On The Ground In China
By Maria Bartiromo
Zhang Xin is emblematic of the New China. She pulled herself up from a life of poverty in Hong Kong, studied economics at Cambridge University, and worked in New York as an analyst for ING Barings and Goldman Sachs (GS ). Now, Zhang, 41, and her husband, Pan Shiyi, run Beijing-based SOHO China, a commercial and residential real estate company that builds offices, malls, and hotels as well as housing. Recently, I talked with Zhang, whom I spent time with last winter at Davos, about the feverish growth in China.
How would you characterize the environment for business?
This year the economy is growing so steadily and strongly, it looks like 10% GDP. Growth in general is tremendous despite people saying it will slow down. If you go around China, you will be amazed...there is a real estate boom everywhere. The minute you step out of the airport, you see billboards everywhere talking about real estate. That has the government worried about bubbles and people's ability to buy homes and whether that will affect social stability. That is why the government is trying to control the prices of houses.
What exactly has the government done?
First, it raised the mortgage down payment. Before, the down payment would be 20%, and you would borrow 80% from the banks. Now the threshold has been raised from 20% to 30%, so the cost for individuals to buy a home is higher, and there also has been a slight adjustment upward in interest rates. But the [government] didn't think that was enough, so it came up with the idea that if a developer builds 100 apartments, only 20% can be more than 90 square meters, which is considered high-end. You hear about interest rate rises or about raising the down payment, but you won't hear the stories of the 90 square meters.
Do you think this scares business away -- that you never know what the government will do next?
I think any policy has the ability to scare foreigners. That is why the funds have been very cautious coming to China. At the moment, though, [caution] is probably not a bad idea from a market perspective. Memories are still fresh from 1997, when the Asian financial crisis started after the real estate meltdown. A lot of money had come in from capital markets, and there were tons of empty buildings. The way China is growing now, everything needs to be presold in order to be built.
I am hearing that more and more Wall Street money is planning to come into China real estate. But so far it's more talk than action.
I believe the market has only one way to go, and that is to be more integrated and open. So it's only a matter of time before Wall Street money comes in. But the later the better for China, because the money coming in can be very irrational. What China is doing today is preventing a huge misjudgment of the market.
Are consumers spending a lot of money? Do people have money to buy?
Sure. If you have a factory in coastal China producing, say, shoes for Nike (NKE ) or shirts for Ralph Lauren (RL ), these are the people buying homes. Of course, there are people at all different levels of management at those factories who can afford to buy homes as well. In Beijing, 70% of the homes are privately owned already. So while it's true that if you look at the factory workers, they may not have enough means to buy a home, but go slightly higher on the income level, and they will. In our company in Beijing, we have 600 people, and I think more than half of them bought homes. They are ordinary office workers.
How has life in China changed?
When I grew up, we had nothing. Everyone used to make their own furniture. You would make your own chairs, table. Going from that to now shopping at IKEA...it's amazing what has happened in the past 25 years. We used to buy so many things for buildings that were imported...windows, toilets, air conditioners, flooring. Today less than 5% of our materials are imported. All of these factories that used to be in Germany and in America are today in China. China is the factory of the world.
Maria Bartiromo is the host of CNBC's Closing Bell