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Q: How does china work? All the cars, houses and low salaries
I have been here for over a year now and since the very first day i ask me the same question every day:
How does china work?
It appears to me that almost everyone has a car, a big car, audi, bmw, mercedes, vw. All those cars cost 200-500k RMB
Then they also have a house in shanghai which cost approximately 3-5 million RMB. And of course their best friend the iphone, even waiters have one. Mostly they have 1-2 kids and have to pay all these training centers and schools, probably pay for their parents too.
But yet most earn 2-8k RMB a month
how the hell can everybody afford this? Is there a big credit bubble like in US and we gonna face a big ecconomic crash during the next 10 years?
wait wait wait... china works?
Paulberger:
i just read the rest of your question. yes, there is a huge credit and housing bubble that will soon burst. its expected to be worse the the 2008 financial crisis in america. so for all of you that want to stick around for the long term here, buy your house AFTER it bursts. as for how they can all afford it... the chinese that have government jobs like my girlfriend, get vast assistance from their job. my girlfriend gets housing assistances for when we buy a house. they pay for the house up to 120 meters square. anything larger we pay the difference. they pay for heating, water, etc. she gets her cell phone paid for monthly. when she decides to purchase a car, they help. and this is just working at a government school. imagine what the big wigs make at larger state run programs.
dom87:
mh, my father in law works for the government too, but he doesnt really get anything paid. he bought his own house and has no car.
housing funds are not worth talking about.
7% in shanghai, for lets say 10k salary that is 1,4k rmb that is saved every month for a house. just need 2000 months to pay a house here 
expatlife26:
I don't think there is much of a credit bubble, not in the US sense of a consumer bubble. It is very difficult to get a loan here as a private citizen and credit cards are still seen as a tool for the wealthy but illiquid rather than for normal people.
State-owned banks here ARE full of shit though. They are routinely directed to provide loans in support of very questionable projects, which often get defaulted on. Then the government gives them more money to bail them out.
The "good" (bad for prospective buyers) news about the housing market here, is that because theres no property tax to speak of, there really isn't much of a holding cost for keeping a place empty. In the US, if you buy a property for $1 Million, and the value drops to $600K it can be a smart play to simply write it off. In a down market this compounds by having tons of properties on the market. In China though? If it doesn't cost you anything to just sit on that house empty for 5 years why sell? Why not just wait until people are willing to pay for it?
expatlife26:
BTW, what the fuck is wrong with you Paul Berger? I feel like a complete fool talking to you like an adult. Trying to address your points, name dropping you in another reply as an example of someone successful who chose to be here. Bullshit, a major shareholder of an accounting firm doesn’t make fake British personas to agree with themselves talking shit on a message board. I’m happy to be where I am; I wrote a guide for people in the same situation I was in, who might really want that kind of opportunity too. If you like teaching better, why would you get so upset? It’s just a blog post.
Paul Berger pretending to be a british guy to talk shit, both posted as “guest”
Sinobear:
@expatnolife: What the hell are you talking about? You are a poseur (I mean, you "discover" networking in China but couldn't do it from your parents' basement back home?) It is very easy for a person to get a private loan here. The days of venture capital to developers is long gone (the death penalty applies to financial fraud too). Once you've been in China a while and can talk at the table with adults, you'll realize that developers short-shrift everyone and then dump the property on a less scrupulous property management company.
Hell, even in 1999 (when you were still in diapers) my Chinese friends were having legal problems regarding actual ownership rights of the apartments that they "bought."
And, you wrote a diatribe to make yourself feel better about not being a teacher, which you were not qualified to be in the first place. But your naivete regarding China is sooooo cute! I'll wait for your fifth anniversary post so I'll know where to send a donation.
Paulberger:
what sinobear said. expatlife, stay where ever you are. its easier than shit for the chinese to get loans here to default on. it happens around me everyday. as for the links you sent. i didnt say those, but i do agree 100% with them.
expatlife26:
Yeah yeah that's what they all say paul berger!
Actually coincidentlyI was in China in 1999. My old man had a business trip to shanghai and I tagged along so we could see the country. Made a summer of it; great time. Things have changed a lot! Admittedly I was 11, but had been out of diapers for months so take that, sinobear! My 5th anniversary will be this august and I will let you know where to send donations.
I work in a foreign bank in Shanghai (not in commercial lending but I know people that do) so you're right my take on the housing loan market is just that one city. Shanghainese trade houses around like baseball cards so they want the market to cool off so lending restrictions are pretty tight. A lot of people get loans...but that's cause there's a lot of people. In a rural area they wanna promote development it might be looser, but your average chinese person doesn't really carry a lot of consumer credit debt (at least not from banks, i'm sure they borrow from family all the time) State owned banks are definitely still ordered to give out loans for bad projects though.
Paulberger:
"Although Chinese lenders don't disclose how many loans they extend or modify, the practice is becoming increasingly popular, according to companies and banking executives. The strategy—called "extend and pretend" by critics—is raising alarms among analysts and bank investors. They warn that it could add to banks' increasing piles of bad loans and may restrict banks' ability to lend to bolster the slowing economy." sourse, the wall street journal. http://www.economist.com/news/leaders/21584342-chinas-banking-behemoths-are-too-beholden-state-it-time-set-finance-free-too-big read this too. now, go make daddy happy with your life so you sleep better and night. in all honestly, i do wish you good luck with your career. i would be a dick not too. sorry we got off on the wrong foot.
I often wonder the same thing.
Scandinavian:
Yup. It's like Utopia. Everyone does f¤%#-all all day and gets paid to do so.
Credit bubble for one.
And then there's that thing... a whole family bunched together earning about 1500 RMB per month each, and eating off one person's salary. Let's say 6 or 7 people pooling resources together, right?
Let's say they spend ~1500 RMB per month on cheap veggies and the occasional meat. Rice is cheap. Let's take another 1500 RMB for living expenses. They can live cheap. They don't need the same luxuries as us. That leaves you with about 7500 RMB, or around $1,235.60. In a year, that's 90k RMB.
They can pay off a 250k RMB house in a few years that way. It's just a rough estimate with ghetto math. Things may vary in different places.
dom87:
i never see families bunching up here. only see the normal families in my compound. wife husband 1-2 kids
Hulk:
In the countryside, they are MASSIVELY BUNCHING.
They still save money to help their families, even when living apart.
Scandinavian:
@dom87. In our building, 4 apartments per floor. Two of the other apartments on our floor is inhabited by people who also have another apartment in the building. They are bunched together, just in two apartments. How they've ever been able to afford this is just adding to the mystery. They are always riding the lifts a couple of floors up and down to the other apartment, dressed in jammies.
Hulk:
3 bedroom house...
12 people living there. Kids, parents, grandparents, uncles, aunts... most of 'em are gonna work.
Kids work, parents work, grandfather works, aunts and uncles work... it's how they survive out there. They're always helping each other.
ScotsAlan:
I agree Hulk. Apart from the credit bubble bit.
Minimum living costs coupled with lots of wages into a single family unit soon adds up.
Cheap loans and housing bubble has a lot to do with it. I know people who have had the chance to buy the apartment the state provided to them, this at the time the housing market was set free, essentially the apartments cost nothing. There has been huge profits to be made here, even without the hyperinflated prices. There is a neighborhood here in town, filled with fugly old 6 floor buildings, the initial price for those who bought them when they changed status from being residences to gov employees was 50000. It's old, it's ugly, but today the price is upwards a million. When they were sold 20 years ago, maybe 50000 was a lot to most. Part of this area has been torn down, some people have been paid cash for their old apartment, some people have gotten a new apartment in a new community. Very easy wins.
It also comes from their families and their families past investments that just capitalized on the markets gains at the right time and place.
But loans here are super easy to get, just need the down payment..
so i guess we are facing a huge crash 
loans are easy to get, but are they easy to pay back for them?
Paulberger:
i have a chinese friend who is a black taxi driver. doesnt make much money and needed to buy a house in order to get a girl friend. walked right into a bank with his documents and i.d. a month later bought a house with the loan.... i'm not sure he can make the payments... if he is window into what is going on in this economy... the crash is coming....
Scandinavian:
this video tells of a gutter oil producer who saved up to buy a house from making gutter oil
http://beijingcream.com/2013/10/want-to-see-how-gutter-oil-is-made/
Gray/grey money everywhere! "Teacher" makes 1500 RMB/mo which makes you feel guilty getting 5000. Teacher gets free apartment with 10 year contract. Teacher gets Year-end bonus, Spring Festival Bonus, Teacher's Day bonus, Bonus Day bonus, Extortion-day bonus (kids are failing and need a passing grade), Extra-attention bonus, "Sorry in advance that my kid is an a-hole" bonus, Sleep with your boss/client bonus, Free-car bonus, Recruiting bonus, Sell-your-students-off-to-a-cheesy/sleazy-overseas-agent bonus... but it is, of course, we foreigners who are taking advantage of the hospitality of the Chinese system.
Paulberger:
you forgot the "i wont come to your class ever but pass me" bonus. its big in university
sure black money is always involved everywhere but as you see these parents with the house and car even have to bribe the teachers.
Since everyone bribes and get bribes i count that as a pay freeze
It works, but the "how" is written nowhere. My guess:
* Loans are very easy to get
* Companies offer saving plans to buy a home
* We see the fancy cities, and we don't see the abject misery of the countryside (go tour the countryside...)
* Families put savings together so that the elder boy got his flat & car
And yes, housing bubble, I mean see all those empty offices, there is enough office space for all Chinese...
dom87:
since i work for a chinese company and my fionce too, i can say there are no real housing supports by the company. like i said the housing fund is a joke
Scandinavian:
I've met people saying their housing allowance is as much as 5000 per month. Here in the sticks that equates newly built apartment with ocean view.
mike695ca:
Every company is different, I worked for a large chinese company for a few years. And there was DEFINITELY a housing plan for people there. Most people I knew there came from other provinces, went to Uni and worked there for years. Their house AND car was fronted by the company. and then paid back monthly. Car had to be within a year i believe, but the first payment for a house was many more... Not everyone could get it, there were rules i guess, but many many were eligible.
Paulberger:
my girl friend gets the first 120 meters squared paid. the house we want is 6999 rmb per meter square
Paulberger:
edit sorry just asked her i was wrong. she gets 65% of the first 120 meters squared paid
derek:
Our housing allowance was quite high as well. A lump sum payment after they were satisfied that I was who I said I was. They tried very hard to not give it to us however.
I think its due to many reasons.
1. the wage gap isnt as big as you think. your talking bmws and benz and 4 million rmb houses. so your talking middle upper class. we always throw 2-3000 out there as a salary, but in the large cities most white collar workers are making in the 6-10,000 range. also spring festival, if they are in that rangem get 60-100, 000 a year bonus in cash which really helps for down payments. we always say 3000 because that an average. It looks like everyones driving a bmw, but in fact the percentage is tiny. under 5% easy, but in shanghai for example 5% is millions of people, and we arent used to that where we come from.
We tend to live in more upper class areas and only see the good side of china, but just on the outskirts of cities are buildings with people making 2000 a month, with 8 dudes living in a dorm. They have no chance to buy there EVER. There only hope is to save as much as possible with there families, go home and buy where its cheaper, open a little shop and buy a chinese car. They work hard for that.
2. Many companies DO offer the chinese middle class workers, saving plans and loans to buy a house. its needed, because if they cant they will invest back home and eventually leave where it cheaper. So its a needed investment on the companies part to help them buy a house and a car and have theirt families situated right there.
3. 30 years ago, houses were cheap as hell, they were just given to the people in farmer towns. Regardless of how cheap they are now, if sold its still a hefty chunk of change, so many, once their children are situated, sell there farmer house and use that money plus savings to move into the city. The poor guy our age, has a house and a car now, but is saddled with his parents for life and hes 35, perhas her parents too, but hey! at least he has a house!
Plus many of these people living in 4 million kuai houses are just lucky, they sure arent new to say shanghai, been there 15 years. Bought a place, and the price went up times ten, sold it for a fortune and and bought 2 or 3 others, at least the down payments.
4. In the country side, the givernment wants to promote growth and stop the influx of people moving to large cities. So massive apartment complexes are built and sold for almost nothing to local people. And we all know , chinese dont take pride in givernment or taxes, so if they can get free shit they will. And local governments want to make cash too, so these are bought buy the local people, and then sold ( they already have a farmer house) for a huge increase, when it should be illegal to sell. There is an estimated 10 million houses bought and sold illegally. and thats being cautious.
My wifes parents have one, and theres a building right next to my factory where locals with a hukou get it for 4,000 a meter, but the area for proper buying is 14,000.
Not to mention, health insurance, and cash given to farmers in different areas. Again, my wife gets it, and shes from guandong! So you have this system where the husband has a hukou in guangzhou and the wife has a hukou in her farmer town, and they get the best of both worlds.
When you include their saving habits, hong bao, and other shady dealings. They make it work.
Paulberger:
so what i think you can say is the chinese know how to make their system work to their benefits.
dom87:
seems everyone get it except my fionce lol
so i m poor
well these new year bonus are funny anyways, get more bonus than earned the rest of the year totally.
a friend makes 10k a month and get 100k bonus
You are living among the "elite" in China. Most expats do. Unless you try, you will never see how the vast amount of poor Chinese live. Most never have a chance to live in a new high-rise. Many will only be able to sponsor their son to obtain these things in order to get married. Then the whole family will move in. Even in Shanghai, most people are poor, just not in the areas expats reside. I've traveled all around China and many of the places Chinese refer to as houses are unlivable by my standards. There is a big wealth gap in China. The "haves" stay in the 1st tier cities with multiple homes. The "have nots" are in the lower tier cities and villages. Your exposure to the other side of China is just a little limited.
dom87:
i doubt that i live with the "elite"
my gf is from countryside and we spend weeks a year their and even in this rural shitty city with like 300000 people, they people are rich. dunno whats going on
of course there are also a lot of poor workers but yet the chinese are richer than everyone thinks
btw i dont live in the expat zone of shanghai. i didnt even see any foreigner in my district since i am in shanghai...xinyuren:
Look up the per capital wealth in China stats. That will tell you the picture. Many, many more poor people than "rich". I'm not sure what you consider rich. 8k a month is a pittance. Anyways, the statistics speak for themselves. I certainly don't see an inordinate amount of rich people and I travel extensively.
dom87:
maybe i should consider germany as very poor then... i mean if i can afford a house for 500k-1mio i am considered rich but if i buy a shitty apartment in china for that price i m not rich.
i know that 8k a month is not much but as you see its not the reality that they earn this little.
on the paper 8k every month = 96k a year but on the paper at the end they have 300k?
so they must earn like in western countries. Just tried to understand where the money all came from.
low basic salaries but big bonus and benefits.
Yes, most people earn 2k-8k per month. Some some of them love iphones, so they spend less on other goods to save money to buy iphones. But most of them rent and share apartments, living in a residence provided by their companies. Im pretty sure that they doesnt have bmw,audi,benz...
But there is a huge populations in Shanghai. Which means there are still many people earn 20k-50k per month. They can afford "big" cars, and apartments.
dom87:
probably not used to see so many german expensive cars on one spot. i mean not even we germans can afford german cars
I think the average visibly affluent person here (not a corrupt govt official, just your average guy you see with a BMW) probably got lucky on a land buyout back when assets were cheap. I've asked this same question to wealthy (background) people at work and the typical answer is that back in the late 80s/early 90s, when everyone else was broke, they got a buyout of their farmland so usually a japanese firm (I know mostly people from Shanghai, probably different elsewhere) could build some kind of facility.
If your family could put together 100,000 RMB back in 1990? You were wealthy. And by wealthy I mean you could buy income sustaining assets and there weren't really any consumer goods to distract you. That $12,000 USD would buy you property in up and coming areas, and then as the tide rose you could just keep trading up until the late 2000s when prices really spiraled out of control.
In my experience that's how most of the families with money got it. Just happened to live on a piece of land that was bought out in the 80s or 90s instead of the 2000s.
This sounds scary and the history repeats itself:
http://www.chinadaily.com.cn/business/2014-01/02/content_17209281.htm
I personally give China 3-5 years before a massive change in what has been in the past 30 years.
I had no ideaScandinavian:
In a question I asked, some said they were unfamiliar with the saying "to piss your pants to keep warm" this story is the definition of that saying
andy74rc:
On the subject: been watching a program on CCTV news talking about the 4 pilars of economic politics in China for 2014:
1) GDP growth: 2013 ended at 7,7%, targets for 2014 are ok even if a bit lower, but they expect a rise following global recovery.
2) Inflation rate: 2,6% y-o-y, lower than the forecasted 3,4%.
3) Public debt (called CREDIT!!) is currently at 86.000rmb pro capita.
4) Main objective: Deleveraging, as Central Govt consider already more than enough the liquidity injected in 2008.
Find the incongruences......
Nessquick:
I said this 5 years ago.... give china 5 years and will go down :)
It's a good question, and one I've thought about for some time.Let's take the apartment situation; 1) Most are crap. Built with cheap materials by ex-farmers/peasants, not licensed buiders like back home.
2) They are gutted, i.e. you get a shell if you buy new. You, then have to pay for flooring, paint, & all fittings. Add alot more expense to original price.
3) virually none come with private parking, so then the footpaths become more clogged with their bloody cars (it seems the local govt isn't concerned with this aspect when passing the plans??!)
4) Don't forget, importantly, by Chinese Law these apartments can be confiscated by the Govt. after 70 yrs! So, in effect they are technically leased, not bought!
5) I did some very basic economics in my early years & the market price of an item is largely determined by the supply/demand law. Now, look around, I'm sure its the same in your city as mine, Qingdao. there are literally thousands of these apartment complexes being built or completed everywhere. So, then why the high price?
It kinda defies logic really.
With the question of finance, still think many borrow from family & then make the shortfall from the banks.
It just seems they are headed for a big real estate bubble. The Govt. in their eternal wisdom ( as buying new apartments & cars are the best drivers for the economy) are propping up the whole system, but for how long before market reality hits home?
royceH:
Good job. Well played.
Mate, the way the cars parked in QD was just crazy! One of the reasons I don't live there anymore.
The inconsiderate and idiotic drivers would just up and park their car wherever they happened to be. On the footpath... a yard out from the curb and on a ridiculous angle...eherever.... Even in a turning right lane on one of the busiest streets in town...I'm referring to the corner of Hong Kong Rd and Yanerdao Rd, right out the front of Jack's Bar, where I happened to be sitting one afternoon when I watched this loon stop at the intersection, get out and lock his big black bullshit jalopy, and walk away! On the road in the middle of the turning right lane...300 cars behind him wanting to turn right. Bad luck for them.... What an arsehole!!
I've never 'keyed' a car but by gee I wanted to that day.
I suspect this is a " keeping up with the Jones' " coupled with the dreaded "face"
I was told people here would rather spend another couple of years saving to buy a top of the range camera rather than be seen with an entry level one. If someone has a better camera than you, face is lost. Better to have no camera than lose face 
.
Same with cars. Not many BMW 3 series here. 5 series is the minimum.
Nessquick:
yep, thats why I see many more people here with this" top end" looking cameras. I have my Sony DSC RX-100. Is really portable and wil beat many of the Nikon in basic set for similar or higher price... And I do not really care my face. I want nice photos when the situation ask for it.
ScotsAlan:
What can I say NessQuick. You have a Sony !
You lose face with me..... unless you have a nice lens on it 
bill8899:
I have a Nikon point-and-shoot!
Yes, face ...While sitting in Starbucks I have, on more than one occasion, notice a Chinese person approach me, take a look at my phone and change their mind.
Meanwhile, back home, one of the richest men I know drives a 2003 Chevy.
ScotsAlan:
Yup Bill
Back home I used to drink with real millionaires. He buys a round, I buy a round. Money never came into it. I would spend my last 10 quid to buy him a drink if it was my shout. It all balances out over time. No money... stay home.
It's different here tho.
I would never expect anyone to buy me anything just because they have more money than me.
Nothing wrong with point and shoots by the way.
expatlife26:
Yeah the way people shop here is completely different. Most americans tend to shop for value. I bought the phone, some motorola, that met my need for a decent smartphone at the lowest price. The purchase was for done for me and based on a feeling of good value.
I think most people here shop for others, if that makes sense. Like they base the purchase on what others will think of it. They enjoy having something with a uniform, well-known price like an iphone because then everyone knows exactly what they spent.
I know what you mean with the cameras too. They want the fancy ones even if they dont have any use for them instead of the minimum cost item that will be reliable and suit their needs.
so one side question while everyone thinks the country goes down anyways.
i dont have much clue of financial situations so i appreciate some advice...
if that bubble explodes, is it good to have a lot money on the account or not? will the money be worth more or less?
the apartments sure will drop but i m not sure if an inflation will follow
Scandinavian:
When the bubble burst it is best to have money in a bank outside China. As the banks are state owned, China will not allow the banks to go belly up, but in a big burst I don't think they will have the chance. It may be you can still buy a bowl of rice for 3Rmb, but you would need 30000 rather than 3000 to fly out of China.
dom87:
just hard to get the money out of china...
especially you lose quite a lot while transfering it
not like i think my money is safe on any bank neither here nor in germany ~.~
