeated that the real estate bubble burst in the U.S. was from much the same as the "news" is claiming is happening in China. Namely, overproduction. Many may have forgotten, because it was, after all, almost five years ago, that, at one time, overdevelopment was murderously rampant in the U.S., Natural forests and grasslands were rapaciously concreted over to make townhouse community after townhouse community. They were even starting to take over swamps and steep hillsides, because so much other land was taken! And condemnations were at best mocked, at worst attacked. The fact is, they overproduced. They have more product than they have people interested in buying it! They try to pin everything on the "sub prime loan" debacle. In fact, that entire thing may be a lie, but, consider, even if true, people defaulting on loans is not a problem, if there is someone else willing to take over the loan! But there was no one interested in buying the overdevelopment housing, because there were more houses than there were people in the U.S. who might want to buy them! And it's unlikely many overseas will want to buy houses in the U.S. for speculation, if there aren't any here who will buy them!

[smarchcomments]

There will be plenty of speculation as long as we keep buying the line from our politicians and Federal Reserve that the best course of action is to pump the bubble right back up. QE infinity has been pumping hard. And when they talk about it, or when it's reported on, all we hear about is how they are doing this to improve the "health" of the housing market. What a load of crap.

[gbreadmann]

Don't worry, if it crashes they'll just sell off all their US treasury bonds, get some quick cash, destroy the global treasuries market and leave debt-ridden America with hyperinflation and sky-high interest rates.

[Mencken]

The claim is that China's economy will collapse if the real estate bubble bursts. Here's what they did not report. China provides much of what the US government spends each day. Up to forty percent of each dollar the US government spends is borrowed money. Most, not all, is from China. If the Chinese real estate bubble bursts, their economy will collapse. China will not be able to lend any more money even if they willingly do so now.

Is the great White House leader, the Senate majority leader, and the house Minority Leader aware of this situation? And if they are aware of it, do they have any clue what to do? All they keep doing is spending other people's money. When someone wants to reduce spending they are demonized and vilified. Why was that part of the report omitted? Is China a separate entity from the US in this global economy? Ahem!

[smarchcomments]

It's worse than that. China has already stopped lending. We're just borrowing from ourselves now. Which is nonsense. China should be furious that we are printing away what we owe them, but the whole shebang sticks together because the power and lives of all the leaders of all the countries are all wrapped up in the house of cards that is the "dollar"

[counters-trike]

Sheesh! Look at the bright side: Pollution is WAY way down in ghost cities!!

[aintfakin]

wow
When the republicans took the jobs over there they learned more than just how to make walmart crappola. They learned everything about the republicans including their penchant for greed bubbles

[Orion-__]

Thank You for building the 'empty empire' and thank you for shopping WalMart, financing Chinese ghost cities with cheap Chinese 'krapola'.