Brandon Donnelly

Daily insights for city builders, delivered every morning at 6 AM ET. I’m Brandon Donnelly — a Toronto-based real estate developer and founder of Globizen. I’ve been writing here since 2013.

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Tag: china

  • How meaningful is the exodus from Hong Kong?

    When I was in my early 20s, I spent a summer living and working in Taipei and Hong Kong. It was a wonderful experience. I’ll never forget my apartment in Hong Kong’s Causeway Bay. It was a small single room with a small bed and an even smaller bathroom. The bed didn’t fit me — at all — and my legs would hang over the bottom of it. I couldn’t stop hitting my shins on the bottom of the frame at night. The bathroom didn’t have a dedicated shower, just a hose coming out of the wall. So everything would get wet. It also took me 15 minutes the first morning I showered to figure out how to make the water hot. Eventually I got it.

    Despite all this, I remember being enchanted with Hong Kong. Here was this tiny little place with very little developable land that had managed to become, through trade, finance, real estate and other things, one of the wealthiest places in the world. Capitalism! I could also feel the connection to Toronto. Hong Kong has one of the largest Canadian expat communities in the world. In fact, I ran into one of my high school math teachers in a bar in LKF. That was wild. He had moved there with his wife to teach. I suppose because of all of this, I have tended to follow the region a bit more closely.

    Last July, the British government promised a path to citizenship for the 3 million or so Hong Kong residents who hold or are eligible for a British National Overseas passport. This passport, as I understand it, was given to citizens at the time of the 1997 handover. Though I don’t know how utility was actually derived from it over the years. Before last year’s announcement, this document didn’t include the right to stay in the UK. However, now it does. And the UK government expects that some 300,000 Hong Kong residents are going to take advantage of this in the first five years of the program. And indeed, according to the Financial Times, 2020 was the first year since SARS back in 2003 that the region lost people — it had a net outflow of about 39,800 people.

    What will this mean for Hong Kong? Well, Bank of America estimated earlier this year that capital outflows from Hong Kong could reach £25 billion in the first year of the program. But maybe this is being too conservative. Here in Canada, capital outflows from Hong Kong hit a record last year at C$43.6 billion. But this too could be an underestimation, as it doesn’t include transfers below C$10,000 and probably a bunch of other transfer methods. How much money is actually flowing outward?

    This weekend the Financial Times published the above survey results showing sentiment around leaving Hong Kong. Surveys are, of course, a funny thing. Saying you might probably potentially do something is a lot different than actually doing something. But for what it’s worth, about a quarter of pro-democracy supporters (which is maybe half of the population?) responded by saying that, yes, they would be prepared to leave. If you include those who responded no, but that they would reconsider and leave if things got worse, the number increases to about 70%.

    I don’t know how meaningful all of this becomes for Hong Kong. Time will tell. But it has me thinking about my tiny bed and tiny shower in Causeway Bay.

    Image: Financial Times

  • Nearly half of the world’s population now lives in a country with a fertility rate below replacement levels

    Prior to COVID, many projections had the world’s population plateauing sometime in the second half of the 21st century. This is expected to happen because about half of the world’s population now lives in a country where the fertility rate is less than the replacement rate of 2.1 children for every woman. See above chart from The Economist.

    At the start of the pandemic, there was talk of a possible COVID baby boom. People were/are stuck at home and so that would surely translate into more sex among partners. But that doesn’t appear to have been the case for many countries. According to The Economist, births fell by 15% in China last year. The same drop was recorded in the United States last year between February and November.

    Because of this trend, the above projections are now being adjusted and pulled forward, with some predicting that the world’s population could plateau as early as the 2050s. That’s only about 30 years from now, which means that quite a few of us could end up living in a world with a declining population. This is likely to have both positive and negative consequences.

    There are nearly 8 billion people in the world today with China and India being the countries with the greatest numbers. But it’s interesting to consider how recent this figure really is (compounding takes time to gain momentum).

    The world didn’t hit a billion people until the 19th century, and the second billion was only reached by the 1920s, which in the grand scheme of things, isn’t that long ago. Since then the global population has exploded with about 6 billion people being added in only the last 100 years. That’s pretty wild when you think about it.

    P.S. I recently discovered a site called outline.com. It allows you to read, highlight, and annotate articles that you find online. But it also seems to allow you to read articles behind paywalls. Perhaps some of you will find that useful.

    Chart: The Economist

  • Wuhan as tourist destination

    Seeing people out at bars and at amusements parks in this WSJ video about Wuhan, China is a little odd given that in this part of the world we are decisively in our second wave. But that is what is happening. In fact, the title of the video is, “Wuhan, Former Pandemic Center, Emerges as Tourist Hot Spot.”

    Over a recent public holiday, the city saw nearly 19 million tourists — the most of any Chinese city. And while tourist revenues are still thought to be down by some 30%, Chinese people are seemingly feeling confident enough to get back out and do things.

    Based on what the WSJ is reporting, this seems to be supported by a few things. International travel isn’t happening, so it’s becoming a boon for local tourism, which is not that dissimilar from what’s happening in other countries. (Domestic air travel is rebounding faster than international travel when you look at flight volumes across major airlines.)

    At the same time, Wuhan implemented what sounds like some pretty extensive testing, which is in turn supported by a national healthcare platform that presumably makes contact tracing easier. These things seem to have given people the confidence to go out again. And I don’t doubt that the same will eventually happen in the rest of the world.

  • The internet is no longer American

    This is the topic of Benedict Evan’s latest blog post, which is all about the internet, regulation, and the rise of China, as well as other countries. The internet is now deeply ingrained in everyday life. As of 2017, about 40% of Americans had met their partners online. We do everything online. But 80-90% of the world’s internet users are now outside of the US. There are more smartphone users in China than in the US and western Europe combined. And venture capital dollars have started to diversify away from just the US (see above chart). All of this — but mostly Tiktok — has Americans questioning how best to handle and how best to regulate.

    Here’s an excerpt from Benedict’s post:

    Both of these are captured in Tiktok. This is the first time that Americans have really had to deal with their teenagers using a form of mass media that isn’t created in their country by people who mostly share their values. It’s from somewhere else. That’s compounded by the fact that the ‘somewhere else’ is China, with all of the political and geopolitical issues that come with that, but I’d suggest that the core, structural issue is that it’s foreign. This is, of course, a problem that the rest of the world has been wrestling with since 1994, but it comes as something of a shock in Washington DC. There’s an old joke that war is how God teaches Americans geography – now it’s regulation.

    For the full post, click here.

    Image/facts: Benedict Evans

  • China’s homes are currently valued at $52 trillion

    The Journal published a piece this past week talking about China’s $52 trillion residential property bubble. According to a recent study by Goldman Sachs, this is the current value of all Chinese homes (built homes and developer inventory). And to put this number into perspective, it is twice that of the U.S. residential market.

    Now, I don’t know all that much about the Chinese housing market and I have no idea where prices will go next. But it is interesting to look at some of the data, particularly in light of this current pandemic. Urban home prices in China were up 4.9% year-over-year in June, and 1.9% year-to-date. Shenzhen appears to be one of, if not the hottest market. Why is that?

    At the same time, it is believed that about 21% of urban homes in China were vacant as of 2017. I don’t know what the figure is today, but this is a high number. As of last year, urban China also had a homeownership rate of about 96%. (Here is a look at how this number compares with other countries around the world.)

    What is clear is that Chinese households are going long property, and eschewing other investments such as stocks and bonds. Above is a chart showing how China compares to the US, where bonds lead, followed by stocks. Presumably it is because property is viewed as a safer and more lucrative investment in China.

    According to a report by China Guangfa and the Southwestern University of Finance and Economics, urban Chinese have on average about 78% of their wealth tied up in residential real estate. Many own multiple homes. In the U.S., this figure is about 35%. (I don’t know what the number is for Canada, but I would be interested to know.)

    Call me old fashioned, but I think it’s important to keep in mind things like rental demand and cash flow when thinking of property.

    All figures and charts from the WSJ.

  • China’s meat supply chain is the problem

    There is a growing global concern around China’s “wet markets.” Last week, Dr. Fauci was on the record saying that they need to be shut down immediately and that it boggles his mind that we continue to allow something which very clearly results in zoonotic viral infections. This is as China begins to slowly reopen its economy — including its wet markets.

    The more precise problem is China’s meat supply chain. Last month, Bain & Company published a brief arguing that this current pandemic — it was still just an outbreak at the time of publication — highlights the need for China to shift away from open-air markets toward the cold-chain model that is common in North America and Europe.

    Here is one of their charts comparing China and Europe:

    There are both upstream and downstream problems. The downstream problem is its “wet markets.” Chinese consumers apparently prefer “hot and fresh,” as opposed to chilled and frozen meat. But there are going to need to be changes, including stricter safety regulations and widespread food-tracing so that epidemics can be quickly identified and quashed. Now is the time for these changes.

  • China is building two new hospitals in response to virus — should only take a few weeks

    This morning I got caught up on what’s happening with the coronavirus that emerged in Wuhan, China, but that is now spreading quickly across mainland China. It’s unsettling. As of Saturday, there were over 1,287 confirmed cases in mainland China and 41 deaths. Right now, the belief is that the virus emerged from a seafood and meat market in Wuhan.

    The Wuhan virus belongs to a family of viruses known as coronaviruses, which includes the severe acute respiratory syndrome (SARS) that broke out in 2003 and killed 44 people in Canada alone. Typically, these viruses have jumped from animals (such as bats and pigs) to humans. The WSJ has a good summary of what is currently known about this coronavirus strain.

    All of this has overwhelmed hospitals in Wuhan and the videos accounts are heartbreaking to watch. The government has responded by vowing to build two new hospitals in order to fight the outbreak. But get this: the projected completion times are 10 and 15 days, respectively. The second hospital, to be called Leishenshan Hospital, is expected to house about 1,300 beds.

    I can’t even get a government signature on a single legal document within 10 to 15 days, and so it’s unfathomable to imagine building an entire hospital within that same period of time. Some of the media is calling this “infrastructure propaganda.” i.e. Look over here at all we’re doing for you. But there’s clearly a need and, if ever there was a time to move with a sense of urgency, now would be it.

    Photo by 海超 刘 on Unsplash

  • Australia lost 124,000 millionaires last year

    Global household wealth is currently estimated at about $360 trillion, according to Credit Suisse’s 2019 Global Wealth Report. This represents an increase of about $9 trillion (~2.6%) from 2018-2019.

    Over the last decade, much of this growth in household wealth has come from two countries: the United States and China. 40% of the world’s US dollar millionaires reside in the United States, and China now has the second highest number of dollar millionaires. (If there are any curious Canadians reading this, Canada represents 3% of the world’s total.)

    The number of ultra-high-net-worth individuals — individuals with a net worth greater than $50 million — exhibits a similar pecking order. The US is by far the most dominant.

    Of course, dollar millionaires represent a small percentage of the world’s total population. Credit Suisse estimates that there are about 5.1 billion adults in the world. About 56.6% have a net worth under $10,000 and about 0.9% (okay, 1%) are millionaires. This 1% controls/owns about 44% of global wealth. Thinking back to figure 7 (above), consider this math: 50% of the world’s millionaires are now in the US and China.

    Fluctuations do happen, however. Australia lost some 124,000 millionaires last year largely because of a (-6%) drop in home prices, which tends to correlate pretty closely to the real asset part of household balance sheets. Australia shed about $443 billion in household wealth since 2018, making it the biggest loser in Credit Suisse’s report.

    The other thing that you may find interesting from this report is the wealth/GDP ratio that they use. Household wealth and GDP tend to correlate. But the ratio of wealth to GDP also has a tendency to increase as a country develops. This makes sense because things like the rule of law and access to capital tend to increase people’s willingness to invest/borrow. But in developed countries, it could also be a signal for asset inflation.

    If you’d like to download a PDF of the full wealth report, click here.

    Note: Credit Suisse’s definition of household wealth is your typical net worth calculation: assets (financial assets and real assets) minus liabilities. For most people, the real asset part is principally housing.

    Charts: Credit Suisse Global Wealth Report 2019

  • The global average fertility rate is decreasing

    According to this recent Bloomberg article, the world is expected to add more than 3 billion people by 2100. At the same time, the global average fertility rate is dropping. In 1960, it was five live births per woman. As of 2017, it had dropped to 2.43.

    About half of all countries are now below the rate of replacement, which means they’re relying on immigration (places like Canada) and/or they’re relying on labor productivity gains to keep their economy growing (places like China).

    The article is also fascinating in that it begins to consider the economic and cultural forces that shape the above fertility rates. Women in Saudi Arabia, for example, have one of the lowest labor force participation rates in the world. Only about 25% are in the workforce.

    If you’d like to read the full article, you can do that here.

    Image: Bloomberg

  • Hong Kong GDP as a % of mainland China GDP

    I was talking about this with my friend Evgeny Tchebotarev last night:

    The transfer of sovereignty over Hong Kong (also known as the handover) happened at midnight on July 1, 1997. At the time, Hong Kong had a population of about 6.5 million people and China had a population of about 1.23 billion people. But Hong Kong punched well above its weight class and its GDP as a percentage of mainland China’s GDP was about 18.4% (see above). In other words, Hong Kong represented about 0.53% of the population, but almost 1/5 of China’s economic output. Today, well as of 2018, this number has declined to 2.7% (again, see above). Hong Kong still possesses a number of structural benefits compared to mainland China, but its position as a global financial center is not guaranteed.

    Graph: Investopedia