This article translated from Wenxuecity.com explores the rise and fall of China’s wealthy elite as discussed by financial expert Zhang Tingbin in his new book. His exaggerated claims have already been widely disputed, but his analysis of the circumstances that lead to the creation of the new upper class offer a fascinating insight into the tumultuous economic growth of the past thirty years.

Founder and deputy editor of “First Financial Daily,” Zhang Tingbin has published a new book that warns of the fall of the wealthy Chinese. His three year deadline has already been questioned by many, however, in examining the crazed “becoming rich” movement of the past thirty years, examples of a fall from grace are everywhere.

Source: Global Times

According to Zhang Tingbin, China’s wealthy, “bear the brunt of the responsibility for the impacts of heavy pollution, especially in fields such as mining and minerals, real estate and steel. The spirit of the wealthy is too arrogant and they refuse to follow the rules to bring social change. They lack the wisdom to change themselves for the better and therefore their ability to accumulate wealth will be impacted as well.” A transition process is now beginning and he believes that many wealthy Chinese will refuse to adapt.

Background of the “Becoming Rich” Movement

According to Zhang Tingbin, since the Reform and Opening Up period, there has been a movement to accumulate wealth in China. The number of wealthy people in China has greatly increased, continuing to startle Western capitalist countries who took two centuries to accumulate the same amount of wealth. The 30 year period of Chinese wealth accumulation can be divided into three stages:

The first wave occurred in the 1980s. In this stage, profiteers who were granted special privileges earned money by buying goods at a low price and selling them at a higher price to the market. These profiteers sold all kinds of goods: from soap, to television sets to large vehicles. In the peak of this movement in 1989, Mou Qizhong became China’s largest profiteer for reselling a Russian airplane to Sichuan Airlines. The reason profiteers could makes these trades lies in the idea of uneven or asymmetrical information. Mou Qizhong knew that Russia would not export its airplanes but also knew that the country urgently needed goods related to light industry to bolster its economy. Through the deal, he was able to swindle his way into about 80 to 100 million Yuan.

The second wave took place in the 1990s and was marked by four main factors:

1. The conversion to private industry: Companies such as Midea, Kelong and GELANSHI in Guangdong began as village enterprises and later became private companies.

2. The Hainan real estate bubble: “Emperor of Elopement,” investor Wang Gongquan made his first pot of gold in Hainan real estate.

3. The stock market: In 1990, after A-shares were first opened, many people began to manipulate stock. Large numbers of Chinese people became multi-millionaires. During the stock market depression of the early 21st century, many were exposed as criminals and sent to prison.

4. Smuggling. One example of this is the case of Lai Changxing in Xiamen, who was charged with smuggling billions of Yuan. A large number of senior officials were involved in the case. Lai fled to Canada in order to avoid imprisonment. In those times, holding a billion Yuan’s worth of property would certainly make one a big shot; very few wealthy Chinese were at the billion Yuan level.

The third wave began in 2000 and has continued until the present day. Hundreds of billions of Yuan have been made domestically in China. This is also marked by several factors:

1. The first is China’s role as the “factory of the world.” International capital entered China because of cheap labor. Many private industries have used this opportunity to increase their net worth by tenfold and therefore become billionaires.

2. The second factor is the privatization of the real estate market and of the mineral industry. Local government and real estate companies created a system together in order to reap profits. Land in China was previously collectively owned by the entire nation. However, the new auction system pushed real estate prices to their limits. The wealth redistribution from this super real estate bubble created an unprecedented amount of wealth for certain clusters of people.

3. The third reason is that the appreciation of the RMB has triggered   international speculation in the Chinese market. This boosted the 2007 A-shares bubble to its peak. The appreciation of the RMB also brought about the peak of accumulation of wealth through start-ups in 2011 and the real estate market peak in 2013.

Has There Been a Decline in Personal Wealth?
Zhang Tingbin purports that after the three waves of the “becoming rich,” movement, the domestic economy has begun to hit a downward trend. He believes that since 2000, Chinese wealth has experienced wave-like growth. In the years before 2005, China experienced the peak of the “world factory,” stage in expanding and creating wealth and foreign trade. However, wealth began to decline with RMB appreciation. 2006 to 2007 was the peak era for Chinese stock market wealth. In 2011, hot start-ups prospered and the wealthy became PEs and VCs. 2012 was the peak era for Chinese commercial banks because of the interest rate market and lack of liquidity stemming from the boom and bust economy. In 2013, Chinese property market wealth likely reached its peak and in 2014, another bubble in the Chinese economy- short-term financial products- also reached its peak. Chinese wealth is mainly obtained because of rising prices and the concept of buying low and selling high.

Zhang Tingbian wrote: “From this process, you can clearly see that the Chinese economy has followed the track of “converting excess into deficiency.”

Namely, wealth in China has mainly stemmed from the establishment of industries, the speculation on financial markets to obtain profit and the provision of loans to obtain interest.

This means that for Chinese people, the idea of ‘work hard and prosper,’ has become less and less relevant and the idea of opportunistic wealth has become more and more mainstream. This is a key sign of a nation with a boom-bust economy. Individual wealth, therefore, has begun to decline.

80% Percent of China’s Rich Will Fall Back into Poverty

“In the next three years, 80 percent of the rich will fall back into poverty,” writes Zhang Tingbian according to theories on wealth rotation and redistribution. “Over the past thirty five years, China’s economic development has been based on factors that have now been severely overused. These factors include cheap resources and the environment as well as private mechanisms for innovation. With population and environmental resources now too overdrawn, a ceiling for the private economy will be created and companies’ interactions with the global economy will be seriously curbed. With this change, China’s economy will soon face one of the deepest changes since the Reform and Opening Up period.

Against this economic backdrop, the Chinese people will move past the traditional idea of “working unilaterally” in one market or area. (However, industry, the stock market, and gold are still “buy low, sell high,” economic areas). The era of wealth creation has come or will soon come to an end. Zhang Tingbian believes that if the wealthy still follow the traditional mode of wealth creation and maintain the same way of thinking and investment style, wealth will not accumulate easily like it did in the past. Because of this, 80 percent of wealthy Chinese are likely to go back to square one.

Although Zhang Tingbin discussed the idea of personal wealth as something continuously rotating or redistributing, he also offers up his own solutions. For example, he recommends a shift from “working unilaterally,” to just, “working more.” He says to use both hands in order to work on more than one side or on more than one project. Zhang Tingbin also notes that there will be a shift from “putting all one’s eggs in the RMB basket,” to the idea of global assets. The old idea of relying on the government’s allocation of resources for assets is shifting to the reliance on think tanks, technology and experts.

Source: wenxuecity.com

 

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Keywords: Wealthy Chinese