WEBVTT - How Chinese Real Estate Became the Biggest Bubble in History 0:00:02.720 --> 0:00:15.880 Bloomberg Audio Studios, Podcasts, Radio News. 0:00:18.680 --> 0:00:21.600 Hello and welcome to another episode of the Authoughts podcast. 0:00:21.680 --> 0:00:23.040 I'm Tracy Alloway. 0:00:22.760 --> 0:00:24.000 And I'm Joe Whisenthal. 0:00:24.280 --> 0:00:27.479 Joe, we've talked before in reference to I think it 0:00:27.520 --> 0:00:30.680 was the US real estate market. Yeah, there seems to 0:00:30.760 --> 0:00:33.519 be this weird thing going on with housing where it 0:00:33.560 --> 0:00:37.520 feels like policymakers or maybe people even are not sure 0:00:37.640 --> 0:00:40.440 what exactly they want it to be. Right, Is it 0:00:40.440 --> 0:00:44.080 supposed to be this social good, this affordable thing we 0:00:44.159 --> 0:00:46.959 all can live somewhere that we can, you know, preferably 0:00:47.000 --> 0:00:49.279 a place we want to live in, something that we 0:00:49.320 --> 0:00:53.760 can afford. Or is it effectively a giant piggy bank, Yeah, 0:00:53.800 --> 0:00:56.920 an investment vehicle, in which case we would expect prices 0:00:56.960 --> 0:00:58.320 to always keep going up. 0:00:58.560 --> 0:00:59.080 Yeah, right. 0:00:59.120 --> 0:01:03.280 I mean my personal preference is for housing to be 0:01:03.440 --> 0:01:06.840 very affordable, very briefly, and in that time that I 0:01:06.880 --> 0:01:09.400 buy how to accumulate more hows and then it stops 0:01:09.400 --> 0:01:10.040 being affordable. 0:01:10.080 --> 0:01:12.319 That's my I don't many people have different takes. I 0:01:12.400 --> 0:01:14.319 just want a very brief period. 0:01:15.560 --> 0:01:16.040 Thing about it. 0:01:16.080 --> 0:01:18.080 Very important that in that brief period I don't lose 0:01:18.080 --> 0:01:20.399 my job. It's very important that in that brief period, 0:01:20.480 --> 0:01:22.680 my other investments don't go down. I just want a 0:01:22.760 --> 0:01:24.560 very brief period of housing affordable. 0:01:24.640 --> 0:01:26.920 But this is another thing about housing, which is like, 0:01:27.200 --> 0:01:31.080 historically it is one of the few ladders to big 0:01:31.240 --> 0:01:34.240 yea for the masses. Right, We've all heard the stories 0:01:34.280 --> 0:01:38.160 about artists and soho buying a loft correct for like 0:01:38.160 --> 0:01:40.319 five hundred dollars and now it's worth ten millions, so 0:01:41.120 --> 0:01:41.760 good for them. 0:01:42.080 --> 0:01:44.720 The other thing that's interesting about housing, particularly when it 0:01:44.720 --> 0:01:47.480 comes to affordability, is that this seems to be a 0:01:47.480 --> 0:01:50.400 truly global challenge. So people have lots of theories like, oh, 0:01:50.440 --> 0:01:54.200 it's because they didn't allow zoning and San Francisco or whatever, 0:01:54.720 --> 0:01:57.680 and it's like maybe, but like I think any question 0:01:57.760 --> 0:02:01.080 about housing affordability has to wrestle fact that this is 0:02:01.120 --> 0:02:04.080 a really global phenomenon, so it can't be some idiosyncratic thing. 0:02:04.640 --> 0:02:08.000 It does seem as though places where housing is more 0:02:08.080 --> 0:02:11.640 affordable do not have particularly dynamic economies. So it's like 0:02:11.680 --> 0:02:13.920 I know that people are like, oh, look how cheap 0:02:14.160 --> 0:02:16.760 Tokyo is. It's like a umb success story, but like 0:02:16.800 --> 0:02:20.320 they had a massive bubble and it's been deflating ever since, 0:02:20.360 --> 0:02:22.560 and it's not like Japan, is it like some cutting 0:02:22.680 --> 0:02:25.880 edge of particularly any booming industries and its population. Japan's 0:02:25.919 --> 0:02:28.200 still pretty nice. I'm sure it's very nice. I'm not 0:02:28.240 --> 0:02:31.680 saying otherwise. It's just not clearly not where the action is. 0:02:31.680 --> 0:02:33.079 I'd love to go to. Japan seems like one of 0:02:33.120 --> 0:02:36.120 the nice places. And the other thing that's interesting about this, 0:02:36.600 --> 0:02:38.360 which is that there are all kinds of ills that 0:02:38.520 --> 0:02:42.400 sort of devil particularly the rich world these days, and 0:02:42.440 --> 0:02:44.160 then we look at China's like, oh, they have it 0:02:44.160 --> 0:02:46.240 all figured out. It seems like housing is a mess 0:02:46.240 --> 0:02:49.399 in China too. One of these rare congratulate like sort 0:02:49.440 --> 0:02:51.799 of like moments where we could shake hands with China's like, yeah, 0:02:51.800 --> 0:02:52.560 we're dealing with a lot of. 0:02:52.520 --> 0:02:53.200 The same issues. 0:02:53.240 --> 0:02:56.359 Well, here's the thing. China is like the ultimate example 0:02:56.480 --> 0:03:01.040 of that tension between investment, asset and social good, right 0:03:01.120 --> 0:03:03.160 because even in China, as you point out, there are 0:03:03.200 --> 0:03:05.800 affordability issues, and every once in a while you see 0:03:06.040 --> 0:03:09.480 policymakers try to put limits on house prices in like 0:03:09.600 --> 0:03:13.800 really expensive cities. But then when they start doing stuff 0:03:13.800 --> 0:03:18.440 that actually pops housing crisis, everyone starts protesting, which is 0:03:18.520 --> 0:03:21.000 kind of you know, a rare thing in China, so 0:03:21.400 --> 0:03:22.440 that is the tension. 0:03:22.639 --> 0:03:24.959 I also find real estate speculation in China to be 0:03:25.040 --> 0:03:27.079 kind of I thought there were communists, and I mean 0:03:27.160 --> 0:03:30.320 that on ironically, like, where did communists get the idea 0:03:30.320 --> 0:03:30.839 of real estate? 0:03:31.080 --> 0:03:33.399 No, well, this is another thing because the social net 0:03:33.440 --> 0:03:36.440 starts going away in like the nineteen nineties, and so 0:03:36.560 --> 0:03:39.600 people have to do something with their money to have 0:03:39.680 --> 0:03:40.960 retirement income to. 0:03:41.400 --> 0:03:43.120 I guess the houses in the old days used to 0:03:43.160 --> 0:03:45.600 like be owned by the companies. There more dormitories, and 0:03:45.600 --> 0:03:47.760 then when that started to split apart, I don't know. 0:03:47.880 --> 0:03:49.000 Maybe our guest knows more. 0:03:49.160 --> 0:03:52.000 Yeah, we do have the perfect guests, the perfect guest. Yes, 0:03:52.040 --> 0:03:54.080 we are going to be speaking with Mike Byrd. He is, 0:03:54.080 --> 0:03:56.880 of course, the Wall Street editor over at The Economist 0:03:56.880 --> 0:03:59.240 and the author of the new book all about this 0:03:59.400 --> 0:04:02.440 called The Land Trap, a New History of the World's 0:04:02.480 --> 0:04:04.840 Oldest Asset. So welcome to the show. 0:04:04.880 --> 0:04:06.680 Mike, Thank you very much for having me. Great to 0:04:06.680 --> 0:04:07.000 be here. 0:04:07.120 --> 0:04:09.640 I love my We both love my, so we're excited. 0:04:09.920 --> 0:04:12.480 Also, someone who spent some time in Asia when I 0:04:12.520 --> 0:04:14.440 was there in Hong Kong as well, so knows the 0:04:14.560 --> 0:04:17.520 sort of global history of land, and I was reading 0:04:17.560 --> 0:04:19.120 your book and you go all the way back to 0:04:19.400 --> 0:04:24.560 like Babylon or Samaria, so very impressive. So why did 0:04:24.600 --> 0:04:26.039 you decide to look at land? 0:04:26.240 --> 0:04:30.000 It's a great question. I guess it started. I started 0:04:30.000 --> 0:04:32.320 my career in London, and there's a huge thing in 0:04:32.320 --> 0:04:36.360 London about housing as there is here, you know, people's 0:04:36.720 --> 0:04:38.360 lack of ability to afford it. I think it's even 0:04:38.520 --> 0:04:40.599 even worse than the UK than the US, because you know, 0:04:40.680 --> 0:04:43.280 the culture of equity investing in all sorts of other 0:04:43.320 --> 0:04:45.719 things is so much weaker. But I guess I really 0:04:45.720 --> 0:04:48.640 got into it when I moved to Hong Kong, because 0:04:48.640 --> 0:04:51.640 Hong Kong felt like London on steroids. The housing was 0:04:51.680 --> 0:04:53.760 even more expensive. It was part of you know, I 0:04:53.800 --> 0:04:56.640 moved in twenty eighteen. You there, Tracy, it was like 0:04:56.720 --> 0:05:00.400 the extraordinary bull run, like the absolute peak the post 0:05:00.400 --> 0:05:03.719 two thousand and eight surge in Hong Kong. And learning 0:05:03.720 --> 0:05:06.920 about how land was really expensive but also the government 0:05:07.240 --> 0:05:10.000 owned all the land and leased the land out made 0:05:10.040 --> 0:05:12.640 money from the land. I found it very confusing and 0:05:13.120 --> 0:05:15.279 it helped me to sort of dig into things, and 0:05:15.320 --> 0:05:17.960 I think it helped me to like start thinking about 0:05:17.960 --> 0:05:20.280 this as like a framework of how land works at 0:05:20.279 --> 0:05:23.000 different places and how you can use it and abuse 0:05:23.080 --> 0:05:26.000 it and whatever. And yeah, Hong Kong was a great 0:05:26.000 --> 0:05:29.039 place to think about that because it's such a example 0:05:29.240 --> 0:05:30.880 story of how bad things can get. 0:05:31.080 --> 0:05:33.279 So if you buy property in Hong Kong, what exactly 0:05:33.320 --> 0:05:33.920 are you buying? 0:05:34.120 --> 0:05:36.719 You are buying like you're buying an apartment, right, but 0:05:36.800 --> 0:05:39.400 you don't own the land. So if you say you're 0:05:39.400 --> 0:05:42.159 a real estate developer, right, you buy a land lease 0:05:42.200 --> 0:05:45.000 from the government, like a seventy five year, ninety nine 0:05:45.080 --> 0:05:49.039 year land lease. They've clipped back and extended the terms 0:05:49.080 --> 0:05:51.440 of the lease over time. But yeah, that's what you're buying. 0:05:51.480 --> 0:05:52.960 You're buying the right to use it for a certain 0:05:52.960 --> 0:05:53.560 amount of time. 0:05:53.800 --> 0:05:56.240 Does every just go away like other examples, like you 0:05:56.240 --> 0:05:57.920 know what, seventy five years is up? 0:05:57.960 --> 0:05:58.520 Not your land? 0:05:58.520 --> 0:06:00.000 This is a big problem. This is a big problem 0:06:00.080 --> 0:06:02.000 them and in these places, in places like Hong Kong 0:06:02.040 --> 0:06:06.360 and Singapore, there is the difficulty of when lots of 0:06:06.400 --> 0:06:08.440 the land starts to roll over, when lots of the 0:06:08.520 --> 0:06:10.520 leases start to get at the end, the question of 0:06:10.520 --> 0:06:12.800 whether you just bow to political pressure and just give 0:06:12.839 --> 0:06:15.560 it to people, right, just let people keep it, or 0:06:15.600 --> 0:06:17.560 whether you kick them off and start again, whether you 0:06:17.640 --> 0:06:20.320 knock something down and rebuild. It's a big difficult issue. 0:06:20.400 --> 0:06:23.600 Yeah, Mozambique is the other country I know that does this, 0:06:23.680 --> 0:06:26.960 which is kind of funny. Also communist history there. Anyway, 0:06:27.560 --> 0:06:31.000 what role does housing actually play in the Chinese economy? 0:06:31.400 --> 0:06:33.960 So, I think the best part of living in Hong 0:06:34.040 --> 0:06:37.840 Kong was learning how this relates to Hong Kong. Right, 0:06:38.040 --> 0:06:43.000 So put in very simple terms the nineteen eighties, Gemin 0:06:43.040 --> 0:06:48.840 the Mau is dead dung shopping, consolidating power, and you're 0:06:48.880 --> 0:06:51.400 in a strange position where you have to start or 0:06:51.480 --> 0:06:54.440 dounge once to start bringing in market forces into the economy. 0:06:54.839 --> 0:06:57.760 But it's pretty dangerous. He's got a lot of political opponents. 0:06:57.800 --> 0:07:00.640 You've got to step pretty slowly. And housing is one 0:07:00.680 --> 0:07:03.279 of the areas it's most difficult. China's housing at the 0:07:03.279 --> 0:07:06.720 time is pretty ramshackle and terrible. It's attached, as Joe 0:07:06.760 --> 0:07:10.640 suggested at the beginning, to like the industrial base. Your 0:07:10.680 --> 0:07:14.040 employer houses you on a farm or next to a 0:07:14.080 --> 0:07:17.440 factory or wherever it is. But what China needs is urban, 0:07:17.920 --> 0:07:23.120 modern residential housing. So Jao Xiang, who's the premier of 0:07:23.240 --> 0:07:26.320 China later on, and he's one of the sort of 0:07:26.360 --> 0:07:31.000 peak reformers in Dung's China. He credits this to a 0:07:31.040 --> 0:07:34.120 conversation with a Hong Kong real estate developer called Henry Fox, 0:07:34.640 --> 0:07:37.280 who said, in a conversation with him, where Joao is 0:07:37.280 --> 0:07:40.040 explaining the difficulty of oh, we don't have any money 0:07:40.080 --> 0:07:42.880 and we can't get foreign investment in and Henry Fox said, 0:07:42.920 --> 0:07:45.080 but if you have land, why don't you have money? 0:07:45.080 --> 0:07:47.680 How can you not have money? And basically they started 0:07:47.720 --> 0:07:50.520 adopting on a small scale, initially the Hong Kong system. 0:07:50.840 --> 0:07:54.680 They started leasing out land to make money. First one 0:07:54.680 --> 0:07:57.480 of these is in Shenzen in December nineteen eighty seven. 0:07:57.720 --> 0:08:00.040 There's an auction. The Hong Kong government gives them the 0:08:00.080 --> 0:08:02.520 avil to do the auction, the auction of for pretty 0:08:02.520 --> 0:08:04.320 small piece of land. But this is a symbolic thing 0:08:04.400 --> 0:08:06.640 because you know, it's a communist country and the Chinese 0:08:06.640 --> 0:08:08.640 government owns all the land. They hadn't even at this 0:08:08.680 --> 0:08:11.280 point changed the constitution to make this legal. They're sort 0:08:11.320 --> 0:08:14.280 of experimenting just at the edge, and then slowly this 0:08:14.320 --> 0:08:17.120 becomes the main financing model. It's a big tax change 0:08:17.200 --> 0:08:19.200 in the middle of the nineteen nineties that shifts this, 0:08:19.680 --> 0:08:21.600 but it's it's a really good way of making money, 0:08:21.920 --> 0:08:23.880 especially if you're the government and you own all the land. 0:08:24.120 --> 0:08:27.120 China owns that in the mainland for communist reasons, but 0:08:27.160 --> 0:08:29.920 it's actually a handover to some degree from Hong Kong. 0:08:30.240 --> 0:08:34.200 Actually, can I back up a few decades? What's land reform? 0:08:34.400 --> 0:08:37.240 You always here the people debating economics like, Oh, they 0:08:37.280 --> 0:08:39.439 instituted land reformer, this is really important. 0:08:39.480 --> 0:08:41.640 This is what else says? Oh no, actually, land reform 0:08:41.760 --> 0:08:43.520 was not there. What is land reform? 0:08:43.600 --> 0:08:45.120 Yeah, I've got a chatter on this in the book, 0:08:45.160 --> 0:08:46.640 and it was sort of towards the end of it 0:08:46.720 --> 0:08:48.960 quite carefully worded to not upset the people that feel 0:08:49.040 --> 0:08:50.880 very strongly about land reform. 0:08:51.360 --> 0:08:54.640 Land reform things you don't talk about on Twitter. Yeah, yeah, 0:08:54.640 --> 0:08:58.199 el asterisk and d reform. Absolutely, the bots don't attack you. 0:08:58.440 --> 0:09:02.920 The land reform is mostly middle of the twentieth century phenomenon, 0:09:03.080 --> 0:09:05.760 and it's basically there was a lot of economic thinking 0:09:06.000 --> 0:09:09.280 at the time. It was a guy called Wolf Ladashinski 0:09:09.559 --> 0:09:12.280 who was a US Department of Agriculture employee. He was 0:09:12.320 --> 0:09:16.160 an economist and he was an obsessive about land reform, 0:09:16.200 --> 0:09:20.079 which essentially is redistributing really concentrated ownership of land to 0:09:20.160 --> 0:09:23.120 larger numbers of people, especially in the developing rural world. 0:09:23.120 --> 0:09:25.360 We're not talking about like, you know, cities or anything here. 0:09:25.800 --> 0:09:30.360 And he went into Japan after World War Two, a 0:09:30.400 --> 0:09:35.240 bunch of other reformers basically forced the Japanese government at 0:09:35.240 --> 0:09:39.120 the time to pass a land reform bill which redistributed 0:09:39.200 --> 0:09:42.599 an enormous amount of Japan's agricultural land. This happens in 0:09:42.640 --> 0:09:45.280 Taiwan as well, it happens in South Korea, and there's 0:09:45.320 --> 0:09:47.280 a huge amount of attempt to do it elsewhere, to 0:09:47.360 --> 0:09:50.920 varying degrees across Asia in other parts of the world. Basically, 0:09:51.200 --> 0:09:54.880 it's by far the most successful in those three original countries. 0:09:55.160 --> 0:09:57.480 They try it in India, it doesn't work. They try 0:09:57.480 --> 0:10:00.280 it in Vietnam at South Vietnam, it doesn't really work. 0:10:00.360 --> 0:10:01.400 You know. I think one of the. 0:10:01.400 --> 0:10:05.600 Most impressing recurring themes on this podcast is the number 0:10:05.640 --> 0:10:09.480 of times there is some like sort of very successful 0:10:09.559 --> 0:10:12.920 project in industrialization or economic development, and then at the 0:10:13.000 --> 0:10:15.800 end there's disasters. But it's only ever worked in three 0:10:15.920 --> 0:10:18.280 like East Asian countries, and we have no evidence that 0:10:18.320 --> 0:10:19.560 any of this works anywhere else. 0:10:19.600 --> 0:10:20.360 Here's the problem. 0:10:20.480 --> 0:10:23.839 Now you have a solution that you cannot use. Yeah, okay, 0:10:23.840 --> 0:10:26.720 Well the other thing about land in China, and again 0:10:26.800 --> 0:10:29.240 we're sort of fast forwarding back to the nineties, and 0:10:29.440 --> 0:10:32.520 we should talk about the hukou systems as well later on. 0:10:32.800 --> 0:10:38.600 But land has this really unique position I guess culturally, 0:10:38.840 --> 0:10:43.439 socially and financially for Chinese people. Right, Like, everyone basically 0:10:43.440 --> 0:10:45.720 decides they want to be a landlord, they want to 0:10:46.120 --> 0:10:49.160 own an apartment, even if it's not built. You see 0:10:49.160 --> 0:10:53.200 the ads in like newspapers, flyers, things like that in 0:10:53.240 --> 0:10:57.480 a way that you don't necessarily see them for stocks 0:10:57.559 --> 0:10:58.160 or bombs. 0:10:58.280 --> 0:11:00.760 Right Totally. I think there's a big cultural thing there. 0:11:00.800 --> 0:11:04.199 I'm never too sure whether I'm like a culture is 0:11:04.280 --> 0:11:07.040 downstream of policy or policy is downstream of culture guard 0:11:07.440 --> 0:11:10.480 but it clearly is a big cultural impulse there, whatever 0:11:10.520 --> 0:11:12.719 it's driven by. I remember when I lived in Hong Kong, 0:11:12.800 --> 0:11:16.079 obviously not mainland China, but used to get adverts pushed 0:11:16.120 --> 0:11:18.920 through your door and they'd be like invest in the 0:11:18.960 --> 0:11:22.400 northern English riviera, right, there's housing in Leeds in Bradford 0:11:22.480 --> 0:11:25.160 to be bought as investment properties. This is a big thing. 0:11:25.600 --> 0:11:27.360 You didn't get those in Leeds and Bradford, right, if 0:11:27.400 --> 0:11:29.200 you learn in the UK, you don't get those adverts. 0:11:29.280 --> 0:11:31.720 So yeah, it's a big cultural thing. It's also a 0:11:31.720 --> 0:11:34.960 big thing in the mainland, I think because of financial repression. 0:11:35.440 --> 0:11:39.079 Basically you can't invest long term in the equity market 0:11:39.120 --> 0:11:42.480 in China. Right, It's a sideways game. It's a terrible 0:11:42.520 --> 0:11:45.880 way of compounding. Wealth. Bank accounts in general in China 0:11:46.160 --> 0:11:48.400 for a very long period of its modern history had 0:11:48.440 --> 0:11:52.120 like near a real negative returns because of financial repression. 0:11:52.120 --> 0:11:54.880 So the question is if you're saving a lot of money, 0:11:55.360 --> 0:11:57.440 where do you put it? And it's only really been 0:11:57.480 --> 0:12:00.000 one answer. It's been a completely rational thing for China. 0:12:00.080 --> 0:12:02.839 These households to do that, you know, extremely high saving 0:12:02.880 --> 0:12:07.160 households buying property after property, a lot of them left vacant. 0:12:07.440 --> 0:12:08.800 One of the things I say in the book is 0:12:08.800 --> 0:12:12.520 that China has the symptoms of both a housing shortage 0:12:12.559 --> 0:12:15.000 and a housing glove. Right, it managed to get the 0:12:15.000 --> 0:12:16.000 worst of both worlds. 0:12:16.360 --> 0:12:19.160 Joe, you know what I call this what China's great 0:12:19.200 --> 0:12:23.600 ball of money. Yeah, within the country, from asset class 0:12:23.640 --> 0:12:37.200 to asset class. 0:12:40.200 --> 0:12:43.079 So, Okay, the stock market hasn't done well for a 0:12:43.200 --> 0:12:46.280 very long time, raids on the savings are very low. 0:12:46.480 --> 0:12:48.840 How did like Chinese. 0:12:48.520 --> 0:12:54.800 Leaders feel about those emergence of a very speculative, high growth, 0:12:54.920 --> 0:12:57.080 high return at least during the good old days, Yeah, 0:12:57.360 --> 0:13:00.960 before a few years ago, About the emergence of this industry, 0:13:01.000 --> 0:13:04.000 About this emergence of this sort of thing that's crucial 0:13:04.040 --> 0:13:07.720 for a living and also becoming a major respeculative of vehicle. 0:13:08.000 --> 0:13:11.800 Houses are for living, not for speculations. Yes, say yeah, 0:13:11.880 --> 0:13:14.440 I mean I should say. It's an incredibly useful way 0:13:14.440 --> 0:13:17.000 of building out a city. Okay, this tool is like 0:13:17.120 --> 0:13:19.640 super powerful if you're just starting out and no one 0:13:19.679 --> 0:13:21.920 wants to invest. It's a really good way of pairing 0:13:22.280 --> 0:13:24.480 real estate development with infrastructure. You can pay for a 0:13:24.480 --> 0:13:26.520 lot of things. You can do it sort of expanding 0:13:26.640 --> 0:13:27.560 very very rapidly. 0:13:27.679 --> 0:13:31.679 Plus you boost other sectors totally, construction, manufacturing. 0:13:30.960 --> 0:13:34.120 Employment, build out. Right, you don't know the industry, Yeah, 0:13:34.160 --> 0:13:36.280 you don't have to do that much administration. It's fairly 0:13:36.320 --> 0:13:39.120 easy to do this stuff, right, So there's lots of 0:13:39.160 --> 0:13:41.920 advantages to it. I think people start to see the 0:13:41.920 --> 0:13:44.520 problems even at the level of the central Chinese government 0:13:45.000 --> 0:13:48.040 in these sort of early twenty tens, right, and you 0:13:48.160 --> 0:13:50.800 get this series of like whack them all attempts to 0:13:51.080 --> 0:13:52.880 get the big ball of money, the big ball of 0:13:52.920 --> 0:13:55.320 credit out of the system. So the first thing you 0:13:55.320 --> 0:13:58.680 see is the Chinese leadership saying, okay, banks limits on 0:13:58.720 --> 0:14:01.800 real estate lending to developer, right, which is what pushes 0:14:01.840 --> 0:14:05.040 them into the international bond markets where most of the 0:14:05.160 --> 0:14:08.319 Chinese property developers fund themselves. Then you see the limits 0:14:08.400 --> 0:14:11.319 on borrowing from the bond market, which sort of come 0:14:11.360 --> 0:14:13.959 in and out during the twenty tens, and eventually it's 0:14:13.960 --> 0:14:18.440 sort of seriously limited in twenty twenty, twenty twenty one. 0:14:18.840 --> 0:14:22.920 But even then you see Chinese developers trying to essentially 0:14:22.960 --> 0:14:27.280 borrow through pre sales from ordinary Chinese households, right, which 0:14:27.360 --> 0:14:29.840 is like, you give me all the money to build 0:14:29.840 --> 0:14:32.560 your house up front, I promise I'll get round for it, 0:14:32.640 --> 0:14:35.120 you know, not stating actually, I've got twenty other projects 0:14:35.120 --> 0:14:36.960 that I've got to build with your money first. There's 0:14:36.960 --> 0:14:40.320 no escrosystem here. So yeah, you do see the Chinese 0:14:40.320 --> 0:14:43.440 government sort of waking up to the problems, but it's 0:14:43.520 --> 0:14:45.320 like in any other country you know, it doesn't have 0:14:45.560 --> 0:14:49.040 same sort of Western democratic politics. But how do you 0:14:49.080 --> 0:14:50.520 get off the train while it's moving? 0:14:50.720 --> 0:14:51.000 Yeah? 0:14:51.120 --> 0:14:53.920 Right, And they've tried with the three Red lines and 0:14:53.960 --> 0:14:56.640 the campaign against the real estate development sector in the 0:14:56.720 --> 0:14:59.040 last five years, and it hasn't gone very well. 0:14:59.360 --> 0:15:00.680 You know something I'm wondering about. 0:15:00.680 --> 0:15:05.680 You always hear about the CCP trying to learn the 0:15:05.760 --> 0:15:09.280 lessons of the collapse of the Soviet Union, and they 0:15:09.280 --> 0:15:11.160 don't want to have that fan So they're very obsessed 0:15:11.200 --> 0:15:13.480 with this question of what brought the Soviet Union down. 0:15:13.680 --> 0:15:16.120 Do they spend much time looking at the collapse of 0:15:16.120 --> 0:15:19.120 the Japanese real estate bubble and the effect that Dad 0:15:19.280 --> 0:15:22.200 had on Japan as an industrial dynamo. 0:15:22.360 --> 0:15:25.200 It's a great question. I'm not in direct touch on 0:15:25.240 --> 0:15:28.360 a day to day basis. My understanding was that they 0:15:28.360 --> 0:15:30.960 did that this was a preoccupation of the Chinese leadership. 0:15:30.960 --> 0:15:33.200 I used to hear it a lot from people close 0:15:33.240 --> 0:15:35.960 to economic and financial policy making that this was a 0:15:36.000 --> 0:15:38.920 serious consideration and it was why they didn't want to 0:15:39.240 --> 0:15:42.400 pop the bubble, which is essentially what the Japanese government 0:15:42.480 --> 0:15:44.640 and the Bank of Japan did at the very end 0:15:44.680 --> 0:15:47.440 of the nineteen eighties early nineteen nineties, they seem to 0:15:47.440 --> 0:15:49.880 have done that anyway. I mean, it is a fascinating thing. 0:15:49.920 --> 0:15:52.520 There's always this discussion of, you know, on an autocratic 0:15:52.560 --> 0:15:55.760 regime can think in really long term, you know, they 0:15:55.760 --> 0:15:59.160 think in decades and centuries. But in this case, you know, 0:15:59.200 --> 0:16:01.760 there was a land final model that Chines's local governments had, 0:16:01.960 --> 0:16:04.320 which has been pulled out from under them. There was 0:16:04.360 --> 0:16:06.680 an asset class that Chinese households could invest in, which 0:16:06.680 --> 0:16:08.720 has been pulled out from under them. The government hasn't 0:16:08.760 --> 0:16:11.400 replaced those two things with anything particularly good. 0:16:12.040 --> 0:16:13.880 We certainly know that they look at it now, right 0:16:13.920 --> 0:16:16.320 because we had Richard Ku on the broadcast a couple 0:16:16.400 --> 0:16:19.680 of times, and we know that deflationary spiral caused by 0:16:20.080 --> 0:16:24.520 real estate collapse is kind of a topic DuJour over there. 0:16:24.960 --> 0:16:27.560 Talk more about the three red lines, because this is 0:16:27.600 --> 0:16:29.920 something I remember. They came out when we were both 0:16:29.920 --> 0:16:34.080 in Hong Kong, and you could see why policy makers 0:16:34.360 --> 0:16:36.800 were doing it. And to some extent, you know, okay, 0:16:37.240 --> 0:16:39.920 house prices came down and there's less new builds and 0:16:39.960 --> 0:16:43.080 things like that nowadays, but they also seem to kind 0:16:43.120 --> 0:16:44.080 of flub them, right. 0:16:44.040 --> 0:16:47.560 Yeah, totally so the three Red lines were basically the 0:16:47.680 --> 0:16:52.040 Chinese government identifies the real estate developers as the tool 0:16:52.120 --> 0:16:54.320 through which they're going to cool the housing market down, 0:16:54.760 --> 0:16:56.600 and they come out with the three red lines, which 0:16:56.640 --> 0:17:00.440 are three different metrics of debt to cash and other 0:17:00.480 --> 0:17:03.160 sort of debt metrics, and they basically say, if you 0:17:03.560 --> 0:17:07.000 violate one or two of these, you can maybe keep 0:17:07.040 --> 0:17:10.240 borrowing only to refinance old debt. If you're green on 0:17:10.280 --> 0:17:12.399 all of the three red lines, you're fine. Right, if 0:17:12.440 --> 0:17:14.560 your metrics are okay, keep borrowing, go for it. But 0:17:14.600 --> 0:17:16.600 none of them are at this point. And if you 0:17:16.680 --> 0:17:20.000 have three red scores on the red lines, basically, if 0:17:20.040 --> 0:17:24.200 you're violating all of these, no borrowing even to refinance. Right, 0:17:24.359 --> 0:17:27.840 You've got to pay down debt. Now, these companies are 0:17:28.040 --> 0:17:32.200 some of the most insanely structured financial vehicles in history. Right. 0:17:32.440 --> 0:17:37.120 They can only expand through extremely rapid debt driven growth. Right. 0:17:37.400 --> 0:17:39.399 The model is such. You know, if you're Everground and 0:17:39.440 --> 0:17:43.479 you're paying like a fifteen percent interest on your borrowing, 0:17:43.800 --> 0:17:46.800 you've got to keep borrowing to expand. Right. It's not 0:17:46.840 --> 0:17:48.400 a good idea, but you've got nothing else. 0:17:48.880 --> 0:17:52.360 So funny thing about Evergrand also is the diversification into 0:17:52.400 --> 0:17:54.640 a bunch of other things. I remember again in Hong 0:17:54.720 --> 0:17:57.080 Kong asking someone like, we should do a graphic of 0:17:57.480 --> 0:18:00.080 China evergrands all there are different businesses, right because it 0:18:00.119 --> 0:18:03.320 would be really interesting, And it took like three weeks 0:18:03.320 --> 0:18:05.600 to make and when it came out, it was almost 0:18:05.680 --> 0:18:08.719 unreadable because there were just so many of them, like 0:18:08.840 --> 0:18:09.600 splayed out. 0:18:09.720 --> 0:18:11.320 You know, it sounds like we work. 0:18:11.720 --> 0:18:14.000 I mean that was a company that had diversified into 0:18:14.160 --> 0:18:16.399 literal wave wavepool. 0:18:15.800 --> 0:18:18.320 Business and about one hundred other things. 0:18:18.359 --> 0:18:23.600 So also just an insanely complicated, leveraged organization. There was 0:18:23.640 --> 0:18:27.240 a multi billion dollar unicorn now is where the bag Offridos. 0:18:27.359 --> 0:18:31.600 We mocked when they bought Friday Futures, the US EV company, 0:18:31.640 --> 0:18:37.280 and we all mocked right everground saying honestly, now, I'm 0:18:37.320 --> 0:18:40.040 like maybe if they the three red lines hadn't come in, 0:18:40.119 --> 0:18:41.680 we'd be like soon around me. 0:18:41.800 --> 0:18:46.960 This carsonization of Chinese companies were on a long enough timeline. 0:18:46.960 --> 0:18:48.600 They're all becoming EV companies. 0:18:48.760 --> 0:18:51.000 Like there was a great article in Bloomberg earlier this 0:18:51.040 --> 0:18:54.480 week about multiple vacuum cleaner companies in China that are 0:18:54.520 --> 0:18:56.040 now releasing EV. 0:18:56.320 --> 0:18:57.359 So I guess I'll make sense. 0:18:57.240 --> 0:18:59.600 That their argument was always like, you know, where do 0:18:59.680 --> 0:19:02.119 you put your car in the car park in the 0:19:02.240 --> 0:19:07.000 estate that you live in? Who built that? Yeah, they 0:19:07.040 --> 0:19:09.640 believed in it, But basically, yeah, they bring the three 0:19:09.640 --> 0:19:13.119 red lines in the real estate development sector begins contracting 0:19:13.240 --> 0:19:15.760 very rapidly. The most in debted companies get into trouble 0:19:15.840 --> 0:19:18.560 almost immediately, but also some of the companies that people 0:19:18.560 --> 0:19:20.919 thought were pretty safe, that borrowed at pretty low rates 0:19:21.240 --> 0:19:23.480 are getting into trouble fairly quickly as well. Your sort 0:19:23.480 --> 0:19:26.680 of country gardens China, Vanka, like, they're all getting into 0:19:26.680 --> 0:19:29.359 trouble quite quickly. The way I think of it is 0:19:29.359 --> 0:19:32.520 that basically the Chinese government attacked the sector that had 0:19:32.560 --> 0:19:36.720 grown up to intermediate between the households and the local governments, 0:19:36.960 --> 0:19:38.879 but they didn't change anything about the incentives to the 0:19:38.880 --> 0:19:41.960 households of the local governments. The households still need to invest, 0:19:42.280 --> 0:19:45.160 the local governments still need money from somewhere, and these 0:19:45.160 --> 0:19:49.320 companies were just making that arrangement work for those two sides, see, 0:19:49.520 --> 0:19:52.800 and destroying them does nothing really, you know, it causes 0:19:52.840 --> 0:19:56.560 a lot of distress, Construction activity drops, lots of people 0:19:56.560 --> 0:19:58.960 aren't going to get the homes they invested in through 0:19:59.000 --> 0:20:01.679 the pre sale system, But it doesn't really address the 0:20:01.760 --> 0:20:03.720 actual core driving forces. 0:20:03.840 --> 0:20:08.000 Talk a little bit more about the local government finances 0:20:08.400 --> 0:20:12.200 and what it is about land that is particularly importantly 0:20:12.200 --> 0:20:14.440 because there are other ways that local governments could theoretically 0:20:14.640 --> 0:20:15.479 taxes on there. 0:20:16.480 --> 0:20:19.240 I was never sure what the driving if the driving 0:20:19.280 --> 0:20:22.560 force was at the sort of Beijing national level, or 0:20:22.640 --> 0:20:25.080 if it was the local governments that you know, first 0:20:25.119 --> 0:20:27.000 started doing this because they're like, Oh, here's a way 0:20:27.040 --> 0:20:30.240 to make money and develop and look good in Beijing's eyes, 0:20:30.520 --> 0:20:32.080 and then Beijing just kind of went with it. 0:20:32.280 --> 0:20:35.040 So I would trace it back largely too. As I 0:20:35.080 --> 0:20:38.480 said before, you know, people started experimenting with land auctions 0:20:38.560 --> 0:20:41.840 land sales from nineteen eighty seven. It starts to get 0:20:41.840 --> 0:20:45.000 more popular in the early nineties, but it's nineteen ninety 0:20:45.080 --> 0:20:49.480 four when they change the tax and spending system, the 0:20:49.560 --> 0:20:54.000 distribution of spending and tax responsibilities between the Chinese central 0:20:54.040 --> 0:20:56.960 and local governments that really sort of hammers it home. 0:20:57.080 --> 0:21:01.600 So traditionally China People's Republic like decentralized in terms of 0:21:01.720 --> 0:21:04.560 revenue and spending obligations. Local governments did most of the 0:21:04.600 --> 0:21:07.359 tax raising. They did most of the spending. The central 0:21:07.359 --> 0:21:09.240 government told them there were certain things they had to do, 0:21:09.280 --> 0:21:12.720 but they did it all fairly independently. And then nineteen 0:21:12.760 --> 0:21:15.920 ninety four they switched the system and the central government says, 0:21:16.440 --> 0:21:18.960 you could raise the red but we'll take most of that, right, yeah, 0:21:19.040 --> 0:21:20.600 will tell you how much you get back of that. 0:21:20.680 --> 0:21:24.040 It became a much more centralized system, and overnight the 0:21:24.119 --> 0:21:28.840 local governments were left with huge spending responsibilities those don't change, 0:21:29.160 --> 0:21:31.879 but only making sort of sixty or seventy percent of 0:21:31.920 --> 0:21:34.400 the money that they needed to fund them. They stumbled 0:21:34.400 --> 0:21:36.879 through the nineteen nineties trying to find ways of doing this. 0:21:36.960 --> 0:21:40.639 There's lots of sort of flagrantly illegal administrative fees and 0:21:40.720 --> 0:21:43.320 fines placed on things. This actually gets them in trouble 0:21:43.320 --> 0:21:46.959 because it's very politically sensitive. You know, there's rural Chinese 0:21:47.000 --> 0:21:50.199 residents being absolutely rinsed for anything the local governments can 0:21:50.240 --> 0:21:54.119 get their hands on. And they land on land. Basically, 0:21:54.280 --> 0:21:58.560 they see the land auctions, which are off balance sheet revenues. 0:21:58.600 --> 0:22:01.040 They do not count for the purpose of being remitted 0:22:01.080 --> 0:22:03.919 to Beijing in the same way that normal tax revenues do, 0:22:04.160 --> 0:22:06.280 and they say, right, okay, that's it. That's what we'll do. 0:22:06.280 --> 0:22:07.720 That's so why I will raise money. And you see 0:22:07.720 --> 0:22:10.959 the proportion of income rise and rise and rise very 0:22:11.000 --> 0:22:13.680 aggressively through the late nineteen nineties from a pretty sort 0:22:13.680 --> 0:22:17.040 of residual amount that was useful for it was useful 0:22:17.040 --> 0:22:20.280 for land allocation, it wasn't mostly useful the beginning for 0:22:20.359 --> 0:22:22.840 raising money, and it becomes the main fundraising tool. 0:22:22.840 --> 0:22:25.119 And then they're in the trap. Yeah, the land trap. 0:22:25.800 --> 0:22:29.200 Has any country ever successfully gotten out of this type 0:22:29.240 --> 0:22:29.800 of situation? 0:22:30.480 --> 0:22:31.840 It depends what you mean my success. 0:22:31.960 --> 0:22:36.480 Yeah, without a massive collapse or without a period of 0:22:36.760 --> 0:22:39.359 very long stagnation, which seems to be what China is 0:22:39.400 --> 0:22:39.720 in now. 0:22:39.840 --> 0:22:43.560 I would say basically no. And funnily enough, I actually 0:22:43.560 --> 0:22:48.520 think one of the best cases for relatively rapid like 0:22:48.600 --> 0:22:51.520 return to normalcy is after two thousand and eight in 0:22:51.560 --> 0:22:55.200 the US specifically. You can tell how few cases there 0:22:55.200 --> 0:22:58.480 are that I'm using the Great Recession. 0:22:58.080 --> 0:22:59.440 This is the best one, as like. 0:22:59.400 --> 0:23:01.280 This might be the best outcome for a number of 0:23:01.320 --> 0:23:03.080 different reasons. But yeah, that might be the best outcome. 0:23:03.080 --> 0:23:04.760 There are places that didn't get into the trap in 0:23:04.800 --> 0:23:05.679 the first place. 0:23:05.440 --> 0:23:07.920 Right that that seems to be the ideal. Probably. 0:23:07.960 --> 0:23:11.919 I've obviously never been to mainland China. All of the 0:23:12.080 --> 0:23:16.120 China news that I consume is on propaganda that makes 0:23:16.160 --> 0:23:19.840 it onto my Instagram reels that shows all these incredible 0:23:20.000 --> 0:23:24.479 futuristic cities and robots doing everything. One hundred percent of 0:23:24.480 --> 0:23:27.359 my China news consumption makes it look like paradise on 0:23:27.400 --> 0:23:30.040 Earth again, because I only consume propaganda. 0:23:30.160 --> 0:23:32.200 Is it actually stagnating? 0:23:32.560 --> 0:23:34.600 I will say I can't claim to have been to 0:23:34.680 --> 0:23:37.560 mainland China for years now. I think it is. I 0:23:37.560 --> 0:23:43.439 think the long term threat from undermining what was really 0:23:43.560 --> 0:23:45.760 right at the middle of the Chinese development model for 0:23:45.760 --> 0:23:47.800 a very long time and not replacing it with anything 0:23:47.840 --> 0:23:51.880 has been really dangerous. You've seen this effort as investment 0:23:51.880 --> 0:23:54.239 in the real estate sector has dropped and dropped from 0:23:54.280 --> 0:23:57.040 drop to drive it into the manufacturing sector. But the 0:23:57.040 --> 0:23:59.359 reality is that the manufacturing sector, as big as it 0:23:59.400 --> 0:24:02.880 is in China isn't big enough to productively absorb all. 0:24:02.880 --> 0:24:07.600 This isn't the question like, can the Chinese manufacturing sector 0:24:07.680 --> 0:24:11.840 just be so dominant that it just offsets the decline 0:24:11.840 --> 0:24:12.400 of real estate? 0:24:12.480 --> 0:24:14.360 And your analysis is no. 0:24:14.480 --> 0:24:17.200 My analysis is no, Chinese economy is too big. I 0:24:17.240 --> 0:24:20.640 would say, and too big means that the domestic real 0:24:20.720 --> 0:24:24.080 estate market is absolutely gargantian. Right. The thing you're trying 0:24:24.080 --> 0:24:28.000 to replace is enormous, and there's only so many buyers 0:24:28.000 --> 0:24:29.919 for your products in the rest of the world. And 0:24:29.920 --> 0:24:32.880 this is why you see I think the anti evolution campaign. 0:24:32.880 --> 0:24:34.960 Trying to get consumption up exactly. 0:24:34.760 --> 0:24:37.679 The pressure against it, because the sort of consequences, the 0:24:37.680 --> 0:24:40.720 negative consequence is already starting to display themselves. And we're 0:24:40.760 --> 0:24:44.840 really like three years into this really big push to 0:24:44.960 --> 0:24:48.200 drive the investment into manufacturing, and it's showing those problems 0:24:48.280 --> 0:24:50.119 in a way that it's a real estate much longer. 0:24:50.520 --> 0:24:52.440 I don't think it can be a like for like replacement. 0:24:52.920 --> 0:24:55.679 Wait, talk more about real estate and productivity, because this 0:24:55.720 --> 0:24:58.120 is something that I didn't really internalize until I read 0:24:58.160 --> 0:25:00.680 the chapter in your book China chapter. 0:25:00.880 --> 0:25:04.440 Yes, so there is a lot of really really interesting 0:25:04.480 --> 0:25:07.680 research about real estate in China and what it's done 0:25:07.960 --> 0:25:10.199 to productivity. So if you think about it from the 0:25:10.200 --> 0:25:13.720 perspective of we're going to get into a banking argument 0:25:13.760 --> 0:25:15.280 that's already got that's going to get me in trouble 0:25:15.280 --> 0:25:16.600 as well in terms of like the you know, the 0:25:16.640 --> 0:25:18.560 amount of credit you can have. But if you think 0:25:18.560 --> 0:25:21.000 there's any constraint on the amount of credit, which obviously 0:25:21.000 --> 0:25:24.200 in China there is, there are actual like targets and limits. 0:25:24.240 --> 0:25:27.159 It's still a fairly state oriented system in lots of 0:25:27.160 --> 0:25:30.080 different ways. Then the resource is going to one part 0:25:30.080 --> 0:25:32.040 of the economy means they aren't going to another part 0:25:32.080 --> 0:25:35.280 of the economy. And in China's case, this means employment, 0:25:35.400 --> 0:25:38.439 it means material investment, it means you know, steel and 0:25:38.480 --> 0:25:41.840 concrete and copper and everything else. The real estate sector 0:25:41.960 --> 0:25:45.520 in general, in a long run, I think has pretty 0:25:45.560 --> 0:25:50.040 low productivity. Right. You can build constructively in places where 0:25:50.040 --> 0:25:52.359 you know housing's really in demand, but there's only so 0:25:52.480 --> 0:25:53.399 much you can get out of it. 0:25:53.600 --> 0:25:55.120 It's not making new stuff. 0:25:55.000 --> 0:25:57.680 No, totally, and certainly in China. What has happened and 0:25:57.680 --> 0:26:00.359 what was certainly happening during the run up to the 0:26:00.359 --> 0:26:03.200 the three Red Lines policy is you saw a lot 0:26:03.200 --> 0:26:08.040 of productive, entrepreneurial and innovative activity instead going into real estate. 0:26:08.160 --> 0:26:11.200 We talk about Chinese real estate developers having lots of arms. 0:26:11.560 --> 0:26:13.679 Every big Chinese company was trying to run a real 0:26:13.760 --> 0:26:16.560 estate company on the side during the twenty tens, right, 0:26:16.560 --> 0:26:18.800 because there's so much money to be made, why not 0:26:18.880 --> 0:26:21.680 do that as well? And there's really interesting research from 0:26:21.800 --> 0:26:26.480 yush at the IMF talking about how individual Chinese entrepreneurs 0:26:26.520 --> 0:26:29.159 would go into real estate over time because there's so 0:26:29.240 --> 0:26:32.399 much money to be made and it is productivity destroying, 0:26:32.560 --> 0:26:35.440 especially if I think you're in a state oriented financial 0:26:35.480 --> 0:26:37.240 system where you're not probably going to see like a 0:26:37.240 --> 0:26:40.000 two thousand and eight style crash. This is where you 0:26:40.040 --> 0:26:58.560 see the consequences come through, you know. 0:26:58.640 --> 0:27:01.680 I Wou was thinking about that the Sopranos where Aj 0:27:01.880 --> 0:27:03.880 tells us Sunday's like by real estate, they're not making 0:27:03.920 --> 0:27:07.240 any more of it, whether China elsewhere, that's not really true, 0:27:07.280 --> 0:27:11.040 Like a artificial islands exist b again in. 0:27:11.040 --> 0:27:14.159 The islands literally a drop in the ocean. 0:27:15.040 --> 0:27:17.160 You guys start somewhere. You guys start somewhere. 0:27:17.240 --> 0:27:22.159 But more importantly, again if the my mainlining consumption of 0:27:22.280 --> 0:27:25.080 Chinese propaganda, I always see these things like this used 0:27:25.119 --> 0:27:27.920 to be a desert. Now it's this beautiful like farmable 0:27:28.000 --> 0:27:32.200 land and there's greenery here. Like whether it's China or elsewhere, 0:27:32.280 --> 0:27:34.960 or the history of land like, it's not really that fixed. 0:27:34.960 --> 0:27:38.920 They always find new ways to sort of create habitable land. 0:27:38.960 --> 0:27:40.320 That's that's what it used to be human. 0:27:40.480 --> 0:27:44.280 I think there's two things. That one is like actual reclamation, 0:27:44.520 --> 0:27:47.359 which is like we've probably added like can you. 0:27:47.400 --> 0:27:49.080 But by the way, I think that's the most powerful 0:27:49.119 --> 0:27:52.480 word in English language, reclamation, because it's like it means 0:27:52.560 --> 0:27:55.840 turning watery land into land. Yeah, but the implication is 0:27:55.840 --> 0:27:59.280 like we're reclaiming it. We are reclaiming what used to be. 0:27:59.359 --> 0:28:02.040 Are think there's such a powerful world, right, It's very. 0:28:01.920 --> 0:28:06.520 Like Francis Bacon. It's very like, you know, man's dominions. 0:28:05.640 --> 0:28:08.000 Like this land that we ken't live in was only 0:28:08.240 --> 0:28:10.320 we were temporarily embarrassed. 0:28:11.359 --> 0:28:13.120 It's always good to do land recommention where you can, 0:28:13.119 --> 0:28:15.320 but there's really not very much of it, Okay. I 0:28:15.320 --> 0:28:18.240 think that the more interesting way that you can create 0:28:18.440 --> 0:28:20.360 more land in the way that I think of it 0:28:20.400 --> 0:28:23.000 is more like if you think of land as a 0:28:23.520 --> 0:28:26.720 like a commutable, reachable area, then we've always at treaded 0:28:26.760 --> 0:28:30.439 more land. Right, It's like the Bronx wasn't useful land 0:28:30.720 --> 0:28:33.320 one hundred and fifty years ago, and now it's extraordinarily 0:28:33.359 --> 0:28:36.480 expensive land because you can get into the productive center 0:28:36.520 --> 0:28:40.600 of New York. And that's actually one thing that loosens 0:28:40.800 --> 0:28:43.880 the sort of trap conditions around land over time. You 0:28:43.920 --> 0:28:46.960 see this in the US, like during the early twentieth century, 0:28:47.360 --> 0:28:49.480 you saw New York, for example, loosen a lot of 0:28:49.480 --> 0:28:52.520 its problems with housing in real estate because suddenly it 0:28:52.640 --> 0:28:55.280 was like the outer boroughs you could populate full of 0:28:55.320 --> 0:28:57.960 people and they could work in Manhattan still and that 0:28:58.080 --> 0:29:01.200 was fine. And that was a bit like multiple New 0:29:01.280 --> 0:29:02.880 York's worths of land to attach to it. 0:29:03.040 --> 0:29:05.200 Oh, here's where we can talk about the hook house system, 0:29:05.480 --> 0:29:08.480 because that ended up being precisely a limiting force on 0:29:08.520 --> 0:29:09.160 this dynamic. 0:29:09.400 --> 0:29:09.680 Yeah. 0:29:09.720 --> 0:29:12.520 Absolutely, And I think that that feeds into the whole 0:29:12.760 --> 0:29:16.640 question of the Chinese welfare system and the fact that 0:29:17.320 --> 0:29:21.120 Chinese households are driven to invest so aggressively in land. Right, 0:29:21.440 --> 0:29:25.840 if your welfare is linked completely to the place where 0:29:25.880 --> 0:29:28.760 you grew up, and you become a migrant worker and 0:29:28.760 --> 0:29:32.040 you go and work somewhere else, then you're going to 0:29:32.080 --> 0:29:34.520 want to invest very aggressively, either in real estate where 0:29:34.560 --> 0:29:36.479 you can in the place you moved to, or in 0:29:36.520 --> 0:29:39.240 real estate at home. It's essentially like a sort of 0:29:39.240 --> 0:29:42.320 savings technique more than it is. Again in China, it 0:29:42.320 --> 0:29:44.840 feels like the land use and the land as an 0:29:44.880 --> 0:29:47.600 asset are more divorced from one another than anywhere else. 0:29:47.920 --> 0:29:49.880 You can see this in the rental yield data right, 0:29:50.240 --> 0:29:53.400 rental yields and rents in China aren't expensive, even in 0:29:53.440 --> 0:29:56.160 you know, the really popular cities, they're not expensive at all. 0:29:56.640 --> 0:29:59.320 So that that sort of gap and the hook how 0:29:59.440 --> 0:30:04.640 system really feeds into this by essentially it's another force 0:30:04.760 --> 0:30:07.240 driving Chinese households to invest more and more and more. 0:30:07.280 --> 0:30:09.680 Sorry, I don't totally understand, explain a lot of what 0:30:09.760 --> 0:30:12.000 is the essence of the system, what are the constraints 0:30:12.040 --> 0:30:15.120 are played, and then clarify like how it how the 0:30:15.760 --> 0:30:17.840 incentives therefore are to enquire. 0:30:17.880 --> 0:30:20.520 But the essence of the system basically is that you 0:30:20.640 --> 0:30:23.120 have a welfare system that is linked to the place 0:30:23.200 --> 0:30:26.160 where you're registered as a household. It's usually the place 0:30:26.160 --> 0:30:30.520 where you grew up, so you're able to get all 0:30:30.560 --> 0:30:35.080 sorts of different ordinary welfare state things based there only. 0:30:35.160 --> 0:30:38.040 And if you move for work it doesn't matter, right, 0:30:38.360 --> 0:30:41.120 So you're not eligible if you're a migrant worker to 0:30:41.160 --> 0:30:44.000 all of those things in Shanghai, for example, And these 0:30:44.040 --> 0:30:46.600 things are really really so you can move there, You 0:30:46.640 --> 0:30:50.160 can move there. 0:30:48.640 --> 0:30:51.840 But you really be a sort of literally a second classes. 0:30:52.040 --> 0:30:55.560 Yeah. Absolutely. So this is without huge amounts of external migration, 0:30:55.680 --> 0:30:58.920 or with almost no external migration. Really, China has been 0:30:58.960 --> 0:31:01.360 able to create system that lots of other parts of 0:31:01.360 --> 0:31:05.400 the world have with very poorly paid migrant workers turning 0:31:05.440 --> 0:31:07.160 up who don't have many rights in the place they'm 0:31:07.160 --> 0:31:09.760 moving to. These are the people doing the construction jobs 0:31:09.760 --> 0:31:11.400 that people doing a lot of low paid work. 0:31:11.880 --> 0:31:13.640 I don't know if this still happens, but I remember 0:31:13.680 --> 0:31:16.360 in the two thousands, if you early two thousands, if 0:31:16.360 --> 0:31:18.640 you walked around Beijing at night and looked in the 0:31:18.680 --> 0:31:20.840 windows of some of the restaurants, the waiters would be 0:31:20.840 --> 0:31:23.080 sleeping on the table because most of them came in 0:31:23.160 --> 0:31:26.600 from the farmland, didn't have access to housing. So kind 0:31:26.600 --> 0:31:27.040 of crazy. 0:31:27.280 --> 0:31:27.960 Yeah. Yeah. 0:31:28.160 --> 0:31:31.040 People who are sort of more on the immigration restrictionist 0:31:31.240 --> 0:31:35.200 end in the US will often say things like, you 0:31:35.240 --> 0:31:38.960 know what, the US has actually fallen behind on productivity 0:31:39.200 --> 0:31:42.120 because we have this endless supply of cheap labor with 0:31:42.200 --> 0:31:45.000 diminished rights. Had we not had that, that would have 0:31:45.120 --> 0:31:49.400 forced US firms to do more capital deepening, maybe invest 0:31:49.440 --> 0:31:53.080 in robots, et cetera. It's interesting because we think of 0:31:53.280 --> 0:31:58.600 China as a very advanced industrial nation, and yet your 0:31:58.640 --> 0:32:00.920 description that makes me think that's story doesn't really hold 0:32:00.960 --> 0:32:01.719 water totally. 0:32:01.760 --> 0:32:04.240 And I understand why people concentrate on that element of 0:32:04.240 --> 0:32:07.240 the Chinese economy. It's like the most exciting, interesting bit, 0:32:07.280 --> 0:32:09.800 and you don't need to downplay in any way the 0:32:09.880 --> 0:32:13.120 advanced manufacturing and sort of hyper futuristic elements of it 0:32:13.200 --> 0:32:17.240 to say that that doesn't represent the overwhelming share even 0:32:17.320 --> 0:32:21.840 Chinese industry, right, which is relatively low productivity, relatively low return. 0:32:22.000 --> 0:32:25.520 It's at scale, but it's not enormously like futuristic, and 0:32:25.600 --> 0:32:28.680 certainly once you get out of the manufacturing industry, you 0:32:28.720 --> 0:32:31.720 are going into the standard East Asian development model, where 0:32:31.720 --> 0:32:36.520 the service industries productivity is absolutely awful, right, really really 0:32:36.560 --> 0:32:40.200 poor service productivity. So yeah, I think it's a the 0:32:40.240 --> 0:32:42.360 two things are true at once. Right. It's large and 0:32:42.400 --> 0:32:44.960 it contains multitudes, but it's not most of the story 0:32:44.960 --> 0:32:45.160 to me. 0:32:45.680 --> 0:32:49.000 Do you see any signs that Chinese people are starting to, 0:32:49.160 --> 0:32:52.840 I guess move into other assets like equities, probably not bonds, 0:32:52.920 --> 0:32:55.040 But we know that government has been trying to stimulate 0:32:55.040 --> 0:32:57.800 the entire economy, and I think they've been pretty clear 0:32:57.840 --> 0:33:01.120 they've been trying to lift various asset prices, not house. Well, 0:33:01.200 --> 0:33:04.120 now they're doing housing as well. Actually, but do you 0:33:04.120 --> 0:33:06.120 see any signs that people are starting to change their 0:33:06.160 --> 0:33:08.360 minds on something like Chinese equities. 0:33:08.600 --> 0:33:11.600 I think to make the Chinese equity market really work, 0:33:11.720 --> 0:33:15.240 you would have to make a series of deep political 0:33:15.280 --> 0:33:18.560 decisions about the way China's run that I think they 0:33:18.600 --> 0:33:22.200 probably won't make, which is basically things like Jack mal 0:33:22.240 --> 0:33:26.160 when he got really slapped down right. Basically, you need 0:33:26.200 --> 0:33:28.840 to allow that sort of behavior, right, You need to 0:33:28.880 --> 0:33:31.320 allow the innovation. You need to allow the entrepreneurs to 0:33:31.360 --> 0:33:33.440 sort of go nuts. You can't have all of these 0:33:33.480 --> 0:33:36.720 restrictions around. We don't want the young people playing video games, 0:33:36.800 --> 0:33:38.719 and we want it to be driven into this kind 0:33:38.760 --> 0:33:41.360 of robotics and not that kind, and all of those 0:33:41.400 --> 0:33:45.400 sort of limitations are going to I would say, prevent 0:33:45.480 --> 0:33:48.160 that from happening. There's too much political activity that a 0:33:48.280 --> 0:33:49.440 Chinese company has to do. 0:33:49.560 --> 0:33:53.600 What about just like the hyper competitiveness. I mean, people say, well, 0:33:53.840 --> 0:33:57.080 there's hundreds of ev companies in China, most of them 0:33:57.160 --> 0:34:00.880 are going to fail, and yet you read about launches. 0:34:01.600 --> 0:34:03.600 I don't know, like this is one of those stories 0:34:03.880 --> 0:34:06.360 that I really like because it feeds all my biases, 0:34:06.680 --> 0:34:07.640 So therefore. 0:34:07.280 --> 0:34:08.640 I'm sort of very skeptical of it. 0:34:08.680 --> 0:34:11.920 But I've probably repeated it's like, oh, like China's stock 0:34:11.960 --> 0:34:14.480 market hasn't done well because they're too good at capitalism, 0:34:14.480 --> 0:34:16.799 because it's too competitive, because they really get it, they're 0:34:16.840 --> 0:34:20.960 really competing has driven all this abundance and so forth, Like, 0:34:21.080 --> 0:34:24.200 is there something to that that, Like, the reason Chinese 0:34:24.239 --> 0:34:27.839 equities haven't done well is because with such intense competition, 0:34:28.120 --> 0:34:31.040 with the provinces all having their normal champions, that none 0:34:31.120 --> 0:34:33.920 can really sort of capture something that might reflect sort 0:34:33.920 --> 0:34:34.880 of monopoly rents. 0:34:34.960 --> 0:34:37.320 I think there's definitely something to that in a way. 0:34:37.480 --> 0:34:38.959 When I think about that, I would say, it's true 0:34:38.960 --> 0:34:42.680 when you're subsidizing the competition, it's not true competition in general. Right, 0:34:42.920 --> 0:34:45.319 It seems crazy to me to say, like, not bad 0:34:45.360 --> 0:34:49.239 if everyone's getting like cheap inputs. There's lots of competition. 0:34:48.880 --> 0:34:51.680 But the provinces still do have a role in subsidizing, 0:34:51.800 --> 0:34:56.160 either implicitly or directly in subsidizing their national champions. And 0:34:56.200 --> 0:34:59.480 when she says, yeah that we want to make spark 0:34:59.520 --> 0:35:02.279 plugs big priority for the next five years they all 0:35:02.320 --> 0:35:05.080 go They still do that, right, They scramble to find 0:35:05.120 --> 0:35:06.200 their local spark plus. 0:35:06.600 --> 0:35:09.520 And I think there's lots of like American examples and 0:35:09.560 --> 0:35:11.799 examples elsewhere. And sector is where people said, oh, it's 0:35:11.800 --> 0:35:14.360 too competitive, no one will ever achieve it. Uber is 0:35:14.360 --> 0:35:17.440 a good example. People said this would never work. It 0:35:17.480 --> 0:35:19.719 does work, right, So there is a scale that you 0:35:19.760 --> 0:35:22.800 can build where I think you develop a value even 0:35:22.840 --> 0:35:25.879 in a market with it's really competitive and really sort 0:35:25.880 --> 0:35:28.680 of low entry costs. But you won't do that if 0:35:28.760 --> 0:35:31.800 every other imagine a world with Uber but where every 0:35:31.880 --> 0:35:36.000 other rideshare company was aggressively subsidized every time above a 0:35:36.000 --> 0:35:38.799 certain market cap, then yeah, you wouldn't have Uber at 0:35:38.800 --> 0:35:39.600 a certain market cap. 0:35:39.760 --> 0:35:42.279 I'm really curious because again, the book goes through it's 0:35:42.280 --> 0:35:45.560 not just China. It goes through all sorts of land models. 0:35:45.600 --> 0:35:48.279 But what was the most interesting one that you looked at. 0:35:48.520 --> 0:35:51.880 Not only does it go across different ways that different 0:35:51.880 --> 0:35:55.000 countries treat land across the world, it also goes across time, 0:35:55.120 --> 0:35:57.439 like three thousand years worth of human history. 0:35:57.520 --> 0:35:59.759 Yeah, I should emphasize to anyone listening. I was really 0:35:59.760 --> 0:36:01.560 interest and the China stuff, but it's not a not 0:36:01.640 --> 0:36:05.040 a child. The two most interesting to me, one of 0:36:05.040 --> 0:36:06.920 which because I live there and I think it's the 0:36:06.960 --> 0:36:10.240 most unusual and fascinating real estate system in the world 0:36:10.400 --> 0:36:14.359 is Singapore, which has defied in many ways a lot 0:36:14.400 --> 0:36:18.719 of the limitations that other countries have seen. And one 0:36:18.719 --> 0:36:20.040 of the first parts of the book, which is like 0:36:20.080 --> 0:36:24.800 Colonial America, where there were all of these efforts to 0:36:24.840 --> 0:36:27.759 turn land into money. Right, these colonists get to a 0:36:27.800 --> 0:36:31.319 place where they have essentially to them, infinity land. It 0:36:31.400 --> 0:36:33.399 just keeps going on and on. They don't know where 0:36:33.440 --> 0:36:35.759 it stops. It seems to be relatively fertile and good 0:36:35.800 --> 0:36:38.360 and more people turn up, but have shortages and cash 0:36:38.400 --> 0:36:41.000 and labor and everything else. And there's all of these 0:36:41.080 --> 0:36:43.920 efforts to turn land into money with public and private 0:36:44.000 --> 0:36:47.160 land banking projects. I found all of that like absolutely fascinating. 0:36:47.320 --> 0:36:49.600 It's not actually something I knew very well before starting 0:36:49.600 --> 0:36:53.240 to research the book. Yeah, so Singapore and Colonial America. 0:36:53.280 --> 0:36:55.800 What is it about Singapore that makes it? I actually 0:36:55.840 --> 0:36:57.359 I don't know why. I sort of assumed they did 0:36:57.400 --> 0:37:00.279 the same ninety nine year they leason that this is 0:37:00.280 --> 0:37:02.120 the most interesting thing. They start off with all the 0:37:02.160 --> 0:37:04.879 inherited things that Hong Kong starts off with. Up until 0:37:04.920 --> 0:37:07.239 the middle of the twentieth century, the cities have run 0:37:07.320 --> 0:37:10.000 on very very similar lines. Hong Kong goes off in 0:37:10.040 --> 0:37:12.600 one direction and Singapore goes off in another. And the 0:37:12.600 --> 0:37:18.520 Singaporean direction is basically, how do you maximize home ownership permanently? 0:37:18.719 --> 0:37:20.960 How do you have a sustainable model for making sure 0:37:20.960 --> 0:37:23.399 people can still afford to come in. So what they 0:37:23.440 --> 0:37:26.920 have is this bizarre public private system. I say bizarre, 0:37:27.160 --> 0:37:30.719 you know, it's very impressive where the government owns most 0:37:30.760 --> 0:37:32.600 of the city's land, not all of it like in 0:37:32.640 --> 0:37:34.239 Hong Kong, but most of it, and they have the 0:37:34.280 --> 0:37:38.239 Housing and Development Board that builds housing estates. They then 0:37:38.440 --> 0:37:41.719 sell the units in the housing estates to Singaporean citizens. 0:37:42.120 --> 0:37:44.560 You can only own one, you can't own multiple and 0:37:44.600 --> 0:37:47.520 rent them out. There are restrictions on how long you 0:37:47.520 --> 0:37:49.480 can hold them before but there's an internal market, but 0:37:49.480 --> 0:37:52.320 you can only sell them to Singaporean systems and permanent residents. 0:37:52.800 --> 0:37:54.960 The amount of building is done to make sure that 0:37:55.000 --> 0:37:59.240 everyone can afford it. They've really divorced usage from speculations totally. 0:37:59.280 --> 0:38:01.799 They divorce users from speculation and a place that I 0:38:01.800 --> 0:38:04.920 think most people think of as very capitalistic, free market, 0:38:04.960 --> 0:38:08.200 low tax has basically decided this asset class land and 0:38:08.280 --> 0:38:10.960 real estate, this is something different and we're doing Yeah, 0:38:11.000 --> 0:38:12.759 we're doing a different thing with this. Were you know, 0:38:12.840 --> 0:38:17.000 the normal forces simple. There's so much international money center 0:38:17.040 --> 0:38:18.640 of like capital and trade flows is. 0:38:18.680 --> 0:38:22.320 Rich commercial reachs though in Singapore they do. You remember 0:38:22.400 --> 0:38:24.440 this because when I was in Singapore, I saw the 0:38:24.480 --> 0:38:26.839 ticker symbol on this out of a few buildings. It's 0:38:26.840 --> 0:38:29.840 like you could invest in this but anyway, Yeah. 0:38:29.080 --> 0:38:32.080 But commercial state a little bit different. But the residential 0:38:32.080 --> 0:38:34.640 and real estate and they've done this in again, they 0:38:34.640 --> 0:38:36.400 decided land was different. They have a thing called the 0:38:36.480 --> 0:38:40.000 Land Acquisition Act, which really allowed them to strip a 0:38:40.000 --> 0:38:43.640 lot of people of their land extraordinarily low prices through 0:38:43.760 --> 0:38:47.319 the sort of sixties, seventies, eighties, and it's allowed them 0:38:47.320 --> 0:38:50.120 to do something very very different. I don't know whether 0:38:50.160 --> 0:38:53.560 most countries can sustain the idea that capitalism works for 0:38:53.600 --> 0:38:55.680 everything but not land, and which is just going to 0:38:55.680 --> 0:38:59.480 be One Singaporean senior politician described it to me as piracy. 0:39:00.040 --> 0:39:03.200 They did in the seventies and eighties. Pennies on the 0:39:03.239 --> 0:39:06.200 dollar basically demanding people handover this land so it could 0:39:06.200 --> 0:39:08.479 be housing for Singaporeans. But it has worked very well. 0:39:08.760 --> 0:39:12.839 Okay, so China probably cannot pursue the Singaporean model at 0:39:12.880 --> 0:39:15.920 this point, right, But why can't they institute like a 0:39:16.000 --> 0:39:20.480 stronger social safety net so that the burden of saving 0:39:20.680 --> 0:39:24.920 for retirement, for health emergencies, things like that doesn't always 0:39:25.200 --> 0:39:28.719 necessarily fall on the citizens and therefore they have to 0:39:28.800 --> 0:39:31.440 invest in highly speculative assets. 0:39:31.719 --> 0:39:34.400 Yeah, they should, is the answer. There seems to be 0:39:34.560 --> 0:39:37.320 huge political opposition to doing this at the top of 0:39:37.360 --> 0:39:40.440 the Chinese Communist Party, and it's bizarre again because you 0:39:40.480 --> 0:39:42.719 talk to someone like Richard Ku and it'll give you, 0:39:42.800 --> 0:39:45.160 it'll explain why if you don't do this, this is 0:39:45.160 --> 0:39:48.560 the consequence, right Japan is the consequence long term stagnation. 0:39:48.760 --> 0:39:50.920 It's going to be really difficult. They should do all that, 0:39:51.239 --> 0:39:54.719 and maybe they will be sort of drummed into it eventually, 0:39:54.960 --> 0:39:58.880 because I think the alternative is both stagnation and lots 0:39:58.880 --> 0:40:02.799 and lots of trade friction with the people you're exporting to, 0:40:03.040 --> 0:40:04.240 as we've already seen. 0:40:04.600 --> 0:40:06.719 Right, because it's not just the US, is it. 0:40:06.760 --> 0:40:09.200 Everyone's sort of no one there got to be a 0:40:09.200 --> 0:40:11.000 lot of countries that are not thrilled. 0:40:11.160 --> 0:40:13.839 No one's totally happy with it. It's a weird mix 0:40:13.880 --> 0:40:15.920 because for some countries it's like, if you're not going 0:40:16.000 --> 0:40:18.560 to make some of these items, right, If you're a 0:40:18.560 --> 0:40:21.440 country that's simply not gonna make evs, then why should 0:40:21.440 --> 0:40:24.120 you care about getting the really cheap evs. But everyone's 0:40:24.120 --> 0:40:26.239 got something to be upset about. In Southeast Asia, it 0:40:26.280 --> 0:40:28.640 was always steel when I was there. Everyone wants to 0:40:28.719 --> 0:40:30.719 have their own local steel sector, and they don't like 0:40:30.719 --> 0:40:33.960 the Chinese dumping of steel in Indonesia. They don't want 0:40:34.000 --> 0:40:37.520 like cheap Chinese direct to consumer merchandise coming in because 0:40:37.560 --> 0:40:40.200 it messes with their small and medium sized businesses. I 0:40:40.239 --> 0:40:42.279 guess for most of these countries, the difficulty is do 0:40:42.320 --> 0:40:44.640 you want to pick a fight with the Chinese government. 0:40:44.960 --> 0:40:47.319 It's not an obvious question like it is in the US. 0:40:47.480 --> 0:40:50.960 I guess I just have one last question. And you know, 0:40:51.080 --> 0:40:55.400 the sort of Singapore example is what reminded me like 0:40:56.640 --> 0:40:59.319 land is weird, Like the idea that you could have 0:40:59.320 --> 0:41:02.560 a capitalist system except for residential land. 0:41:03.320 --> 0:41:06.240 A lot of people actually kind of think that. 0:41:06.360 --> 0:41:10.399 You hear, what is the Georgists right? And they think 0:41:10.480 --> 0:41:12.400 like no land is special and we need to have 0:41:12.440 --> 0:41:14.960 these like special taxes on ownership. 0:41:15.160 --> 0:41:17.040 And yeah, we love free markets. 0:41:17.040 --> 0:41:20.399 But again, maybe because there's always so much land, they're 0:41:20.440 --> 0:41:22.399 not making much more of it, et cetera. Maybe there 0:41:22.400 --> 0:41:25.160 really is something to do. It's sort of unfair, Like 0:41:25.480 --> 0:41:27.279 I get born in the year nineteen eighty and I 0:41:27.520 --> 0:41:30.040 already a bunch of people already own the land around me, 0:41:30.560 --> 0:41:33.000 which doesn't really seem fair. It's like I was just born, 0:41:33.040 --> 0:41:36.360 where's my chance? Like we're never going to go to 0:41:36.400 --> 0:41:39.680 the pure Singapore model, But are there things that we 0:41:39.760 --> 0:41:43.319 could do with the tax system that would like sort 0:41:43.360 --> 0:41:47.520 of further hammer home the idea that residential land is 0:41:47.520 --> 0:41:47.960 for living. 0:41:48.160 --> 0:41:50.319 Yeah, I think there's dozens of different things you could do. 0:41:50.360 --> 0:41:52.080 But I mean one of the big things is that 0:41:52.120 --> 0:41:55.920 the legacy of Henry George and the politicians in municipal 0:41:55.960 --> 0:41:58.200 America that really loved Henry George is that America has 0:41:58.239 --> 0:42:02.239 relatively high property taxes. Anyway, you can do all sorts 0:42:02.239 --> 0:42:04.160 of things with property taxes to lean more of the 0:42:04.239 --> 0:42:07.120 value on the land rather than the structures. Right, Yeah, 0:42:07.120 --> 0:42:08.800 lots of states, lots of cities have done this. I 0:42:08.800 --> 0:42:10.800 think it's going to be increasingly important in the future 0:42:10.920 --> 0:42:14.839 because what you're going to get is increasingly people inheriting 0:42:14.920 --> 0:42:17.560 homes from their parents when you can't afford them. And 0:42:17.600 --> 0:42:20.359 then that main store of wealth is about whether your 0:42:20.400 --> 0:42:22.360 parents decided to buy in the right place at the 0:42:22.440 --> 0:42:24.400 right time. I talked to a lot of seventy year 0:42:24.440 --> 0:42:26.440 olds will be like, wow, I picked my two bedroom 0:42:26.520 --> 0:42:28.920 flat in nineteen seventy three, and yes I bought it 0:42:28.960 --> 0:42:31.719 for three and a half dollars, but it's mine. That's 0:42:31.719 --> 0:42:33.839 going to be a lot less tenable I think when 0:42:33.960 --> 0:42:36.680 it's handed down wealth. So yeah, there's loads and loads 0:42:36.719 --> 0:42:39.239 of things. And Henry George is in the book. The 0:42:39.280 --> 0:42:42.439 political consequences have George's and fell apart in there too. 0:42:42.760 --> 0:42:45.000 All right, Mike Bird, thank you so much for coming 0:42:45.040 --> 0:42:46.439 on our thoughts and grabs on the book. 0:42:46.560 --> 0:43:00.560 Thank you very much for events Joe. 0:43:00.600 --> 0:43:03.680 That was really great and genuinely the book is great. 0:43:03.880 --> 0:43:04.080 Yeah. 0:43:04.080 --> 0:43:06.880 I love talking to Mike once again. I'm just like, 0:43:07.480 --> 0:43:09.279 hasn't he been like on the internet as much as 0:43:09.320 --> 0:43:09.520 we have? 0:43:09.600 --> 0:43:10.920 How do you? How did you write a book of 0:43:11.000 --> 0:43:11.479 this time? 0:43:11.640 --> 0:43:13.800 I have no idea, don't understand how anyone writes a book, 0:43:13.960 --> 0:43:18.280 especially a very serious book on a very big, meaty topic. 0:43:18.400 --> 0:43:21.000 But I just want tweeting constantly. 0:43:20.560 --> 0:43:23.520 Well tweeting. He tweets a lot. Speaking of propect, It's 0:43:23.560 --> 0:43:25.160 like it would be one thing if you were never online. 0:43:25.200 --> 0:43:26.560 He's online as much as I am. 0:43:26.880 --> 0:43:29.440 Okay, you know you asked that question about whether or 0:43:29.520 --> 0:43:33.200 not Chinese cities are actually futuristic. Yeah, I have an 0:43:33.200 --> 0:43:35.439 anecdote on this point. I think I might have said 0:43:35.440 --> 0:43:38.040 it before, but China is the place where I went 0:43:38.120 --> 0:43:43.000 to both the most impressive bathroom ever in like a 0:43:43.080 --> 0:43:48.120 highly futuristic luxury shopping mall in Beijing, and also the 0:43:48.160 --> 0:43:50.800 worst one ever in my entire life, which was a 0:43:51.719 --> 0:43:56.120 rural It was basically a hole in the ground. 0:43:56.200 --> 0:43:57.600 Right, Yeah, terrible. 0:43:57.920 --> 0:44:01.239 China. It's a land of contradiction. Thank you. 0:44:01.360 --> 0:44:03.280 Thank you for highlighting the cliche. 0:44:03.680 --> 0:44:07.040 No, I thought like it. It always did seem very interesting. 0:44:07.120 --> 0:44:10.520 It still does that. Like there's so much speculation that 0:44:10.560 --> 0:44:12.840 happens in China, and I always found. 0:44:12.640 --> 0:44:15.760 That to be a little weird. I also just find. 0:44:15.560 --> 0:44:19.240 The idea of like buying a property, but it's actually 0:44:19.239 --> 0:44:21.440 really you're not buying it early. Buying the property for 0:44:21.480 --> 0:44:23.440 like seventy five years to be a little weird. 0:44:23.600 --> 0:44:25.560 But on the other hand, that kind of exists in 0:44:25.600 --> 0:44:26.200 New York. 0:44:26.200 --> 0:44:28.839 Yeah, yeah, and in the US, like, look, we pay 0:44:28.920 --> 0:44:32.719 property taxes and perpetuity, which means to some extent that 0:44:32.760 --> 0:44:35.920 when you own something, you are paying a permanent rent 0:44:36.000 --> 0:44:38.360 to use it, and if you stop paying that rent, 0:44:38.480 --> 0:44:41.959 then you could theoretically lose it. So maybe it's less 0:44:41.960 --> 0:44:44.960 weird than I thought it is. Actually we should do 0:44:45.000 --> 0:44:49.400 more on Singapore specifically, like but also you know, like 0:44:49.560 --> 0:44:51.760 I'm not sure to your point in the very beginning 0:44:52.080 --> 0:44:56.279 whether people actually want the divorce between usage and speculation. 0:44:56.800 --> 0:44:59.720 I just think that for several of the last decades 0:45:00.160 --> 0:45:01.600 didn't have to choose. You got to live in and 0:45:01.640 --> 0:45:02.080 he made. 0:45:01.920 --> 0:45:02.560 A lot of money. 0:45:02.640 --> 0:45:05.160 I think it's very hard to get off the train 0:45:05.280 --> 0:45:07.760 once it's kind of rolling, right, And that's the problem 0:45:07.800 --> 0:45:09.799 that we're seeing in China, and now they're trying to 0:45:09.840 --> 0:45:13.080 walk this very fine tightrope where it's like, we don't 0:45:13.080 --> 0:45:17.120 want to make everyone incredibly poor, but we also want 0:45:17.120 --> 0:45:19.640 to depress housing and the importance of housing in our 0:45:19.680 --> 0:45:22.560 economy in order to boost manufacturing and productivity. 0:45:22.719 --> 0:45:26.319 This is why, again my proposal affordable housing for one 0:45:26.400 --> 0:45:29.640 year and then it goes back to being really expensive. 0:45:29.760 --> 0:45:31.840 All right, well you can suggest that, Joe, Yeah, we 0:45:31.920 --> 0:45:32.400 go to Baja. 0:45:32.480 --> 0:45:34.480 I'll run on that. I'll run on that. I'll run 0:45:34.520 --> 0:45:35.360 on that platform. 0:45:35.400 --> 0:45:36.480 All right. Shall we leave it there? 0:45:36.560 --> 0:45:39.240 Yeah, this has been another episode of the All Thoughts podcast. 0:45:39.320 --> 0:45:42.560 I'm Tracy Alloway. You can follow me at Tracy Alloway. 0:45:42.200 --> 0:45:44.359 And I'm joll Wisenthal. You could have followed me at 0:45:44.360 --> 0:45:44.960 the Stalwart. 0:45:45.160 --> 0:45:46.120 Follow our guest. 0:45:45.840 --> 0:45:48.759 Mike Byrd He's at Birdie Word and check out his 0:45:48.840 --> 0:45:51.680 book The Land Trap, A New History of the World's 0:45:51.760 --> 0:45:56.400 Oldest Asset class Follow our producers Carmen Rodriguez at Carmen Arman, 0:45:56.760 --> 0:45:59.840 dash El Bennett at Dashbot and kel Brooks at kel Brooks. 0:46:00.040 --> 0:46:02.160 From our odd Lags content, go to Bloomberg dot Com 0:46:02.160 --> 0:46:04.839 slash odd Latch. 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