Having just returned from my first visit to China, everything in Ireland seems much smaller. With a total population around 32 million, Shanghai certainly makes Galway appear like a tiny village. The traffic jams in Beijing are deservedly notorious. The food, however, makes any visit worthwhile.
The extraordinary economic progress made by China in recent decades is unprecedented. Hundreds of millions of people now qualify as middle class, while hundreds of millions more are no longer poor. For hundreds of years, up to recent centuries, China was the world’s biggest economy. That mantle is likely to pass back from the United States to China by 2025. Maoist economic ideology is well and truly dead. Everybody from the local trader to giant Chinese multinationals have embraced their own form of capitalism.
Political changes are also afoot. The new leader, Xi Jinping, has adopted a new slogan known as the ‘Chinese dream’. In a recent speech, this ‘dream’ was translated as the “great revival of the Chinese nation”. Apart from indicating that China is ready to embrace its superpower status, quite what else this means is open to interpretation. It is certainly more than the equivalent ‘American dream’ of a better house and other material possessions. Interestingly, one aspect of President Xi’s new regime is being seen to be tough on corruption and cutting down on government extravagance. At government functions only “four dishes and a soup” should be served. One immediate consequence has been sharp falls in the growth of luxury goods products traditionally given as “gifts” in state contracts, such as Swiss watches.
However, from an Irish perspective, possibly the most intriguing aspect was going back in time to see a fully-fledged property boom in motion. Some of the dinner conversations with Chinese academics revolved around how much their houses had increased in value – as a rough estimate, prices in central Beijing and Shanghai have increased five-fold in the past decade! A few local finance professors did mention the ‘bubble’ word, but others were more optimistic. The Chinese urban population is forecast to rise from 200 million in 1980 to one billion by 2030 (it is currently around 700 million). This is the largest wave of urbanisation in human history, so lots and lots of new homes are needed. Capital Economics has estimated that investment in residential property accounted for nine per cent of China’s GDP in 2012 (this compares to 13% of Irish GDP at the peak of our property boom).
Indeed, the head of Vanke, China’s biggest property developer, recently warned on American television that a slowdown in property prices could be hugely damaging both for economic growth and also could lead to widespread social unrest. Although the authorities have taken steps (e.g. larger deposits) in recent months to take the heat out of the property market, the enforcement of these regulations by local governments is lax. One key reason apparently is that local property booms flatter local government economic data and give the bureaucrats a better chance of getting promoted through the party ranks. So, perhaps China and Ireland are not so different after all!
