WARNING!!! CHICAP HATERS MUST NOT READ FURTHER
This story appears in the September 7, 2015 issue of Forbes.
ZILLOW.COM SAYS my house in Silicon Valley–which, as the drone flies, is equidistant from Stanford, Apple AAPL +0.88% and Google GOOGL -1.37%–has doubled in value since March 2009. The recent surge is partly driven by buyers from China. I’ll share an anecdote that everyone in the Valley has seen or heard. A house goes on the market for $3 million (the typical price for a 2,500-square-foot home on one-quarter acre). Within two weeks the house has sold. Later you learn that it went for 20% over the list price and that the buyer made an all-cash offer. The buyer was from China.
The market speaks. But what is it saying? I was in Singapore and Taiwan last month and discussed the fact that Chinese buyers are bidding up Silicon Valley prices. Singapore and Taiwan are also seeing this, as are Sydney, San Francisco, Seattle and Vancouver. The question is: Are rich Chinese house buyers diversifying, or are they planning an escape for themselves and their children? Is it Plan A or Plan B?
If you knew the answer, you could make a lot of money. China watchers around the world are trying to guess whether China’s stock meltdown and yuan devaluation are a correction or an earthquake. If smart Chinese have taken some stock market profits and reinvested them in American and Australian coastal real estate, then China’s 37-year growth story is poised to continue. On the other hand, if smart Chinese are planning their exits, China might be in bigger trouble than most know.
Yuan banknotes and US dollars are seen on a table in Yichang, central China’s Hubei province on August 14, 2015. (STR/AFP/Getty Images)
China’s critics appeared to be vindicated during this summer’s troubles. But beware: Many China bashers have predicted China’s demise for a long time. James Chanos, the Wall Street billionaire, has steered investors away from China for years. American journalist Gordon Chang wrote a book predicting China’s collapse, The Coming Collapse of China (Random House), which came outin 2001. Chang is right about one thing. China’s central government, at the pleading of debt-bloated state-owned banks, wants to slap China’s thriving online banks, such as Alibaba Alipay, with credit limits of 5,000 yuan. Hardly enough to buy one iPhone. This high-handed move would cripple Alibaba, Tencent and other Chinese online stars.
CHINA’S DEATH IS EXAGGERATED
To get it wrong regarding China, as a businessperson, investor, politician or military strategist, is a goof that has consequences. The best place from which to gain an understanding of China, I would argue, is not Europe or the U.S. (including Silicon Valley, which has the best American seat from which to view China). It’s also not from China, where information is hard to come by, the contents of your laptop’s hard drive are considered free for the taking and Google’s Gmail mysteriously stops working. The best places are from the smaller countries in China’s neighborhood where free speech and association are allowed. Singapore and Taiwan are two such places. These countries are allies of the U.S. but can’t afford to make major investment or political errors regarding China.
The opinion on China from Singapore and Taiwan falls closer to Plan A than Plan B, as described earlier. I was invited to speak at a quarterly board meeting of Temasek, Singapore’s $200 billion sovereign wealth fund. For the fiscal year Temasek’s fund–diversified in stocks, real estate and commodities–was up 19%. Smart folks. Several Temasek board members said they thought China’s summer stock swoon was a correction. The drop mirrors an earlier correction in Hong Kong stocks. China’s projected GDP growth of 7% isn’t a mirage, as Jim Chanos and other Western pundits have asserted. China’s growth is real and, if anything, is probably understated.
This story appears in the September 7, 2015 issue of Forbes.
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The key error many Americans make regarding China’s economy is in underestimating the strength of the country’s private and entrepreneurial sectors. They make up 70% of the country’s GDP–most of which is vibrant. Any weakness is in hoary old SOEs (state-owned enterprises), which include old-line banks with credit bubbles. Missed are the impact of such entrepreneurs as Xiaomi’s Lei Jun, dubbed the Steve Jobs of China, and the enduring strength of tech giants Lenovo and Huawei. Also missed is the role played by the millions of businesses that employ 12 or fewer employees. The small fry are armed: They have smartphones, connections to global markets and (for now) online banking and credit.
For a clear look into what’s going on in China–good and bad–read FORBES ASIA. I also highly recommend a recent book, China’s Disruptors (Portfolio), by Edward Tse, a management consultant who has spent the last 20 years getting to know the country’s best entrepreneurs
Wasn’t Forbes just bought by Chinese?
Chinese women are also producing anchor babies here in the US. Seems like a good strategy for if China experiences “unrest”.
Old Friend, you use the word hate sometimes like the race card baiters.
I don’t hate the ChiComCaps for buying property in our area.
The value of our home goes up when they buy a home. They take excellent care of their property. There is no devaluation of our neighborhood nor are we in any danger from our new neighbors. So our area unlike Detroit/Baltimore/? has increasing property value
Most have no children in school or college, yet they pay the new high assessment of property taxes on their homes to pay for our expensive and often non productive schools.
No drive by shootings or drug battles are caused by these new neighbors.
Our police are not called out at night to breakup serious and dangerous family battles.
So we benefit, when our new ChiComCap neighbors buy a house and move in.