The Chinese call San Francisco, California “Jiujingshan,” or “Old Gold Mountain” in reference to the great California Gold Rush, when thousands of Chinese immigrated to the U.S. West Coast and sought their fortunes as gold miners. The atmoshere in Shanghai today is so animated that one could call Shanghai “Xinjingshan,” or “New Gold Mountain.” The most apt metaphor to describe the feeling here now is that of a “gold” rush where “gold” is the virtual accumulation of capital through booming economic growth. So much money has been pumped into the local economy since 2001 by the government and foreign investment that the trickle-down effect in Shanghai truly is a torrent. Real estate is the main currency changing hands, super-heating the local economy. For example, peasants who once farmed land in suburban Shanghai sold off their farmland for urban development projects, earning a tidy sum that helped them buy new homes and farmland. Retired workers with some money bought apartments and are now sitting on large capital gains. Skilled workers have turned modest incomes into substantial real estate and investment portfolios. Students who once turned to state-owned enterprises for jobs are now striking out on their own, hoping to get rich. It is really quite amazing to see the changes here. The changes in attitude that I wondered about when I visited Shanghai in 2002 have now begun to change at a rapid rate. There are many have-nots, and the number of poor has risen dramatically in the new millennium. However, for many Shanghainese, the recent development boom has very positive experience.
On Sunday I visited a gorgeous home located in suburban Shanghai. Located about 15 kilometers from the city center, it is in one of many, many new suburban developments. The new home cost about $350,000 for the lot and structure; the owner put many more thousands of dollars into the interior (in China, new home are unfinished, and the new owner must contract with interior design companies and construction firms to finish the interiors). The house is located in an exclusive gated community. The backyard fronts a canal formerly used as an irrigation waterway. This community is much like any upscale American community and is one of hundreds recently developed or now under development in and around Shanghai. I wondered who could afford all these new homes. After all, the real estate market in Shanghai appears to be valued on par with that of Phoenix, Arizona, while the median per capita income of Chinese is less than 1/20 of Americans. While Shanghainese are among the wealthiest in China, the median per capita income is still far below that of Americans. So how can they buy these expensive homes?
The answer to this perplexing question is that increasing real estate values and entrepreneurial drive of Shanghainese has led to a dramatic increase in personal wealth over a very short period of time. For many Shanghainese, the boom has led to instant wealth augmented by purchases of real estate and the accelerated appreciation of home and land values. Locals who bought homes worth $50,000 in 1999 now live in $250,000 homes, and those who were smart enough to sell a $250,000 home in 2000 and buy two $125,000 homes now have two $300,000 homes. Those who engage in home or business leasing have done even better. While this is amazing and a mostly positive development for China, it leads me to wonder whether Shanghai–and China–face the possibility of economic bust in the next decade. It is very difficult to sustain such high rates of economic growth and a real estate boom without eventual downturns–even recessions. If and when a downturn happens, it does not bode well for an area like Shanghai now highly dependent on continued aggressive economic growth.