Is the Dragon Out From Its Slumber?

by Tim Swanson
by Tim Swanson

Beep. Beep. Beep.

The oversized mobile crane attempted to move backward along the winding alley and simultaneously maneuver its telescopic boom between low-hanging power lines and the brick levee holding up the banks of the Huangpu river.

Despite it being 9 o'clock on a Saturday evening and operating under a light drizzle, the crane achieved its momentary goal while tireless construction crews in the foggy background continued to cautiously climb through labyrinthian scaffolding and smother steel pylons in a deluge of quick-dry concrete.

In less than twenty years, Shanghai has transformed itself from a stagnate relic of geopolitical revolutions, into a modern metropolis rivaling the worlds incumbents. And as you drive into the Puxi district from the airport, the vantage point atop the Nanpu bridge gives you a half-obstructed view of the hundreds of construction crews that are literally building Neo Manhattan overnight. And then some.

Seen and unseen

While some of this property development was fueled by starry-eyed speculators, a lot of this boom was financed through cold hard cash. Modern day Chinese are some of the thriftiest people on the planet, saving roughly 56% of their wages — which makes the seemingly stingy Japanese appear as spendthrifts. Guess what level America is still at?

For instance, due to a number of variables including a relatively uncertain political climate, many members of the nascent middle class will park their savings in entire floors. And I don't mean burying the money inside the walls. They will purchase an entire floor of office space rationalizing that in the long run, it could be safer store of value than many monetary instruments (e.g. stocks), or banks themselves.

And unlike their Spanish and Dubai counterparts which have created partially built ghost towns (video), not only were most of these buildings funded without taking out foreign loans or utilizing debt-based financial vehicles, but until recently, tenants were required to put a down payment of 30% on a unit. It has now been knocked down to a miserly 20%.

Yes, that's right. The West is not only reeling in overcapacity brought on by numerous perverse factors (e.g., artificially low-interest rates), but millions of apartment and housing units are either going into foreclosure or already on the chop block due to lax lending standards that involved zero money down. Yet in China, even with deflating property values that have dipped more than 40% from their peak, the construction boom continues marching on due to stronger fundamentals such as solvent customers that have real jobs.

Beneath a veil of omnipresent dust

For fans of the Ghost in the Shell series, the local avant-garde architecture such as the Tomorrow Square building gives a clear illustration of what in twenty more years may be New Fukuoka. With or without the cyborgs.

Because behind the gigantic silhouettes, caricatures fully enclosed by green safety nets, unforgiving catwalks and bamboo facades is the emergence of a dragon awakening from a centuries-old hibernation. While the rest of the world squandered capital erecting wooden pyramids in the burbs (complete with mosquito-filled pools), within the coming decades the worlds largest consumer of concrete will have something to show for its sweat and toil: productive offices and factory spaces. Bona fide chambers of commerce.

Contra Doug French and Mark Thornton I believe Shanghai is the real McCoy and a positive sign of things to come for this region of the planet.

November 22, 2008

Tim Swanson [send him mail] is a graduate of Texas A&M University. He has worked throughout East Asia and currently lives in China. Visit his blog.

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