Touring China’s Candy Shop

By Katie Kieffer

Cotton candy in Lanzhou, Gansu province, China. Image credit: Jimi Zhang(洁米)/慕容左.

Cotton candy in Lanzhou, Gansu province, China. Image credit: Jimi Zhang(洁米)/慕容左.

Let me take you on a tour of the candy shop called “China.”

Disclaimer: This tour is about getting your hopes up for a grand and substantial treat – like a baseball stadium full of bubble gum, a life-size model of The Great Sphinx of Giza made out of chocolate chip cookie dough, or a mile-high ice cream cake skyscraper – and instead receiving a candy cloud that instantly dissipates on your tongue.

Chinese young professionals and students walk through this “candy shop” on a daily basis. Here’s what they see:

Cotton Candy Chinese Dream

One million – mostly college educated – young professionals – who are deemed “overqualified” to work in their small hometowns are flocking to China’s metropolises, particularly Beijing, and the wealthiest provincial municipality in China, Shanghai.

China’s government promises “social security” – but only if you work in your hometown. So, young, educated and overqualified, they leave the the comfort of their families for an “Ant Colony” skirting a metropolis. Some so-called “ants” live with 5 to 7 other people in a single room. They find temporary work in the city and log long hours in hope of eventually finding a job in their career path.

While most Chinese young professionals would love to be homeowners, the lack of jobs and the high cost of living within a big city like Beijing force them to live like ants – piled on top of each other in one-window rooms without air conditioning or running water.

Cotton Candy Real Estate Market

American hedge fund manager James Chanos predicts China’s real estate market to be “…a world-class – if not the world-class – property bubble.Zhang Xin, billionaire co-president of the largest real estate development firm in Beijing, SOHO China, told China International Business magazine that, “We do have a view that this is a bubble. Real estate is very much driven by government policy …”

Zhang Xin. Image credit: © Imaginechina via AP Images.

Zhang Xin. Image credit: © Imaginechina via AP Images.

What kind of government policies?

On the residential side, consider China Youth Daily‘s report that, while the government ordered an end to subsidized housing, it continues to underwrite a substantial portion of housing expenses for government workers.

According to China Youth Daily, “If the law has banned it [welfare housing], but civic organs are doing it openly, then that is public corruption! This kind of corruption not only destroys the government’s incentive to regulate the housing market, it gives government employees a vested interest in the continued rising of housing prices. Because government employees can get houses easily, the value and profit potential of their property increases as the amount of property they have goes up.”

As Forbes‘ Gady Epstein put it, “This is the Chinese economy in a nutshell–sellers selling a product for which there’s no natural demand, buyers buying whether they need it or not. In a market boosted by government-directed lending, both sellers and buyers have been getting only more ambitious and frenzied.”

Wealthy investors are disgruntled because they have very few places other than real estate to put their money. China bans its citizens from nearly all foreign investments, its stock market is weak and there are few tax incentives for charitable investments. One Beijiing tax analyst told Foreign Policy, “The government is so blame.”

Another reason the “ants” can’t find housing in Beijing is because the government – not a free market system – controls the economy. Hence, government policy induces investors to make seemingly market-backwards moves, like hold prime property without renting it out.

Xin further stated, “These [apartment] buildings are not fully occupied and people should be worried about it … Because of where China is with asset bubbles, people want to buy the assets regardless of whether they can be leased out or not. People just want to hold [property], even if it is empty.”

Cotton Candy TV

China’s government is so afraid that young people might get frustrated with their horrid living conditions and clamor for a better system that it banned the popular TV show Wo Ju (Narrow Dwelling) that chronicled the journey of a young, ambitious, and educated couple in a quest for home ownership.

Wo Ju

Wo Ju

The couple eventually is able to “afford” a home – but only after the young wife has an affair with a corrupt government official. In other words, the movie portrayed young people as aspiring toward home ownership and the government as the corrupt barrier.

China’s fear of young adults aspiring for what its over-regulated economy can’t offer is reminiscent of our own Federal Reserve Chairman’s speech to graduating college students implying that they should avoid aspiring toward high salaries.

When the government tries to control the market, it typically falls flat on its face. China is real-time proof of what happens when the government tries to “solve” and “control” all economic issues: Corruption rules while logic and realism fall to the wayside.

I’ll take a free market system and Constitutional freedoms over China’s corrupt and inefficient system any day. I would prefer not to live in an ant hole with cotton candy dreams.

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