Tom Christensen: Providing China news and notes since July 2009

It’s a fact that China, even in the heart of it’s huge megalopolian (sic) capital, has a connection to nature that surprises. There is a wild ferret-like animal which lives in my complex, a lanky type of creature which does not run like a cat but instead gallops, it’s long back arching with each stride. There are also bats by the hundreds in any part of the city, which I cannot recall seeing in New York, and the local canals erupt in the evenings with choruses of frogs. I seem to recall hearing somewhere that the presence of amphibians is one of the simpler signs of a healthy ecosystem, and while I cannot give any kind of word towards the long-term viability of these populations, their presence is a comfort.

I write this down as a record for the future, and also as a cheeky note regarding my personal predictions . I believe the two most significant forces in China right now are the accelerating negotiating power of the formerly underpaid worker and their subsequent rising wages, and the overheating real estate market. I have a friend, who I doubt is unique, who owns eight separate properties as an investment, fully furnished, without anyone living in them. If the rising wages of the working classes does not eventually turn into rent-paying tenants of this style of house, there is going to be a massive -pop- as this bubble bursts.

Sadly, even adding up the math of these apartments makes that seem unlikely. I’ve always understood that the rule of thumb for rent is that monthly rent=the value of the space paid over ten years, give or take. Current rental prices and prices per square meter would take eighty years or more to reconcile, according to rough math done while talking with friends. Such a gap needs to be fixed, but one method seems unlikely (rentx8) while the other seems disastrous (home prices dropping 7/8ths).

I hope I’m wrong. The Chinese certainly have more control over home prices than we do, which might prove the solution.

Besides currency evaluation, there is another issue constantly on people’s minds regarding China, which is its rapidly growing real estate prices, a phrase quick to bring a stomach twist to any American, like trying to eat hotpot again after your last outing leaving you incapacitated for two days.

There is a disturbing similarity to the current state of China’s real estate market and that of the USA five years ago. Two examples have clarified this for me. The first is the example of a Chinese friend who bought a home five years ago, for one million yuan, who now gets frequent calls from real estate agents offering 4-5 million. He refuses to sell, even with the opportunity of pocketing the difference as profit. The second is a particularly telling account: two western friends who live in a fairly high-end apartment, who pay approaching western prices in rent. Recently, without any warning, they were told to move, as “someone had bought the apartment.” This without any visits by the new owners, which is very unusual for a country in which one is loathe to buy even an extension cord without testing it first, with multiple devices.

This leads to two, equally disturbing possibilities: the first, that someone bought this apartment without looking at it, as a purely speculative decision. If lots of investors are being this willing to foolishly ‘buy high,’ once the market turns (and it will turn) they will all run screaming for the doors at once, leading to a crisis the government might not be able to stop. Despite all of its power, the central authorities could not force tens of thousands of people purchase homes at prices FAR over their market value, which would be necessary if the market experienced a decline like America’s.

The second disturbing possibility is that the owners of the building decided to kick my friends out of their apartment for the express goal of realizing appreciation gains due to the real estate bubble. When a country starts to decide that the value of something on the books is worth more than cash flow, it is setting itself up for a crash. It is similar to purchasers of AAA-rated bonds underpinned by subprime loans: the value of the bonds was something only on paper, without any actual cashflow to back it up. The people who made the initial sub-prime loans are just like the owners of this Chinese building: so eager to have something valuable in their balance sheets that they will ignore or even actually discard their sources of real revenue.

I’m starting to wonder if the Chinese might have a fundamentally different perspective on sustainability than the west. After all, the Chinese have been one continuous nation for 5000 years (or at least they are in their heads), and that whole time war, earthquake, and storm haven’t budged them. In the same time, in the west, empires rose and fell, cultures were exterminated, languages vanished, and cities were wiped out by volcano and flood. We are more connected to the idea of mass natural disaster, the environment and politcal climate creating massive changes, fundamental changes, where changes in china just changes the capital, the dynasty, and involves usually some massive turmoil, but after which things go back to normal. In modern times and in ancient, things go back to being Chinese, in the way the Chinese do things. Not so the west.

On the other hand, of course, the Chinese are skittish of large changes, due to the radical experiments of the last century. So, you have a monolithic nation, afraid of change but on the other hand extremely used to it. An interesting dialectic.

I expect the fireworks industry in China must claim many lives. A friend got hit in the face, and I saw at least one person fall into a frozen lake. But make no mistake: the 4th of July is a sucker’s game. New years in China is a true event, fire, smoke, and light everywhere. Like standing in a field of flowers, all made of light, which grow, bloom, and die, in half a second.

When I graduated, I was lucky enough to have the opportunity to be involved in the production of the Berkshire Encyclopedia of China, a wonderful project in which I was able to work with a team of incredibly skilled and generous people. I put a good deal of myself into the project, involved as I was with choosing the subjects to include, working with the authors on what to include in the articles, helping design and compile the images, and keeping the systems running which provided the heart of the project.

I’ve also, as I’ve grown up, been immeasurably unimpressed with large corporate copyright holders, especially in the music and entertainment industry. I am one of the kids who has grown up with music being something that can exist anywhere, and is not a ‘thing,’ but instead more of creature… something that, once turned loose, grows, develops, and multiplies. It is not a disk, or a cassette, or a performance, it is a file. And, as I see people of my generation, who did something every other person between the ages of 10 and 30 in the USA has done, prosecuted for millions, I lose all sympathy with the rights holders. Only half of the previous demo will admit to file sharing, but that’s because the other 50% doesn’t realize that the RIAA would sue them for half a million dollars for the time they sent that song to their friend in middle school.

I now have reason to moderate my opinion in that respect. The encyclopedia I spent a year and a half on was offered for free, electronically, online. This pisses me off. It’s not their work, they don’t have the right to do what they do. It makes me almost quake in anger, but I’m sure from their standpoint, they are doing the same thing I did when I (hypothetically, don’t sue me RIAA) took an album from a friend’s shared iTunes (also hypothetically, after listening to the hypothetical album, I bought the hypothetical new album on iTunes).

So, today, I find myself torn. I still don’t feel sad for the huge music industry figures, but, honestly, if I didn’t know Berkshire was just a small office in the Berkshire hills, I might have been willing to pirate our encyclopedias just by looking at our perfectly modern and up-to-date website. The justification, internally, is simple. A low risk, high reward crime against people you neither know nor suspect you’d like. Perhaps its time for me to get to know some of the people who work in the music industry…

Buy books!

Last night, our power shut off, while I was in the middle of a Skype call and my roommate was cleaning up after his epic dinner party. It left the apartment immediately in utter darkness. If such an event happens in the States, it is usually the result of at least a few months worth of unpaid electricity bills. In our case, it was more innocent, as electricity here is bought the same way you buy your cell phone time. You walk over to the appropriate office, pay cash, and they recharge your account. After a night in a dead apartment (thank god Beijing heat isn’t electric) I simply strolled over, handed over the cash, and the nice young woman recharged our electricity card, which I then plugged into the electricity meter. Bam, power back on.

A cash economy is a mysterious thing, and I don’t know if there have been any direct studies to see how it effects resource usage. I have read that the single most effective method of encouraging efficient driving is to mount a meter on the dashboard constantly letting you know your MPG, and the Chinese system is certainly similar. I am certainly using less electricity today than I did yesterday, slightly more compulsively turning off lights, unplugging the DVD player, and waiting until things start getting real cold before turning on the electric heater.