It seems that Wenzhou’s traders are taking a hit in Dubai. Wenzhou is a city in China’s eastern coastal province of Zhejiang. It’s famed for its entrepreneurs who make up a large share of the Chinese trading overseas. It seems that those living in Dubai dipped into the property market. As this Chinese-language article states, many started out selling hardware, home electronics, and other small consumer goods. However, they soon “fixated” on the property market and even went so far to invite their relatives back home to invest.
Now, this is familiar to observers of China. Wenzhou’s speculators are famous for teaming up and buying property across China. It seems they were doing much the same in Dubai. Except their bets haven’t paid off and they are now taking heavy losses. Dubai World’s problems have only amplified the losses and the Chinese-language media is full of similar stories.
How much have they lost? The article estimates that Wenzhou’s traders have invested up to $740 million in Dubai’s property market. The estimate assumes that half of the 10,000 traders from Wenzhou living in Dubai bought a property. It’s an impressive figure, albeit worth less today. Most famous is Hu Bin, who spent $28 million to buy “Shanghai Island”, one of 300 artificial islands made from reclaimed land and designed to look like a map of the world.
I was speaking at the Emirates Towers in Dubai last week. A soft-spoken manager for a large Dubai company waited until the end of my presentation before speaking up. “The Chinese banks are hungrier than the Western banks these days”, he said. “They are prepared to lend when others are not”.
I wonder if they will still have the same appetite after Dubai World’s announcement this week that it will delay payment on its $37 billion worth of debt?
No doubt, there will be concerns, and I expect that Beijing’s bankers are scrambling to assess their exposure to Dubai World. But the Chinese banks aren’t lending to the Middle East for necessarily the same reasons as are the Western banks. The difference is important and will determine the response.
I have heard a number of stories in the past week, in both Dubai and Abu Dhabi, suggesting that Chinese banks prefer to lend to projects contracting Chinese companies. It’s part of a full service package in which China provides the cement, the workers, and the bank loans. A good deal for all.
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A lot has been written on Dubai in the past few months. Some are fans. Others are critics. But few offer an idea of what the city might look like in a decade from now.
I was in Singapore last week and was struck by the amount of construction taking place. The number of cranes on the skyline reminded me of Dubai. Now, Singapore has its problems. Its economy is contracting. Its construction sector is suffering. But this isn’t the first time the city took a hit. It was also shaken by the Asia crisis in 1997, and its experience then offers a way to think about Dubai’s future today.
Here’s the most important lesson. It’s the construction sector that will take the biggest hit. In 1997, Singapore experienced a Dubai-like boom in its property market. The resulting crash was spectacular and the construction sector has only just recovered. In fact, it was only last year that the country started spending as much money building residential apartments and shopping malls as it did during the mid-1990s.
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It hasn’t been an easy year for the Silk Road’s largest investors. Their big-ticket purchases once caught the media headlines. But a number of their acquisitions are now struggling.
I think China’s Wang Qishan, a Vice-Premier and former Beijing-mayor, best sums up the challenges. Wang was speaking to Xiang Wenbo, president of Sany, a machinery-maker based in the central province of Hunan. Xiang had pointed out that the financial crisis gave Chinese firms a chance to acquire foreign companies.
“You are someone who is worthy to have come from the same soil as Chairman Mao”, replied Wang. But “have you analyzed the cultural differences between the two sides?. Do you understand the labor relations?” “If the engineer of your partner resigns don’t tell me that you would send people over from Changsha and get the entire company to start speaking Hunanese.” Ouch!
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The Dubai story has taken some hard knocks in recent months.
Its massive construction program has tended to rely on debt rather than oil. Debt markets however have collapsed as a result of the financial crisis. There is also talk of oil-rich Abu Dhabi having to bailout its neighbor. Dubai’s critics claim that the emirate simply rode a global tide of cheap credit. And, as the Chinese say, when the tide is out, the rocks appear.
I disagree. I’m still a big of Dubai. A recent article in Al Quds Al Arabi underscores why. The author reports how many Iranians, who had bought property in Dubai during the boom years, are now suffering losses. Painful stuff no doubt. But the more important message is why Iranians, and the rest of the world, had flocked to Dubai in the first place and, I believe, will continue to do so in the coming years.
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