China's provincial governments are working hard to bring in revenue, however, they seem to have taken their measures too far by leaving China real estate bears hanging on a balance, Forbes reports.
Real estate investors are breathing down the necks of specialist investment firms for fear of heading over a hard landing. And who's to blame? China's very own regional governments.
"Right now the dialogue in the market is that China is the source of all of our problems and is harmful to your portfolio," says Mark Headley, chairman of the board of directors at Matthews Asia, a San Francisco-based Asia fund manager with around $23 billion in assets under management as of Oct. 31. "If you believe that, you're not going to invest in China. And many people believe. It's been steady outflow for our mutual funds for years now," Headley told FORBES on the sidelines of an investor conference in Boston recently. "There are a lot of problems in China...and it's freaking people out."
There are 22 provinces of China that are identified to be playing the fun house mirror trick. Because of the economic slowdown, these provincial governments are putting investors on the spotlight by offering them to buy land now or "it won't be available later". To put simply, land reserves are being sold to construction companies for the cash, and not exactly because developers are in a hurry to build. Some developers have fallen to the bait for fear of being locked out in the future for their refusal to "cooperate". But the money that the government is making from these deals isn't sustainable given that the revenue source is a one-time deal.
"We will be worried about China by the second quarter of next year and there is not much China can do to change this situation," says Craig Botham, an emerging markets economist with Schroders in London. During his visit in mainland China last October for talks with government, investors, and to visit factories, Botham reveals that local governments are dropping a now or never policy on investors in what seems like a get-rich quick scheme that's bound to backfire.
"It's at a point now where the state-owned enterprises are paying workers who aren't doing anything," he says. "You go into the factories of some of these SOEs and nothing is going on. Others are producing more than they need."
