Talking to someone the other day about the Chinese sharemarket falls.
Interestingly, the Western view is that the sky is falling in China therefore it will fall elsewhere too.
My contention is that he, and we, don’t register the differences in culture and judge people by ourselves. This, of course, is normal and natural.
However, the Chinese are different :
- They are savers by nature
- They buy one house and live in it until they die
- Same goes for cars and TV’c – They are not ‘Consumers’
- They buy the cow, not the bull – They invest in income producing investments
- They love gambling
- Their word is their bond
- Trust is vital to them
- Networking is how they stay in the swim of life.
So they have stockpiled their gains from selling junk to the West in the form of minerals, property and investments in foreign infrastructure. Their timeline for a return on their investments is “As long as it takes”, unlike the western expectation of 12-18 months.
The property over run that has many pre-built apartment blocks and cities is mocked but makes sense when you think that construction costs are lower now than they will be in the future and more people are being born every minute. Therefore, sooner or later, demand will catch up and the lower construction cost equals a greater profit later. The buildings are functioning as a store of current wealth.
The stockmarket is a casino for the Chinese – they love gambling and the recently wealthy are just punting on the stockmarket instead of a game of Mahjong. Greater wealth due to recent trading wins with the West has created a new layer of people who are richer than average. These are the gamblers at the Hang Seng tables. Westerners buy shares as investments – The Chinese gamble.
The strength of their banks is immense, with around 10x the ‘equity’ of the western banks. This, and the concepts of honour, trust and reliability, will ensure no bailouts or bail ins are required. The Chinese trust network would have to be turned on it’s ear for any other result.
The Chinese developers have mortgages of less than 10% borrowed money, so there is little bank pressure to meet mortgage payments, unlike the West. When you own it outright, there is little pressure to liquidate in a hurry.
Overall, the ‘fundamentals’ will ensure the long term success of China.