Odd Lots x Search Engine

that championed great cinema.

From iconic directors to emerging authors, there's always something new to discover.

If you're looking for something really special, check out Father Mother Sister Brother. The eagerly awaited new film from Jim Jarmish, now streaming on Mubi in the U.S. It follows adult children navigating their relationships with somewhat distant parents and each other. It starts Tom Wades, Adam Driver, Miami B.I.Lick, Charlotte Rampling, Kate Blanchett, Vicky Krips, Indyamore, and Lucas Abbot.

Mubi is a curated streaming service dedicated to elevating great cinema from around the globe. Perfect for lovers of great cinema and for anyone who hasn't discovered how much they love it yet. To stream the best of cinema, you can try Mubi free for 30 days at Mubi.com/Surch engine. That's mubi.com/Surch engine for a whole month of great cinema for free. Hello, Search Engine Nation.

We have a substitute teacher today. I want you to be on your best behavior. This is not like one of those substitutes where they're going to put in a VHS tape and you're going to fall asleep. This is an episode of another show that a bunch of us over at Search Engine really love.

We listen to it. We reference it in conversation. It's called AdLots. It hosted by Tracy Allway and Joe Wiesenthal to great financial reporters from Bloomberg. The early kinds of reporters who use the economy to talk about everything else in life,

all the weird hidden markets that make the world such a strange place. And what's cool about the show is they're just both very brainy but also very curious. They ask real questions they have about the world and then let those questions guide them to all sorts of surprising places. Dollar slice shops, the rise of private credit, the economic history of hunting.

“Honestly, their range is pretty incredible.”

Basically, if there's money involved, they want to understand how it works.

I learned a lot listing. I think if you like what we do, you might like the show too. We're going to share one of our favorite recent episodes of today. It's called How Chinese Real Estate became the biggest bubble in history. I hope you like it.

We will be back in two weeks with a two-part series that we've made for you. Here's our thoughts. Hello and welcome to another episode of The All Thoughts Podcast. I'm Tracy All-Away. And I'm Joe Weisenthal.

Joe, we've talked before in reference to, I think it was the US real estate market. Yeah. There seems to be this weird thing going on with housing where it feels like policy makers, or maybe people even are not sure what exactly they want it to be. Right?

It's supposed to be this social good. This affordable thing we all can live somewhere that we can preferably replace.

“We want to live in something that we can afford, or is it effectively a giant piggy bank?”

Yeah.

An investment vehicle in which case we would expect prices to always keep going up.

Yeah, right. My personal preference is for housing to be very affordable, very briefly. And then that time that I buy how it accumulate more housing. And then it stops being affordable. I don't, many people have different takes.

I just want a very brief period of housing. This is also another thing about that. It's very important that in that brief period, I don't lose my job. It's very important that in that brief period, my other investments don't go down. I just want a very brief period of housing affordable.

But this is another thing about housing, which is like historically. It is one of the few ladders to big matters for masses, right? We've all heard the stories about artists and soho buying a loft. Correct. Good for them.

The other thing that's interesting about housing, particularly when it comes to affordability, is that this seems to be a truly global challenge. So people have lots of theories like, oh, it's because they didn't allow zoning and San Francisco or whatever.

“And it's like, maybe, but like, I think any question about housing affordability has to wrestle”

at the fact that this is a really global phenomenon. So can't be some idiots in credit thing. It does seem as though places where housing is more affordable. Do not have particularly dynamic economies. So it's like, I know that people are like, oh, look how cheap Tokyo is.

It's like a human being success story. But like they had a massive bubble and it's been deflating ever since. And that's not like Japan. Is it like some cutting edge of particularly any booming industry, isn't it? And Japan's still pretty nice.

I'm sure it's very nice. I'm not saying otherwise. It's just not clearly not where the action is. I'd love to go Japan. It seems like one of the nice places.

And the other thing that's interesting about this, which is that they're all kinds of ills that sort of bit devil, particularly the rich world these days. And then we look at China. It's like, oh, they haven't all figured out.

It seems like housing is a mess in China too. One of these rare, like, sort of like moments where we can shake hands with China as like, yeah, we're doing with a lot of the same mission. Well, here's the thing.

China is like the ultimate example of that tension between investment,

Because even in China as you point out,

there are affordability issues. Everyone's in a while.

“You see policy makers try to put limits on house prices in like,”

really expensive cities. Yes. But then when they start doing stuff that like actually pops housing prices, everyone starts protesting, which is kind, you know, a rare thing in China. So that is the tension.

I also find real estate speculation in China to be kind of, I thought they were communist. And I mean that ironically, like, where did communist get the idea of real estate? No, well, this is another thing because the social net starts going away.

In like the 1990s. And so people have to do something with their money to have retirement income. To, you know, I guess the house is in the old days used to be owned by the companies,

they're more dormitories than when that sort of split apart.

I don't know. Maybe our guest news more. Yeah, we do have the perfect guest. The perfect guest. Yes.

We are going to be speaking with Mike Bird. He is, of course, the Wall Street editor over at the economist. And the author of the new book, all about this called The Landtrap, a new history of the world's oldest asset.

So welcome to The Show, Mike. Thank you very much for having me. Great to be here. I love Mike. We both love Mike.

So we're excited. Also someone who spent some time in Asia. Yeah. I was there in Hong Kong as well. So knows the sort of global history of land.

And I was reading your book and you go all the way back to like Babylon or Samaria. So very impressive. So why did you decide to look at land? It's a great question.

I guess it started. I started my career in London. And as a huge thing in London about housing as there is here. You know, people's lack of ability to afford it.

“I think it's even worse than the UK than the US because, you know,”

the culture of equity investing in all sorts of other things is so much weaker. But I guess I really got into it when I moved to Hong Kong. Because Hong Kong felt like London on steroids. The housing was even more expensive. It was part of, you know, I moved in 2018.

You there Tracy. It was like the extraordinary bull run. Like the absolute peak of the post 2008 Surgeon Hong Kong. And learning about how land was really expensive. But also the government or owned all the land.

And at least a land out made money from the land. I found it very confusing. And it helped me to sort of dig into things. And I think it helped me to like start thinking about this as like a framework of how land works and different places and how you can use it and abuse it and whatever.

And yeah, Hong Kong was a great place to think about that. It's such an example story of how bad things can get. So if you buy property in Hong Kong, what exactly are you buying? You are buying like you're buying a apartment, right?

But you don't own the land. So if you say you're a real estate developer, you buy a land lease from the government. Like a 75 year, 1999 year, land lease. They've clipped back and extended the terms of the lease over time.

But yeah, that's what you're buying. You're buying the right to use it for a certain amount of time. Does that ever just go away? Like other example was like, you know what? 75 years is up. Not your land. This is a big problem.

And in these places in places like Hong Kong and Singapore, there is the difficulty of when lots of the land starts to roll over. When lots of the leases start to get at the end, the question of whether you just bow to political pressure and just give it to people, just let people keep it or whether you kick them off and start again,

whether you're not something down and rebuild. It's a big difficult issue. Mozambique is the other country. I know that does this, which is kind of funny. Also communist history there. Anyway, what role does housing actually play in the Chinese economy?

So I think the best part of living in Hong Kong was learning how this relates to Hong Kong, right? So put in very simple terms. The 1980s, Chairman Mao is dead.

“Deng Xiaoping consolidating power, and you're in a strange position where you have to”

start or don't want to start bringing in market forces in the economy. But it's pretty dangerous. He's got a lot of political opponents. You've got to step pretty slowly. And housing is one of the areas as most difficult. China's housing at the time is pretty ramshack,

and terrible. It's attached, as Joe suggested, the beginning to like the industrial base, like your employer houses you on a farm or next to a factory or wherever it is. But what China needs is urban modern residential housing. So, Zhao Zhiyang, who's the premier of China later on, and he's one of the sort of peak reformers in Deng's China.

He's a state developer called Henry Fock, who said, in a conversation with him, where Zhao is explaining like, "The difficulty of all we don't have any money, and we can't get foreign investment in." And Henry Fock said, "But if you have land, why don't you have money? How can you not have money?"

And basically, they started adopting on a small scale initially, the Hong Kong system.

They started leasing out land to make money. First, one of these is in Shenzhen in December 1987. There's an auction. The Hong Kong government gives them the gavel to do the auction.

because it's a communist country and the Chinese government owns all the land. They haven't even at this point changed the constitution to make this legal. They're sort of experimenting just to the edge. And then slowly this becomes the main financing model. There's a big tax change in the middle of the 1990s that shifts this.

But it's a really good way of making money, especially if you're the government and you own all the land. China owns that in a mainland for communist reasons, but it's actually a handover to some degree from Hong Kong.

“Actually, can I back up with you decades? What's land reform?”

You always hear the people debating each and I was like, "Oh, then today is the two-dit land reform.

This is really important." This is what I was saying. No, actually land reform was not there. What is land reform? Yeah, I've got a challenge on this in the book. And it was sort of towards the end of it quite carefully. It's an upset the people that feel very strongly about land reform.

And land reform... Things you don't talk about on Twitter. Yeah, yeah. El Asterisk and a reform. Absolutely.

The bots don't attack you. The land reform is a mostly middle of the 20th century phenomenon. And it's basically there was a lot of economic thinking at the time. The guy called Wolf Latishinsky, who was a U.S. Department of Agriculture employee.

He was an economist. And he was an obsessive about land reform, which is essentially his redistributing really concentrated ownership of lands, about job numbers of people, especially in the developing rural world. We're not talking about cities or anything here.

And he went into Japan after World War II, a bunch of other reformers.

Basically forced the Japanese government at the time to pass a land reform bill,

which redistributed an enormous amount of Japan's agricultural land. This happens in Taiwan as well. And it's South Korea. And as a huge amount of attempt to do elsewhere, to varying degrees across Asia and other parts of the world.

Basically, it's by far the most successful in those three original countries. It doesn't work. It's South Vietnam. It doesn't really work.

“I think one of the most depressing recurring themes on this podcast”

is the number of times. There is some sort of very successful project in industrialization or economic development. And then at the end, there's the interest. But it's only ever worked in the state of countries.

And we have no evidence that any of this works anywhere else. Here's the problem. Now we have another solution that you cannot use. Okay. Well, the other thing about land in China. And again, we're sort of fast forwarding back to the 90s.

And we should talk about the Hukau system as well later on. But land has this really unique position. I guess culturally and financially for Chinese people. Everyone basically decides they want to be a landlord. They want to own an apartment.

Even if it's not built, you see the ads in like newspapers, flyers, things like that. In a way that you don't necessarily see them for stocks or bonds, right? Totally. I think there's a big cultural thing there.

I'm never too sure whether I'm like a culture is downstream of policy

or policy is downstream of culture. But they clearly is a big cultural impulse there. Whatever it's driven by. I remember when I lived in Hong Kong, obviously not mainland China. But you used to get abverts pushed through your door.

“And it'd be like invest in the Northern English Riviera, right?”

There's housing and leads and Bradford to people. There's investment properties. This is a big thing. You didn't get those in Lees and Bradford, right? If you look in the UK, you don't get those abverts.

So yeah, it's a big cultural thing. It's also a big thing in the mainland, I think, because of financial repression. Basically, you can't invest long-termly equity market in China, right? It's a sideways game.

It's a terrible way of compounding wealth. Bank accounts in general in China for a very long period of its modern history had like a real negative returns because of financial repression. So the question is, if you're saving a lot of money, where do you put it? And there's only really been one answer.

It's been a completely rational thing for Chinese households to do that. You know, extremely high-saving households, buying property after property. A lot of them left vacant. One of the things I say in the book is that China has the symptoms

of both a housing shortage and a housing club, right? It manages to get the worst number of worlds. Yeah. Joe, you know what I call this? What?

China's great ball of money. Yeah, that's right. We think the country from asset class to asset class. And with the check-out with the world for the best conversion, that's right.

The check-out with the world for the best conversion. The legendary check-out from Shopify, just for the shop on their website, just for social media and for all of them. That's a music for your ears.

How do you do with shopping?

You can also help with shopping. So-called "fresh music". And so-called "fresh by ID". "Amma good". "Amma günstig".

"Amma vielfältig". "Kurts" says "fresh for all". To all the prices. This week, Mini Cherry Rhythm Tomaten 300g for only 2,970g or tablebills, the kilo for only 1,940g.

And there are many other things to all the prices. Now, there are no other things. And it's "Fresh" with "Fresh" and "Mask". "Mask". "Fresh for all".

You want to send me to Michael Thompson, who bought the whole A.B. dropped out and testified against them.

“And you think I'm going to go there and convince him to re-can?”

I thought you had created this illusion of who he is. I was just stunned that I would have a conversation like this with an ex-gang leader. I was in the hearing and I thought, "Oh my goodness. These girls are falling for his bullshit.

I think they're going to let this guy out. The world would be a much better place with this man out. It's like a light just kind of pours out of him. And I was determined to help that light get out into the world." Blood memory.

A new podcast series from Love and Radio. Search for Blood Memory. Wherever you get your podcasts. So, okay, the stock market hasn't done well for very long time. Rates on saving is a very low.

How did Chinese leaders feel about the emergence of a very speculative, high growth, high return? At least during the good old days. Before a few years ago, about the emergence of this industry,

about this emergence of this sort of thing that's crucial for living.

And also becoming a major speculative vehicle. How's this a feeling of speculation? Yeah. I mean, I should say it's an incredibly useful way of building out a city. This tool is like super powerful if you're just starting out.

A no one wants to invest. It's a really good way of pairing. Real estate development with infrastructure. You pay for a lot of things. You can do it sort of expanding very, very rapidly.

Plus you boost other sectors. Totally construction manufacturing. Employment build out, right? You don't want to do that. Yeah.

You don't have to do that much of administration. It's fairly easy to do this stuff, right? So there's lots of advantages to it.

“I think people start to see the problems even at the level of the central Chinese government”

in the sort of early 2010s, right? And you get this series of like whack em all attempts to get the big ball of money. The big ball of credit out of the system.

So the first thing you see is the Chinese leadership saying,

okay, banks limits on real estate lending to developers, right? Which is what pushes them into the international bomb markets where most of the Chinese property developers fund themselves. Then you see the limits on borrowing from the bond market, which sort of come in and out during the 2010s

and eventually sort of seriously limited in 2020, 2021. But even then you see Chinese developers trying to essentially borrow through presales from ordinary Chinese households, right? Which is like, you give me all the money to build your house up front. I promise I'll get rounds for it, you know, not stating actually,

I've got 20 other projects that I've got to build with your money first. There's no escrow system here. So yeah, you do see the Chinese government sort of waking up to the problems. But it's like in any other country, you know, it doesn't have same sort of Western democratic politics.

“But how do you get off the train while it's moving, right?”

And they've tried with the three red lines and the campaign against the real estate development sector in the last five years and it hasn't got very well. You know, something I'm wondering about.

You'll always hear about the CCP trying to learn the lessons of the collapse of the Soviet Union

and they don't want to have that fame. So they're very obsessed with this question of what brought the Soviet Union down. Do they spend much time looking at the collapse of the Japanese real estate bubble and the effect that that had on Japan as an industrial dynamo? It's a great question.

I'm not in direct touch on a day-to-day basis. My understanding was that they did, that this was a pre-occupation of the Chinese leadership. I used to hear a lot from people close to economic and financial policy making, that this was a serious consideration and it was why they didn't want to pop the bubble, which is essentially what the Japanese government and the Bank of Japan did at a very end of the 1980s, early 1990s.

They seem to have done that anyway. I mean, it is a fascinating thing, there's always this discussion of, you know, an autocratic regime can think in really long term, you know, they think in decades and centuries. But in this case, you know, there was a land financing model that China's local governments had, which has been pulled out from under them.

There was an asset class that Chinese households could invest in, which has been pulled out from under them. The government hasn't replaced those two things with anything particularly good.

Because we had Richard Kuh on our past a couple of times, and we know that deflationary spiral caused by real estate collapse is kind of a topic due to your over there. Talk more about the three red lines. Because this is something, I remember they came out when we were both in Hong Kong, and you could see why policymakers were doing it.

And to some extent, you know, okay, house prices came down, and there's less new builds and things like that nowadays, but they also seem to kind of flip them, right?

Yeah, totally. So the three red lines were basically the Chinese government identifies the real estate developers as the tool through which they're going to cool their housing market down.

And they come out with the three red lines, which are three different metrics of debt to cash and other sort of debt metrics. And they basically say, if you violate one or two of these, you can maybe keep borrowing only to refinance old debt.

“If you're green on all of the three red lines, you're fine, right?”

If your metrics are okay, keep borrowing go for it, but none of them are at this point. And if you have three red scores on the red lines basically, if you're violating all of these, no borrowing even to refinance, right? You've got to pay down debt. Now, these companies are some of the most insanely structured financial vehicles in history, right?

They can only expand through extremely rapid debt-driven growth, right? The model is such, you know, if you're ever grant and you're paying like a 15% interest on it on your borrowing, you've got to keep borrowing to expand, right? It's not a good idea, but you've got nothing else. So funny thing about Evergrande also is the diversification into a bunch of other things.

I remember, again, in Hong Kong asking someone, like, we should do a graphic of China Evergrande. All there are different businesses, right? Because it would be really interesting. And it took like three weeks to make, and when it came out, it was almost unreadable, because there are just so many of them, like, split out. You know, it sounds like we work.

“I mean, that was a company that had diversified into literal waived pool business.”

And about a hundred other things. So, yeah, we also just did insanely complicated leverage organization. There was a multi-billion dollar unicorn now, is where the bag of free does. We mocked when they bought Faraday Futures, the US EV company.

And we all mocked, right? Evergrande saying, "I've never been a living company."

"I've never been a living company." I don't want to say that. I'm like, maybe if they, the three red lines hadn't come in, we'd be like, "So you don't see around me this cursingization of Chinese companies. We're on a long enough time-lend, or I'll be coming EV companies."

Like, I was a great article in Bloomberg earlier this week, about multiple vacuum cleaner companies in China that are now releasing EV. So, I guess I'll make it. There, their argument was always like, "You know, where do you put your car in the car park?" In the estate that you live in, you built that.

It was so wonderful that they were actually there. Yeah, they believed in it. But basically, yeah, they bring the three red lines in. The real estate development sector begins contracting very rapidly. The most indebted companies get into trouble almost immediately.

But also, some of the companies that people thought were pretty safe. The borrowed, pretty low rates are getting into trouble fairly quickly as well. You're sort of country gardens, China, Vancouver, like they're all getting into trouble quite quickly.

“The way I think of it is that basically, the Chinese government attacked the sector that had grown up”

to intermediate between the households and the local governments. But they didn't change anything about the incentives for the households of the local governments. The households still need to invest. The local governments still need money from somewhere. And these companies were just making that arrangement work for those two sides.

And destroying them does nothing really. You know, causes a lot of distress, construction, activity drops. Lots of people aren't going to get the homes they invested in through the presale system. But it doesn't really address the actual core driving forces. Talk a little bit more about the local government finances and what it is about land that is particularly important.

Because the other way is the local government could theoretically taxes all that stuff.

I was never sure what the driving force was at the sort of Beijing national level.

Or if it was the local governments that, you know, first started doing this. Because they're like, oh, here's a way to make money and develop and look good in Beijing's eyes. And then Beijing just kind of went with it. So I would trace it back largely to, as I said before, you know, people started experimenting with land auction landsales from 1987. It starts to get more popular in the early 90s, but it's 1994 when they change the tax and spending system.

The distribution of spending and tax responsibilities between the Chinese central and local governments that really sort of hammers it home. So traditionally China, people's Republic quite decentralized in terms of revenue and spending obligations. Local governments did most of the tax raising, they did most of the spending. The central government told them there were certain things they had to do, but they did it all fairly independently.

We'll tell you how much you get back of that became a much more centralized system. And overnight, the local governments were left with huge spending responsibilities. Those don't change, but only making sort of 60 or 70% of the money that they needed to fund them. They stumble through the 1990s trying to find ways of doing this. There's lots of sort of flagrantly illegal administrative fees and fines placed on things.

This actually gets them in trouble because it's very politically sensitive. You know, there's the rural Chinese residents being absolutely rinsed for anything. The local governments can get their hands on.

And they land on on land basically.

They see the land auctions, which are off balance sheet revenues. They do not count for the purposes of being remitted to Beijing in the same way that normal tax revenues do. And they say, right, okay, that's it. That's what we'll do.

That's how I will raise money. And you see the proportion of income rising rising rise very aggressively through the late 1990s. From a pretty sort of residual amount that was useful for it was useful for land allocation. It wasn't mostly useful at the beginning for raising money. And it becomes the main fund raising tool.

And then they're in the trap. Yeah. The land trap.

“Has any country ever successfully gotten out of this type of situation?”

It depends on what you mean by success. Yeah, potentially with out a mass of collapse or without a period of very long stagnation, which seems to be what China is in now. I would say basically no. And funnily enough, I actually think one of the best cases for relatively rapid like return to normal see is after 2008 in the US specifically.

You can tell how few cases there are that I'm using for the greater session. This is the best one. That's like this might be the best outcome for a number of different reasons. But yeah, that might be the best outcome. The replaces that didn't get into the trap in the first place.

Right. That that seems to be the ideal probably.

I've obviously never been to mainland China.

All of the China news that I consume is on propaganda that makes it onto my Instagram reels that shows all these incredible futuristic cities and robots doing everything. A hundred percent of my China news consumption makes it look like paradise on earth. Again, because I only consume propaganda. Is it actually stagnating? I will say I can't claim to have been to mainland China for years now.

I think it is.

“I think the long term threat from undermining what was really right at the middle of the Chinese development model for a very long time and not replacing it with anything has been really dangerous.”

You've seen this effort as investment in the real estate sector has dropped from dropped to drive it into the manufacturing sector. But the reality is the manufacturing sector is because it is in China. Isn't big enough to productively absorb all of this? This is the best. This is the question.

Can the Chinese manufacturing sector just be so dominant that it just offset the decline of real estate? And your analysis is no. My analysis is no.

Chinese economy's too big. I would say.

And two big means that the domestic real estate market is absolutely gargantuan. Right. The thing you're trying to replace is enormous. And there's only so many buyers for your products in the rest of the world. And this is why you see, I think, the anti-involution campaign. Right.

Can you get consumption up? Exactly. The pressure against it. Because the sort of consequences, the negative consequences already starting to display themselves. Really like three years into this really big push to drive the investment into manufacturing.

And it's showing those problems in a way that it's a real estate much longer. I don't think it can be a like for like replacement. We talk more about real estate and productivity. Because this is something that I didn't really internalize until I read the chapter in your book, the China chapter. Yes.

So there is a lot of really, really interesting research about real estate and China and what it's done to productivity. So if you think about it from the perspective of going to get into a banking argument, the sort of you get. There's going to get me in trouble as well in terms of like the amount of credit you can have. But if you think there's any constraint on the amount of credit, which obviously in China there is, there are actual targets and limits.

It's still a fairly state-oriented system in lots of different ways. Then the resources going to one part of the economy means they aren't going to another part of the economy. And in China's case, this means employment, it means material investment, it means steel and concrete and copper and everything else.

“The real estate sector in general, in a long run, I think has pretty low productivity.”

You can build constructively in places where housing is really in demand. But there's only so much you can put out there. And you're not making new stuff. No, totally. And certainly in China, what has happened and what was certainly happening during the run-up to the three red lines policy,

is you saw a lot of productive entrepreneurial and innovative activity instead going into real estate. We talk about Chinese real estate developers having lots of arms. Every big Chinese company was trying to run a real estate company on the side.

Because there's so much money to be made. Why not? Why not do that as well? And there's really interesting research from U.C. at the IMF, talking about how individual Chinese entrepreneurs would go into real estate over time because there's so much money to be made. And it is productivity destroying, especially if I think you're in a state-oriented financial system,

where you're not probably going to see like a 2008-style crash. This is where you see the consequences coming through. I'm going to do that. You know, I'm thinking about that line and the sopranos where AJ tells us something. I really say they're not making any more of it.

Whether China is, that's a really true, like a artificial islands exist. B, again, and the Chinese islands literally drop in the ocean. Yes, they're somewhere. But more importantly, again, if my mainlining consumption of Chinese propaganda,

I always see these things like this used to be a desert.

Now it's this beautiful, like, farmable land, and there's greenery here. Like, whether it's China or elsewhere in the history of land, like, it's not really that fixed. They're always find new ways to sort of create habitable land.

“That's, that's what it used to be human.”

I think this, this two things, that one is like actual reclamation, which is like, we've probably added like a-- Can you, by the way, I think that's the most powerful word in English language. Reclamation, because it means turning watery land into land. Yeah, but the implication is, like, we're reclaiming it.

We are reclaiming what used to be art. I think that's such a powerful word. It's very like Francis Bacon, so he's saying it's very, like, you know, man's diminuously. Yeah, it's like, what this land that we can't live in was only a tip. We were temporarily embarrassed in the grass.

It's always good to do land reclamation where you come.

But there's really not very much of it. Okay. I think the more interesting way that you can create more land in the way that I think of it is more like,

“if you think of land as a, like, a commutable, reachable area, then we've always created more land, right?”

It's like, the Bronx wasn't used for land 150 years ago, and now it's extraordinarily expensive land, because you can get into the productive center of New York. And that's actually one thing that loosens the sort of trap conditions around land over time. You see this in the US, like, during the early 20th century, you saw New York, for example, loose in a lot of its problems with housing in real estate, because suddenly it was like the outer boroughs.

You could populate full of people and they could work in Manhattan still, and that was fine. And that was a bit like creating more New York's worth of land to attach to it. Oh, here's where we can talk about the Hukau system. Yeah, because that ended up being precisely a limiting force on this dynamic. Yeah, absolutely.

And I think that that feeds into the whole question of the Chinese welfare system and the fact that Chinese households are driven. To invest so aggressively in land, right? If your welfare is linked completely to the place where you grew up, and you become a migrant worker and you go and work somewhere else, then you're going to want to invest very aggressively either in real estate where you can in the place you move to or in real estate at home. It's essentially like a sort of savings technique more than it is.

Again, in China, it feels like the land use and the land is an asset, a more divorced from one another than anywhere else. You can see this in the rental yield data, right? Rental yields in China rents in China are on expensive, even even in, you know, the really popular cities. They're not expensive at all. So that that sort of gap and the Hukau system really feeds into this by essentially it's another force driving Chinese households to invest more and more and more.

“So I don't totally understand explain a lot of the, what is the essence of this system?”

So one of the constraints are played and then clarify like how it, how the incentives therefore are to acquire. Got it.

So the essence of the system basically is that you have a welfare system that is linked to the place where you're registered as a household.

Usually the place where you grew up. So you're able to get all sorts of different ordinary welfare state things based there only. And if you move for work, it doesn't matter, right? So you're you're not eligible if you're a migrant worker to all of those things in Shanghai, for example. And these things are really easy.

So you can move there. You can move there. But you can move there. But you really be a sort of literally a second-class. Yeah, absolutely.

So this is without huge amounts of external migration or with almost no external migration really. China has been able to create the system that lots of other parts of the world have with very poorly paid migrant workers turning up. Who don't have any rights in the place they're moving to. These are the people doing the construction jobs that people doing a lot of the low paid work. I don't know if this still happens.

But I remember in the 2000s, if you walked around Beijing at night and looked in the windows of some of the restaurants,

Didn't have access to housing. So kind of crazy. Yeah, yeah. People who are sort of more on the immigration restrictionist and in the US will often say things like, You know, the US has actually fallen behind on productivity because we have this endless supply of cheap labor with diminished rights.

Had we not had that, that would have forced US firms to do more capital deepening, maybe invest in robots, etc. It's interesting because we think of China as a very advanced industrial nation. And yet, you're a description of that makes me think that story doesn't really hold water. Totally. And I understand why people concentrate on that element of the Chinese economy. It's like the most exciting, interesting bit.

“And you don't need to downplay in any way the advanced manufacturing sort of hyper-futuristic elements of it to say that that doesn't represent the overwhelming share of even Chinese industry, right?”

Which is relatively low productivity, relatively low return. It's at scale, but it's not enormously futuristic. And certainly once you get out of the manufacturing industry, you are going into the standard East Asian development model where the service industry's productivity is absolutely awful, right? Really, really poor service productivity.

So yeah, I think it's a, the two things are true at once, right? It's, it's large and it contains multitudes, but it's not most of the story to me. Do you see any signs that Chinese people are starting to, I guess, move into other assets, like equities, probably not bonds, but we know that government has been trying to stimulate the entire economy. And I think they've been pretty clear.

They've been trying to lift various asset prices, not housing. Well, now they're doing housing as well, actually. But do you see any signs that people are starting to change their minds on something like Chinese equities? I think to make the Chinese equity market really work, you would have to make a series of deep political decisions about the way China's run,

that I think they probably won't make, which is basically things like Jack Mal when he got really slapped down, right?

“Basically, you need to allow that sort of behavior, right?”

You need to allow the innovation. You need to allow the entrepreneurs to sort of go nuts. You can't have all of these restrictions around. We don't want the young people playing video games. Then we want it to be driven into this kind of robotics and not that kind.

And all of those sort of limitations are going to, I would say, prevent that from happening. There's too much political activity that a Chinese company has to do. What about just like the hyper competitiveness? I mean, people will say, well, there's hundreds of EV companies in China. Most of them are going to fail.

And yet you read about new launches. I don't know, like, this is one of those stories that I really like because it feeds all my biases. So therefore, I'm sort of very skeptical of it, but I probably repeated. It's like, oh, like, China's stock market hasn't done well because they're too good at capitalism. Because it's too competitive because they really get it.

They're really competing as driven all of this abundance and so forth. Like, as there's something to that that, like, the reason Chinese equity has ever done well is because with such intense competition, with the provinces are having their normal champions, that none can really sort of capture something that might reflect sort of monopoly rents.

“I think there's definitely something to that in a way.”

When I think about that, I would say it's true when you're subsidizing the competition. It's not true of competition in general. It seems crazy to me to say, like, net bad if everyone's getting like cheap inputs. It's lots of competition, but the provinces still do have a role in subsidizing. Yeah, implicitly or directly in subsidizing their national champions.

And when she says, yeah, that we want to make spark plugs, a big priority for the next five years. They all go, they still do that, right? They scrambled to find their local spark plugs right there. I think there's lots of, like, American examples and examples elsewhere in sex, is where people said, oh, it's too competitive, no one will ever achieve it.

Uber's a good example. People said this would never work. It does work, right?

So there is a scale that you can build where I think you develop a value, even in the market with this really competitive and really sort of low entry costs. But you won't do that if every other, if you imagine a war with Uber, but where every other rideshare company was aggressively subsidized every time. Right, right, above a certain market cap.

Yeah, then yeah, you wouldn't have Uber at a certain market cap. I'm really curious, because, again, the book goes through, it's not just China. It goes through all sorts of land models. But what was the most interesting one that you looked at? Not only does it go across different ways that different countries treat land across the world.

It also goes across time, like 3000 years worth of human history. Yeah, I should emphasize to anyone listening. I was really interested in the China stuff, but it's not a, not a China. The two most interesting to me, one of which, because I live there, the most unusual and fascinating real estate system in the world is Singapore,

which has defied in many ways a lot of the limitations that other countries have seen.

And one of the first parts of the book, which is like Colonial America,

Right, these colonists get to a place where they have essentially to them infinity land. It just keeps going on and on. They don't know where it stops. It seems to be relatively fertile and good, more people turn up, but have shortages and cash and labor and everything else. And there's all of these efforts to turn land into money with public and private land banking projects.

I found all of that, like, absolutely fascinating. It's not actually something I knew very well before starting to research the book. Yeah, so Singapore is... What is it about Singapore? Because I actually, I don't know why I sort of assumed they did the same 99 year land.

They do. And this is the most interesting thing. They start off with all the inherited things that Hong Kong starts off with. Okay. Up until the middle of the 20th century, the cities are run on very, very similar lines. Hong Kong goes off in one direction and Singapore goes off in another.

“And the Singaporeian direction is basically how do you maximize home ownership permanently?”

How do you have a sustainable model for making sure people can still afford to come in? So what they have is this bizarre public, private system. I say bizarre, it's very impressive, where the government owns most of the cities land, not all of it, like in Hong Kong, but most of it. And they have the housing and development board that builds housing estates.

They then sell the units in the housing estates, two Singaporean citizens. You can only own one. You can't own multiple and rent them out. There are restrictions on how long you can hold them before, but there's an internal market. You can only sell them to Singaporean citizens and permanent residents. The amount of building is done to make sure that everyone can afford it.

Did they really divorced usage from speculation? Totally. They divorced users from speculation and a place that I think most people think of

is very capitalistic, free market, low tax is basically decided.

This asset class, land and real estate, this is something different. We're doing, yeah, we're doing a different thing with this. Well, you know, the normal forces, simple, so much international money, sensor of capital and trade flows is rich. They do commercial routes though in Singapore.

They do. They remember this because when I was in Singapore, I saw the ticker symbol on this out of a few buildings. It's like, you can invest in this, but anyway, yeah, but it's not a lot less than that. It's not a little bit different, but the residential real estate. And they've done this in, again, they decided land was different.

They have a thing called the Land Acquisition Act, which really allowed them to strip a lot of people of their land. They struggled in early low prices through the sort of 60, 70s, 80s. And it's allowed them to do something very, very different. I don't know whether most countries can sustain the idea

that capitalism works for everything but not land. And we're just going to be one Singaporean Senior Politician described to me as piracy, what they did in the 70s and 80s, pennies on the dollar, basically demanding people hand over this land. So it could be housing for Singaporeans, but it has worked very well.

“Okay, so China probably cannot pursue the Singaporean model at this point, right?”

But why can't they institute like a stronger social safety net? So that the burden of saving for retirement, for health emergencies,

things like that doesn't always necessarily fall on the citizens.

And therefore they have to invest in highly speculative assets. Yeah, they should, is the answer. There seems to be huge political opposition to doing this at the top of the Chinese Communist Party. And it's bizarre, again, because you taught someone like Richard Koo and it'll give you, it'll explain why if you don't do this, this is the consequence.

Right, Japan is the consequence. Long-term stagnation, it's going to be really difficult. They should do all that. And maybe they will be sort of drummed into it eventually, because I think the alternative is both stagnation and lots and lots of trade friction

with the people you're exporting to, as we've already seen. Right, because it's not just the US, is it? Yeah, everyone's sort of no one, like how to be a lot of countries that are not thrilled. No one's totally happy with it. It's a weird, it's a weird mix, because for some countries, it's like,

“if you're not going to make some of these items, right?”

If you're a country that simply not going to make EVs, then why should you care about getting the really cheap EVs? But everyone's got something to be upset about.

In Southeast Asia, it was always steel when I was there.

Everyone wants to have their own local steel sector and they don't like the Chinese dumping of steel. In Asia, they don't want cheap Chinese direct to consumer merchandise coming in, because it messes with their smaller medium-sized businesses. I guess for most of these countries, the difficulty is, do you want to pick a fight with the Chinese government? It's not an obvious question like it is in the US.

I guess I just have one last question, and the sort of Singapore example is what reminded me. Land is weird. The idea that you could have a capitalist system except for residential land. A lot of people actually kind of think that new here, what is the georgists, right? And they think like, no land is special, and we need to have these special taxes on ownership. And yeah, we love free markets.

But again, maybe because there's always so much land, they're not making much more of it.

and I already have a bunch of people already going to land around me, which doesn't really seem fair. I was just born. Where's my chance of?

We're never going to go to the pure Singapore model.

But are there things that we could do with the tax system that would sort of further hammer home the idea that residential land is for living? Yeah, I think that's dozens of different things you could do. But I mean, one of the big things is that the legacy of Henry George and the politicians in municipal America that really loved Henry George is that America has relatively high property taxes. Yeah. Anyway, you can do all sorts of things of property taxes to lean more of the value on the land rather than the structures, right?

Lots of states, lots of cities have done this.

“I think it's going to be increasingly important in the future, because what you're going to get is increasingly people inheriting homes from their parents when you can't afford them.”

And then that main story of wealth is about whether your parents decided to fall in the right place the right time. I talked to a lot of 7-year-olds who'll be like, "Well, I picked my two bedroom flat in 1973, and yes, I bought it for $3.5, but it's mine." That's going to be a lot less tenable, I think, when it's handed down wealth. So yeah, there's loads and loads of things, and Henry George is in the book. The political consequences have George's and fellow part in there too.

Alright, Mike Bird. Thank you so much for coming on our thoughts. Congrats on the book. Thank you very much, Reverend. Joe, that was really great, and I genuinely, the book is great. Yeah, I love talking to Mike. Once again, I'm just like, "His and he been like out the internet as much as we have. How did you write a book at this time?"

I don't understand, anyone writes a book, especially a very serious book on a very big, medium topic. But I just don't like it. Why are we eating constantly? Well, tweet it. She tweets a lot.

Yeah, it's like, it would be one thing if you were never online. He's online as much as I am.

Okay, you know, you asked that question about whether or not Chinese cities are actually futuristic. Yeah.

“I have an anecdote on this point. I think I might have said it before, but China is the place where I went to both the most impressive bathroom ever.”

In, like, highly futuristic, luxury shopping mall in Beijing and also the worst one ever in my entire life, which was in a rural building. Please describe it in vivid detail. No, I was basically a whole in the ground, right? It's terrible. China, it's a land of contradictions. Thank you. Thank you for highlighting the cliché.

No, I thought it did seem very interesting. There's still does that, like, there's so much speculation that happens in China.

And I would find that to be a little weird.

I have to just find the idea of, like, buying a property, but it's actually really you're not buying it. You're really buying the property for like 75 years to be a little weird. But on the other hand, I kind of exist in New York. Yeah, in the US, like, look, we pay property taxes and perpetuity, which means to some extent that when you owned something, you are paying a permanent rent to use it. And if you stop paying that rent, then you could theoretically lose it.

So maybe it's less weird than I thought. It is actually, we should do more on a Singapore specifically, like a, but also, you know, like, I'm not sure to your point in the very beginning, whether people actually want the divorce between usage and speculation. Yeah, I just think that for several of the last decades, people didn't have to choose.

“You've got to live in it and you made a lot of money. I think it's very hard to get off the train once it's kind of rolling, right?”

And that's the problem that we're seeing in China. And now they're trying to walk this very fine tight rope where it's like we don't want to make everyone incredibly poor. But we also want to depress housing and the importance of housing in our economy in order to boost manufacturing and productivity. This is why, again, my proposal, affordable housing for one year. Yeah, then it goes back to being really expensive.

All right. Well, you can suggest that, Jim. Yeah. Go to Beijing. I'll run on that. I'll run on that platform. All right. So we'll leave it there.

Yeah. This has been another episode of the All Thoughts podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Jill, why isn't all you can follow me at the store? Follow our guest, Mike Bird. He's at Birdie Word and check out his book, The Landtrap, a new history of the world's oldest asset class.

Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot and Kelbrocks and Kelbrocks. For more odd lives content, go to Bloomberg.com/odlots with the daily newsletter. And you can share about all of these topics 24/7 in our discord discord.jg/odlots. And if you enjoy all bots, if you like it when we talk about the world's oldest asset, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes.

Thanks for listening. Thanks for watching.