AND WILL it keep underpinning both Australia AND Commercial property? Well, that really depends upon who it is you’re asking.
Most miners are somewhat guarded; many journalists are painting a gloomy picture; and Labor politicians seem to be arguing among themselves.
So, no wonder most of us are confused.
And whenever the general community is confused … it takes what seems to be the safest route, and simply does NOTHING.
This is the dilemma our economy faces right now.
Let’s peek behind the Chinese Curtain …
Perhaps the best place to begin is by talking with someone like leading Architect, Bruce Henderson — who is currently involved in designing major projects in Dilian, China.
He is right at the coalface — dealing with those making the decisions on Chinese future economic progress.
And his explanation of where things stand is alarmingly simple.
- Unlike other major economic powerhouses, China only has one political player — the Communist Party.
- The administration of that Party changes every 10 years — and due to occur towards the end of this year. But more on that later …
- The 10% to 13% annual growth in China (which required our iron ore & coal) has been driven by massive construction — mainly in new housing and infrastructure.
- The government controls the release of available land, by selling long-term leases to developers.
- Many of the recent massive housing projects have occurred by reclaiming farmland. (In other words, a 600-unit housing project may contain 100 government “pre-sales”, to those rehoused farmers.)
- Most of China’s recent decline in growth (still at a healthy 8% pa) has occurred through the government’s cut back in granting new leases to developers.
- With housing construction at a standstill, there is no income from land sales and the work for new roads, bridges and other infrastructure cannot proceed.
- This is what has impacted adversely upon our mining sector.
Understanding the “Chinese Logic”
Given that China only has one ruling political Party … the Communist leaders are solely concerned with image preservation.
Therefore, the outgoing administration has merely “responded to global pressure” and brought China’s runaway growth under control — and in the process, orchestrated a soft landing.
When the new administration assumes control later this year, it will heap praise upon the outgoing administration for its “careful and prudent management of the economy”. And probably reward them financially, for having “set the scene for renewed growth”.
Then, the new Administration will make itself look great by stimulating the economy, through once again granting land leases — for developers to recommence residential construction.
Now it all starts to Make Sense!
Unlike what you would find in Western countries, the incoming Chinese administration will not be “bagging” the outgoing administration.
Instead, their aim is to position both as having the country’s best interests at heart — thereby, allowing the Communist Party to be the overall winner.
Bottom Line: Right now, China is about to overtake the US as the world’s leading economy.
However, next year (with the new administration in place), China’s growth will again begin to surge. And this will not only flow through to Australia’s economy … but also provide a welcome boost for overall global growth as well.
Therefore, as a Commercial property investor, you can expect to see some solid gains through to 2018-19.