The Chinese phrase “Surrounded by Chu songs” is probably the best way to express the current state of Mainland China’s real estate market. It derives from the battle of Gaixia where the 100,000-strong army of the prominent Chu warlord, Xiang Yu in the late Qin Dynasty (221-206 B.C.), was trapped and besieged by Liu Bang, the King of Han’s army, six times the size of Xiang’s.
As the last strategic move towards victory, Liu Bang ordered his soldiers to sing folk songs in the middle of the night so as to make the Chu army believe that Chu had fallen and that its people had been captured.
Hearing the songs made the Chu soldiers homesick, spurring many of them to run away. Xiang Yu attempted to break away with only 26 soldiers left. He mistakenly ran into a marsh by the Wu River. Surrounded by 5,000 enemies and failing to board a boat to return to the Chu Kingdom, he committed suicide. The Chinese phrase, also translated as “Chu songs on all four sides,” has since been used to refer to encountering crises on many fronts.
Like Xiang Yu’s downfall, the Chinese economy today is collapsing on all fronts.
With a frozen real estate market, a manufacturing industry on the edge of collapse, a chain of financial defaults (in banks and in private funds), deteriorating relations with surrounding countries, and foreign divestment, China is already “hearing the Chu songs” everywhere.
The Chinese economy ran into significant trouble in 2011 when bad debts exploded—often referred to as the “capital chain rupture.” Today, China’s entire economy has been segmented into many silos. The way the failing economy is spreading geographically and across industries resembles the way booths in a market go out of business one after another.
As the country is confronted by many economic and social crises, the majority of Chinese people have either failed to notice, or don’t want to give it any serious consideration. They remain hopeful that the power of the “system” will solve problems.
On the one hand, being immersed in government propaganda and seeing people around them getting rich, they believe that the economy is soaring, that it will surpass the United States in no time, and that they will benefit from the growth. On the other hand, most people are preoccupied with their own well-being, and turn a blind eye to the suffering of others. It’s the narrow thinking of the majority. One day, they may wake up to the reality of being trapped in the economic mire.
On the surface, the Chinese economy appears to be stable. Under the regime’s propaganda, unpleasant news is either censored or published only in remote corners.
In the meantime, the regime sings its “China dream” propaganda louder each day. People are enraptured by false national pride as regime leaders act like saviors and show off their wealth. State-run media have bombarded people with gossip, talent shows, and sex scandals, and TV programs show nothing but absurd stories about Communist heroes using “superpowers” to defeat Japanese invaders.
Believing that confidence is more important than gold, people happily offered their own savings, which supported the economy and slowed down the imminent collapse to a certain degree. As a result, the majority of the Chinese people remain very confident in the economy, except for those who have fallen victim to it.
Beginning of the end
The “Chu songs” got even louder by late 2014. As more segments of society collapsed, other segments are starting to feel the pain. The public realizes that the economy is problematic, and is concerned about the situation. But instead of trying to see the big picture to make informed decisions, many just hope that other segments of society will perform worse and will fall faster, and that they can survive alone.
Those who are familiar with businesses in malls especially know that such hopes are false: When over a third of the stores in a mall close, other stores will go out of business one after another, and it is almost impossible for the mall to survive. The Chinese public continues to support the economy only because they choose to ignore the reality of the situation.
As public funds are eventually drained, economic failure will explode and expand to all realms of society. Therefore, once news of the economic crisis breaks out into the wide public, China will experience a rapid and massive economic downfall, which will trigger more social crises.
In the past, the regime supported public confidence by supporting the most visible and representative parts of the national economy. The failure of the state-supported economic bodies will smash public confidence.
The beginning of the end is the deep freeze in the real estate market, which has been a main pillar of the Chinese economy, and of public confidence. Since the regime injected 4 trillion yuan into the market in 2008 in response to the global economic crisis, real estate and infrastructure sectors (including railroad, highway, transportation, energy, etc.) have added up to be over 50 per cent of the nation’s GDP.
In addition, the mammoth investment in infrastructure has been supported by real estate. For example, a large portion of the investment in the railroad or subway system needs to be recovered through increased real estate value in surrounding areas.
The real estate market has been large and highly profitable.
The vast fortune flowing out of the real estate market also pushed up consumption among those who are in or close to the regime, and industries appealing to their needs, such as the automotive industry, premium retail and food services, and tourism saw tremendous growth.
From the public’s perspective, although housing prices and other costs of living have soared, the increase in the net worth of their real estate assets has outweighed the impact of inflation. As housing prices continued to increase rapidly, people held a religious-like belief that the housing prices would never drop, and considered it as a token of financial security.
Even when some areas already witnessed plummeting real estate prices, idle housing, and emerging ghost towns, people in other areas still refuse to believe that the housing prices in their areas could possibly drop. Furthermore, the more the regime implements macro controls to prevent housing prices from going up too quickly, the more people believe that the prices can only increase.
This article is first of a series by the Mainland China netizen-author “Born 0715″ at the Institute of Chinese Economy and Culture Study. It is translated from the original Chinese article.