China has many problems, a number of which are structural, not transitory. These are not merely growing pains, though at one time, they could have gone in that direction. After Mao’s death, new leader Deng Xiaoping recognized that the country was failing under its communist economic system. His visits to Thailand, Malaysia and, in particular, Singapore (where he met with Prime Minister Lee Kuan Yew, the capitalist architect of Singapore’s resurgence) convinced him that drastic change was needed.
Impressed with Singapore’s economic development, respect for the environment and quality housing, he sent tens of thousands of Chinese to Singapore to learn from their experience. Lee advised Deng to stop exporting bankrupt communist ideologies to Southeast Asia, advice which Deng chose to follow.
However, after Deng’s 14 years of leadership, during which China opened itself to the world, followed a path of living with its neighbors, and lifting itself from the poverty and destruction of communism, everything changed. Deng’s final years were weakened by his association with Tiananmen Square in 1989, and upon his resignation, the ensuing power struggles resumed among the elites who had lived so well under the old totalitarian system.
These struggles continue behind the scenes today. China is still, on paper, a socialist nation (the Chinese press still refers to it as socialist/communist, but is increasingly dropping the latter term), but like so many other “people’s republics,” it is divorced from the needs of most of its people and fails to enjoy any republican principles. It has become, instead, just another autocracy, founded upon oligarchic striving for individual power and individual wealth.
What does this have to do with investing in US real estate and real estate securities? During the transition from communism, hundreds of thousands of well-placed insiders and Communist Party members were handed significant shares of state-owned companies, often based solely upon their position of power or loyalty to a winning faction. Along the way, as the Chinese stock markets sizzled, they were able to sell their shares to less sophisticated investors who believed stocks would only rise forever.
Of course, as easily as all this wealth was granted, it can as easily be clawed back, as today’s much-publicized seizures of wealth for either real or trumped-up transgressions makes readily apparent.
