China - A UK expat personal experience with life in PRC

Came across this from another friend. I thought I would share:

http://www.prospectmagazine.co.uk/politics/mark-kitto-youll-never-be-chinese-leaving-china/

Author is from UK, studied in PRC , has Chinese wife worked and ran businesses there.

I remember the entire Mark Kitto story from the mid-2000's, when the authorities shut his magazine down. There is quite a bit of detail there that this article does not get into.

While Kitto has received a lot of criticism as well as support from various quarters of the expat community over the years, this particular piece is, IMO, one of the more accurate commentaries on current conditions in the PRC, and I find myself in agreement with most of his key points and observations. Interestingly enough, he first came to China in 1986, a year before my first stint which was in 1987. So I know where he is coming from, although I don't have the complication of having a family here.

FWIW, Mark Kitto is not the only long-term expat who's either left already, about to leave, or seriously thinking of exiting within the next year. There has been a litany of distinctly negative trends occuring over the last several years.


Currently the above link is exceeding bandwidth, but hopefully will be fixed soon, it's a good read. Here's another source that contains the full article:
http://www.todayonline.com/CommentaryandAnalysis/Commentary/EDC120820-0000014/Youll-never-be-Chinese

For more views from other expats: http://www.chinalawblog.com/2012/08/china-as-yesterdays-news.html

Hi, all. I enjoyed reading the article. Since it was a bit lengthy, rather than dissect it piece by piece, I'd prefer to provide my insights in the form of a gut reaction:

1) While I didn't have the privy of visiting China in 1986 (at the age of 14), I showed up 9 years later for the first time
-It really was nicer (for us expats) back then because traffic wasn't bad, people liked us, and our purchasing power was far greater than that of the masses
-now that the playing field has been leveled, the "me" idea has permanently impressed itself upon the culture, nationalism is on the rise, and living conditions are actually less pleasant (for us, not them), I can see why the author feels bitter... having his multi-million dollar company seized from his also adds salt to his wounds

2) That having been said, I can't begrudge the Chinese for wanting to make money.
-back in 1995, the fact that most people relied upon bicycles, and considered a meal at KFC to be a glorious occasion was a romantic vision for us, but we had the ability to live better (i.e. could do the buffet at the Shangri-La as opposed to making by on pigeons and jisimian)

3) Very few foreigners have gotten really rich in China, but making $250k per year at McKinsey isn't such a bad thing, and people that pay their dues have a good shot at scoring this type of job

4) Regarding the property bubble
-I don't invest in property any more myself (though companies that manage property well are a different animal; asset light is where the value lies!)
-I believe SH is 80% over valued, BJ, 50%, and those random third tier cities in between on the HSR, 20%
-But, I don't think the bubble will burst for 2 reasons
*unlike the case of the US in 2008, the majority of people in China actually own their homes (i.e. very high equity percentage)
*the government has built up a lot of reserves that it can (and presumably will) use to soften the blow

5) Eroding value of our foreign expertise
-it was only a matter of time before the Wal Mart fueled boom permitted these people to make their way to Harvard
-they speak English now
-most VCs I meet with want "local" talent
-that having been said, we are not completely worthless because we have (trusted) access to CEOs at western companies that they don't

6) Beijing v. Portland, OR
-before I came back here a few years ago, I did a 2+ year stint in Portland, OR, splitting my time between China related work and GSA consulting
-the quality of life in the City of Roses was infinitely better than Beijing
-however, the job market was extremely grim, and few of my colleagues had a clue about the importance of China, with respect to the global economy (even my friends at the NW China Business Council didn't fully comprehend the message)
-in addition to their iPhones, my young colleagues in Shanghai have extremely bright futures... the good ones will score those McKinsey jobs in due course, and the really good ones will go on to found companies like Ctrip... the sky is the limit!

7) Expats leaving
-3 of my friends have thrown in the towel during the course of the past 3 months, in part due to their inability to penetrate the proper circles, and in part due to their dislike for nationalistic movements
-whether or not they know it, they will return

8) Culture gap
-I'm extremely comfortable on the culture front these days
-it's not all that different from the US, to be honest
*people are pretty at discussing things in an open manner
*once you overcome the language barrier, it's smooth sailing (I cannot say the same for Japan or Korea)

In closing, if the government were to shut down my company, I'd also be pissed off, and might even go back to the US for a bit, but I'd find a means to forgive them over time.

ETA: When writing this post earlier today, I didn't completely connect the dots between the article in question and (the original) TBJ, though I had an inkling that there was a relationship, but I subsequently checked wiki (http://en.wikipedia.org/wiki/Mark_Kitto), and saw the light. When the new company relaunched TBJ last year, while touting their historic brand value in the same breath, I made a conscious decision to boycott the entire franchise. I have a younger friend who is an editor there now, and he seems to be doing a good job, but he doesn't have a solid grasp on the sorted history (actually, few people do, self included; I just know that a great magazine enterprise was thrown under the bus).

Good points all around moondog.

I will disagree with your conclusions re the housing bubble though. The origins of the Chinese bubble are very different than the US bubble, but end result will be the same. In fact, as the Chinese paid cash for their properties, the pain will be much much greater than in the US, where many homeowners actually owned very little.

The fundamental problems with the PRC economy have all been papered over by debt the past few years. The massive debt fueled stimulus sent billions into HSR, highways, subways, housing etc, with the spillover fattening the pockets of the rich and connected at SOEs etc. As the one off boom from the stimulus fades, the bad loans will come to the surface and will need to be addressed. With the spigot of credit to developers and SOEs cutoff the housing buble will collapse. The entire property market survives solely on the greater fool theory.

The US bubble was fueled by easy mortgage credit, the Chinese one has been fueled by a mix of capital controls and easy credit to the SOEs and developers. With strict capital controls property is really the only place for Chinese to invest, so money just keeps piling up in search of a destination. The trickle down effects in the construction, housing and automotive industries have been vast, but what happens when the tide goes out on all of these industries at once???

We are finally starting to see visible cracks as the glut of goods and commodities and overcapacity simply cant be denied. And contrary to popular belief the Chinese forex reserves cant really be used to soften the blow much longer. Even if the govt bails out the banks (again), the infrastructure and housing industries are basically dead for another few decades as they are so overbuilt. What happens to all the renmin who are employed in those fields, directly or indirectly??

Interesting article, Another daily read is the "Sinocism" blog. it comes via google on most days.

yes the China real estate market is always interesting with the 'fluid' rules. SH is too high, but BJ has some upside value areas. BJ is like the DC market, its value is due to the government/academia located in BJ.

China continues to fascinate me.

While I agree with most of Mark Kitto's observations made in the original referenced article, I'm not necessarily on board with all of his conclusions. Nor do I agree with all of moondog's thoughts. I do however, think there is some terrible economic pain to come, of the type the Chinese have not experienced before. I do not want to be around when "the fit hits the shan". :eek:

As to real estate (about which I know something since I'm professionally in a related business here), I think there is a massive bubble, and I agree with FLLDL's commentary above. And he's exactly right about the Greater Fool theory. Furthermore, there is an awful lot of real estate, particularly in the Tier 1 and Tier 2 cities, that wasn't purchased by owner occupiers paying cash--there were huge amounts of property bought by speculators do have equity in the game, but who are also now servicing debt. In some cases, quite a lot of debt. Not just residential, but also commercial. And cities have gotten used to making obscene amounts of money selling the land use rights to developers. The endless spiral cannot go on forever, but when it breaks, it will take a lot of downstream industries (steel, concrete, glass, consumer durables) with it.

There is a lot of need and demand for residential real estate in the under-RMB 10,000 per square meter range, but ha! Just try to find any within 15-20 km of the center of any major city. Developers don't make any money if they can't amortize the land rights purchase cost, and city officials don't make the money they want (er, "commission") selling land rights for cheap. When you have housing prices that have inflated far above the average income trend line, there is only one way it all comes out, and it's never good.

I would not be sleeping easy at night on China's economic matters, were I a member of the Politburo. Hu and Grandpa Wen are probably itching to turn over this incipient mess to the next group and take their honorable retirements.

They have a monopoly on manufacturing.
They are sitting on piles of cash.
They own all the land.

The bubble might shrink a bit, but it won't burst.

As much as I enjoy china, and I from a visitors standpoint that has a family member living there, I am able to see a lot of looming issues.

Dalian, buildings EVERYWHERE, unsustainable expensive shopping on every block, 2-3 BANKS on every block. I've never seen a city with so many banks as Dalian. I know they have both domestic and international tourism, but that place is insane, and it won't be able to keep up that growth and building boom for long.

Inner Mongolia, another place with unreal growth, and spending by the govt that is opulent an you just wonder, how do they do this? Look at Ordos and sure there is a lot of wealth, but the wealth doesn't last forever.

Also from inner mongolia you can clearly see the 'you will never be chinese' mentality, while the minorities have special rules, and generally the people get along, the govt rule is stern.
The people of inner mongolia used to be in awe at seeing a foreigner, and now it is is quite common, in just 2-3 years I have seen great growth of English speakers, and a coming parity on the spending.
The locals now are just as likely to go spend 300RMB+ a person on a meal as I am, and don't seem to think twice about spending 1000rmb for a gift to someone that is a total stranger to them. The acceptance of the western culture is heavy, sometimes maybe even too much, one area no yet exposed to the people in a large way is the debt, which is good to see. Most have a savings plan, and don't use credit cards extensively, I know in some places this is changing but I see it as a positive that they don't and hope they won't get into a habit of living like the westerners and going in over their heads financially.

Also as an outsider looking in, while there is a bit of a 'police state' and citizens have to report their movements to the police etc, as a visitor I almost feel more free and safe there, and in my own city and country. Here I am quite literally surrounded by police, I drive 3 miles and can see 5+ police cars, yet crime is still high. I had never been robbed until the last year, and I've been robbed twice in Texas in the last year. In china, my biggest fear was a pick pocket or getting ripped off by a black cab, I know there is some violent crime, but it just seems like the people overall are less prone to rash violence than I see here. One place may be a 'police state' but the US feels more like it, and growing sense of it every day, yet with little to show for it and ever increasing crime.


Overall, I think China will see a significant slowing of economy over the next 10 years, but it will be more of a cooling off than a recession, it is simply not possible to sustain the current levels of inflated, govt funded GDP growth in the regional levels and continue to pay them them with no one living in them or taking them over. As said the nation has a massive horde of cash built and will pad a lot of the worst aspects of the economic changes, but some of them will be seen.

As a business in the west, it is hard to ignore the draw of the people there, and the newly recognized spending power, and capital resources they bring to the table.

Inner Mongolia, another place with unreal growth, and spending by the govt that is opulent an you just wonder, how do they do this? Look at Ordos and sure there is a lot of wealth, but the wealth doesn't last forever.


As long as the price of coal doesn't drop by 90%+, the fat cats aren't going hungry (respectable mines net $600k per day.)

The thing that I dislike most about today's China is the class of plutocrats flaunting their wealth in the utmost in-your-face ways possible, and they do this right in front of vast poor who are just barely scraping by. The fact that majority of middle-class Chinese are so desensitized about this shocking daily display of inequality is deeply depressing.

http://www.globaltimes.cn/attachment/100526/73c56db6a5.jpg

The thing that I dislike most about today's China is the class of plutocrats flaunting their wealth in the utmost in-your-face ways possible, and they do this right in front of vast poor who are just barely scraping by. The fact that majority of middle-class Chinese are so desensitized about this shocking daily display of inequality is deeply depressing.


It happens everywhere, hardly a chinese thing.

I felt poor standing next to the people in the malls in Dalian, some of them wearing 15-20k (USD, not RMB) of clothing or more. And it looked like some of them were wearing straightjackets to be honest, just :eek:

Wow, what a fascinating article. In many ways true, in some ways I don't totally agree. But a good read nonetheless.

The thing that I dislike most about today's China is the class of plutocrats flaunting their wealth in the utmost in-your-face ways possible, and they do this right in front of vast poor who are just barely scraping by. The fact that majority of middle-class Chinese are so desensitized about this shocking daily display of inequality is deeply depressing.

http://www.globaltimes.cn/attachment/100526/73c56db6a5.jpg

Got to spread the wealth around.:D

http://philipdm.files.wordpress.com/2011/12/favorites-of-chinas-super-rich-8.jpg?w=420&h=285

朱门酒肉臭，路有冻死骨

http://www.1stenglish.com/eng/366861.html