Chasing the Chinese dream in Dalian

Jennifer Hewett
The Australian Financial Review, 21 October 2014

The cranes seem to hover over almost every street, alongside the massive apartment blocks and office towers under constant construction.

The names of these developments are typical of modern marketing anywhere. Splendid Bay. Oak Forrest Villas. Green View Heights.

But this is China, so nothing is ever on a modest scale – or even a Western version of large scale. The size of the buildings, the number of projects, the pace of development are all so far beyond anything happening elsewhere in the world that the momentum remains hard to grasp without seeing it first hand.

The great Chinese property boom may indeed be struggling, especially in all the second and third-tier cities of China. Someone forgot to tell the residents of Dalian, a fast-growing city of 6 million in China’s north-east.

Well that’s not quite right. I notice far too many large apartment buildings that are not yet finished but don’t appear to have any work going on. Some of the property developers in Dalian clearly have problems getting funding to continue building, especially when there is such a glut of supply. The thousands of window spaces without glass are more like transparent money vaults, gobbling up credit.

But don’t bother suggesting to the locals that this is a big problem for the economy of China or indeed of their city. They are confident this only represents a temporary hitch in Dalian’s inevitable growth story and obvious success. More people will keep coming to Dalian, they insist. It’s just a timing issue.

Given estimates of more than 200 million people moving to urban areas in China over the next decade, that has the advantage of numerical logic. It’s more a question of whether the current financial weaknesses and excessive debt can be contained and how much they weaken the rest of the economy.

It’s certainly possible it could all go badly wrong.


But in cities like Dalian, such concerns can’t compete with faith in the underlying strength of the local economy. As well as all those apartments standing as sky sentinels, for example, there are numerous road signs to high-tech zones and software hubs and universities. These add to the city’s traditional industrial and manufacturing base, its petrochemical industries, its harbour and even its tourism appeal due to beaches and relatively clean air. Per capita disposable income went up by almost 10 per cent last year, according to official statistics.

And the streets thronged with fashionably dressed people posing for smartphone pictures suggest this increase is more than just official. Even the majority of people going nowhere near the Maserati and Lamborghini dealers enjoy wandering around a giant main square edged by luxury apartment buildings that make New York City look understated. If this is a mirage, it’s a very powerful one.

Dalian is also the first home of the wildly successful Chinese property developer, Wanda Group. Its founder, chairman Wang Jianlin, held the title of China’s richest man last year, worth more than $US14 billion according to the Forbes rich list – though he would probably now be behind Jack Ma as a result of the recent float of Alibaba.

Wanda Group has spread its tentacles throughout China and much of the rest of the world, including acquiring major assets in the United States and Britain.

More recently, it has announced it will also spend $1.7 billion on Australian real estate investments, including a $900 million resort on the Gold Coast.


This enthusiasm may be partly due to a belief overseas markets represent better development opportunities than China right now.

But Dalian residents note with approval the latest moves by China’s central bank. These relax the rules for second-home buyers by reducing the deposits necessary and the interest rates charged. They insist this change is already making a difference to the level of demand for apartments. After all, the rules were only tightened in 2010 to try to curb property prices rises. And there are plenty of other credit restrictions the government can lift if it decides the decline in the property market is too contagious.

As ANZ chief economist for greater China, Li-Gang Liu, points out, widespread private property ownership only began in China less than 20 years ago.

“Given that China’s property market is still young, with limited institutional underpinning and an inadequate regulatory framework, overshooting and irrational investment choices should be expected,” he writes in a recent report for the Petersen Institute in the US. “Both the central and local governments are on a steep learning curve regarding how they can effectively regulate the property market. Abrupt policy announcements are common and policy uncertainty expected.”

Of course, Reserve Bank of Australia governor Glenn Stevens would be the first to concede that trying to manage the excesses of a property cycle can defeat any central banker or authority, no matter how experienced. So there are no guarantees the Chinese authorities will be able to control its own giant roller coaster of house prices, debt, demand and supply. The chief economist of the People’s Bank of China, Ma Jun, says the real estate sector remains the biggest risk to the economy. But he maintains the chance of a hard landing is “very low”. In Dalian, seeing’s believing. So far.

This article was originally published here.

Jennifer Hewett was in China for the China Australia Journalist Exchange 2014.