China's Coming

Its official: the Chinese Government is starting to worry about the economy overheating and is going through the process of discouraging lending.

In truth the Government has already started doing this through soft measures – taking the pressure out of the property market by insisting, in some provinces, that loans on investment properties cannot exceed 50% of the value of the asset being purchased . But it hasn’t changed much – in January alone this year the Chinese Government reported $760 billion in new property loans.

While most of Australia was on the beach in January recharging the batteries after a challenging year,  your burningpants correspondent was on a study tour of China taking the temperature of what the rich and mass affluent think about the state of the world, investing in general, investing in Australia, financial planning and financial services.

Let me be clear – this isn’t our first Rodeo – we have be compiling data on China and conducting research there for groups as diverse as Citi, The Singaporean Government and oddly enough the Chinese Government since 2004 and have had a Wholly Owned Foreign Enterprise (WOFE) since 2006.

This tour took in Shanghai and Beijing, which are the bits of China that everyone thinks about, but we pushed further afield this time, chasing the money of the newly rich in Xi’an and Harbin in the frozen north where the temperature was minus 31 degrees by day.

The truth is that China is growing and changing faster than we think, and possibly faster than the Chinese Government is willing to admit and what that means to us is slightly uncertain, because it is easy to see that the capital growth in China, if unconstrained, will burst the banks of the country like a Queensland flood.

The first signs are simple to see. Gone are the bicycles; in the year 2000 when we first started visiting China, whenever you stopped at a traffic light you would be swamped by bicycles – literally hundreds of them. Now they are gone – replaced by cars and the silent and attractive electric bikes that the Chinese favour.

In fact the traffic is so bad that the governments of Beijing and Shanghai have already implemented an odd-even system for cars, where cars can only be driven on specific days – depending on the last digit of their number plate.

But what is really worth exploring here are the Chinese rich. The Chinese have only really been able to grow rich in the way that we understand it since the early 1980s – and grow rich they have. There are now almost 25 million $US millionaires in China and most of them grew up poor.

These are the people that we spoke to on the latest trip there in face to face meetings, in focus groups, in hosted lunches and in the not-too-distant-future by survey.

Here are some of the critical insights:

1. Their bias towards getting and making money is like nothing you have ever seen before. For a lot of these people the making of and getting of money consumes their every waking moment.
2. Their capacity for risk is extraordinary – seriously mind altering. They want to invest and effectively punt on businesses much more than most Australian investors and they are not afraid of making a loss.
3. They will invest in anything, from steak houses to silicon chip manufacturers, but they want to be in business.
4. Australia is the third most popular destination for their money behind America (which they are convinced will recover, by the way) and Canada.
5. They think Europe may never recover; they understand Germany and the emerging Baltic states and to a certain extent Russia but think London is a lost cause. To quote one Chinese focus group participant “they allowed themselves to be deluded by the idea that they are somehow superior and forgot that they actually had to work for a living.”
6. They have no concept of any Australian bank. They could describe the strengths of and the purpose of a number of American, European (the Dutch were curiously strong here), Japanese and Russian businesses but no Australian ones. When prompted, the people in Shanghai knew of ANZ – but did not think it was relevant to them.
7. They don’t trust the future directions of the Chinese Government and I quote: “The Chinese Government is in the 10th year of a 25 year experiment with capitalism. This may all end in 2026, when I will be 63, by that time I need the bulk of my assets housed overseas – the question is how? And with who. The answer used to be America but it’s not anymore.”