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I have been exchanging emails with Bill Hopen, a sculptor who frequently travels to China, often for months at a time. Bill writes ....
I've been to China a lot Mish, spent many months at a time there for the last eight years. China is already in a massive overcapacity real estate bubble. They are building three apartments for everyone that is lived in. Most apartments are empty and those that are rented do not come close to paying the interest on the loan.I asked Bill to fill in some more details about the cities he visits. Bill writes ...
There are huge department stores with products loaded on the shelves and staff everywhere and no one is shopping! Staff outnumbers customers five to one. It's surreal. They are ready, waiting for a great wave of shopping to come, but no wave is coming.
Eventually this "borrow and build" economy will be a pop heard round the world. China runs on construction, build build build, but there is no reason for that many places and spaces and big mall businesses with no consumers.
The Shanghai/Pudong/Hongchow area,(30 million population) is mostly where I go, work, live for months at a time. I correspond with my expat friends who live there even when I'm back stateside.I asked Bill how he met his wife, Ai Qiu. Bill writes ...
I also have first hand knowledge about Lon Gong, in the Wenzho area (China coast across from northern Taiwan). It is one of those miracle cities that went from a near zero population fishing village to 300,000 in a few years, all fueled by farmers who made and or bought looms and created a textile center weaving blankets for world export.
My comments were about apartments in Shanghai. Middle class folks (e.g. a doctor makes about $20,000 a year) will often buy one apartment one to live in and one as "investment". Sound familiar? The extras are mostly empty, or renting for much less than 6% interest on the money to buy the unit.
We rented a luxury two floor roof top terrace apartment (20th floor) in a gated compound with gardens, sculpture, playgrounds, walkways, waterfalls, bamboo fish ponds, fountains, and underground parking for $800 a month! The apartment is fully and nicely furnished with beds HDTV, kitchen dishes...everything.
The guy we rented from said he would sell it for $650,000. This was a normal price judging from many "bargain" offers in the windows of many area Realtors.
The typical real estate secured interest rate was 6 to 6 1/2%, so that's at least $36,000 interest per year, yet we were able to negotiate a rent of $800! And there were lots of apartments available. People would approach us with incredible deals. You could tell they were hurting, had bought extra apartments and were struggling with paying the mortgages, and were desperate for any help from any rent they could get.
There simply were not enough foreign renters with US corporate salaries as they assumed there would be. I'm a hippie artist type, not a corporate executive. And how much rent can you get from a Chinese doctor who earns maybe $20,000 a year?
We would go shopping in these giant shopping center places, full of stuff, wow! Goods had very high prices, but no one buying; there were no bags in "shoppers" hands, and no one was checking out. Store staff standing around outnumbered shoppers.
Ai Qiu (my wife) and I went to store after store like this and had this eerie feeling like it was a stage set as opposed to a real money making business venture.
Year after year there are more places that go down and a new one sprouts up. However, it's all the same. There are no shoppers so there is no way is this a business making money. It reminds me of the "Field of Dreams" concept. "if you build it they will come", except the mythical rich consuming Chinese or foreign shoppers haven't shown up yet, nor do I don't think they'll ever show up.
The Shanghai skyline is like that too. Look at the highrises! There are more square feet of commercial office spaces being built in Shanghai every year than exist in all of the island of Manhattan! A brand new Manhattan sized city business district added to this city each and every year on top of the existing hi-vacant buildings.
I have no contacts in banking or real estate but I can imagine the implosion/bankruptcies are beginning to occur. China's a year or so behind the Miami condo market.
I met Ai Qiu in 2000/2001, she was a sculptor working in Shanghai China, I was a sculptor from USA. We now sculpt together in both countries. We sell works in China that we have sculpted and cast in the USA, and we work on sculpture for USA that we sculpt and cast in our studio in China. Most of our work that is produced for USA and European collectors are cast here in West Virginia, a small third world country nestled within the eastern mountains of the USA. As far as I can tell, West Virginia is completely unaffected by the world's current economic woes except that Chevy pickup trucks are cheaper and you can't ever retire.Bill Hopen The Sculptor
Ai Qiu has 4 younger sisters and her parents living in China. We have three children, so there is a lot of family visiting. Our kids have time with their grandparents and aunts. The extended family model in China is wonderful. Working and living in China is a great experience for us all, professionally and familialy.
Inquiring minds are exploring the Bill Hopen Gallery.
Here are a couple of my favorites.
Bill Hopen at work.
I asked Bill for some final thoughts. Bill Writes...
I love China, I have met the most earnest good and hardworking people there. They are so optimistic with the growth of their new economy. Within living memory of 50-60 year old Chinese like Ai Qiu's father is the hard times of the 1960's when 20-25 million people starved to death. I've heard the stories. Things were much worse than our 1930's depression stories that my parents told me. There's big difference between going to bed hungry and starving unto death.Thanks Bill. Wishing you Ai Qiu and your family the best.
I think if poor times were to come, the resourceful, tough, patient, communal, hard working Chinese lower classes would do just fine compared with urban Americans. China is not a socialist country like USA. If you get sick and need oxygen in the hospital and you cannot pay for it, with cash, you may die. It's the same with food and hunger. In America we have one poor indigent person for every nine working and making it. In China its flipped. You have nine poor people working for $5 a day, maybe even $2 a day, for every well-to-do middle class $20K per-year person. It's a very Darwinian, Dickens-like capitalist world, perhaps like US in 1880.
I think the Chinese believe the growth will go on forever and everything will be great. They are hard working, frugal, productive, they save and reinvest. I wish them the best but I fear the worst coming to their newly built shining cities.
Mike "Mish" Shedlock
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