It has been a busy month in Beijing. Last week a large number of centrepiece proposals were put out by various ministers, as the de-facto cabinet, the State Council, went on a policy making spree. Not that anyone would know too much about it.
While writing this article I attempted to gauge the mood amongst my friends and neighbours. While a few had heard about new regulations on the housing market (more on that later), all the fuss had seemed to pass by unnoticed by the vast majority of the Chinese public.
All eyes, it would seem, are on Korea.
The impeachment of the now former South Korean President Park Geun-Hye and her recent arrest are all the talk of the urban middle classes. Spurred on by the righteous fury of senior officials in Beijing, the public has taken to the streets and more importantly to social media to denounce the deployment of the US THAAD anti-missile system on the peninsula. Direct flights from the Chinese mainland to South Korea have been cancelled, while Lotte, a major South Korean food and retail conglomerate, saw their profits collapse as their Chinese operations have been arbitrarily closed. Like for most South Korean companies, China is their largest market.
News in China is brief and to the point. Many of the articles about the announcements by ministers barely reached two hundred characters, outlining the vision and purpose of agreements reached by the State Council, but light on concrete measures to achieve said goals. Diatribes about Korea, on the other hand, form lengthy opinion columns, and shape public view on foreign affairs.
This is the market as an agent of Chinese diplomacy.
Not too many years ago the main tactic would have been to threaten deployment of China’s considerable military might to resolve the situation. Such overt methods are very out of vogue with the government of today. Wielding the economic might of Chinese consumers serves their interests much better; the threat of a public boycott and the constriction of trade between China and Korea has caused much consternation in Seoul, while Beijing can play the role of a measured peacemaker, as was displayed with great flourish during the recent visit of the US Secretary of State Rex Tillerson.
There is one other news item which is as omnipresent in the Chinese press as it is in the psyche of the public here at the moment.
Last week President Trump hosted President Xi Jinping at the now infamous Mar-a-Lago golf resort in Florida. Make no mistake, this event was choreographed to perfection; Beijing did not allow the visit to be anything other than the perfect PR stunt. While issues such as the Korean missile crisis and the Syrian War were on the table for behind the scenes discussions, the main purpose of this visit was to show to the world, but more importantly to the Chinese public, that President Jinping commands the respect of the West, and that China is just as big a player in great power politics as any other nation.
So what does the housing market have to do with all of this?
The cost of living is spiralling out of control in China’s East coast megacities. Much of the real estate in these cities, which continue to expand at incredible rates, are owned by investors. With capital almost impossible to move overseas, and domestic investment seen as being highly risky in light of the sudden contractions of Chinese stock markets last year, those with wealth are pushing it into property. Many of these properties lie empty as their value appreciates, forcing up rents and locking an aspirational younger generation out of the market.
Wages are also not growing in line with cost of living. In many cities, but especially in Beijing and Shanghai, a young professional either has to live in barracks-style communal conditions in order to make his pay cheque last the month, or face the prospect of moving home where opportunities are thin on the ground and the crushing burden of parental expectation curtails the cosmopolitan life that they have been taught to aspire to.
The latest regulations are supposed to curtail the purchase of second properties. In order to get a mortgage on a second property, you have to be resident in the city and put up at least 60% of the cost. While noble, this is ironically too little too late. Many investors already have the money to buy new builds outright and sell them on later for a profit, and the regulations only apply to Beijing and a few other major cities, while the problem is spreading like a contagion across almost every city in the Eastern provinces. They will do little to actually help young people afford to live comfortably, let alone begin to think about purchasing property.
As I look across my apartment complex, two years after construction finished it is plain to see that it is less than half occupied, and yet every unit has been sold. This is the reality of China that Beijing would rather its public not focus on. Instead, the ‘important’ story which Chinese media is telling is that of the inexorable rise of China the superpower and the descent into political turmoil of her neighbours.