machete | the blog

Globalization.  It’s still the reason for much animosity towards the world’s eight ‘major industrialized democracies,’ also known as the G-8.  And while the U.S. has historically been one of the most criticized nations it is increasingly finding itself on the receiving end, as a great place to make fast and easy money.

The rules are changing as the US begins to Nationalize failing businesses and China Privatizes state-owned organizations.

China’s Newest Import to the US: Landlords
US Citizens face a slew of regulations and restrictions when it comes to purchasing property in China - good real estate in China is expensive and the value of the US dollar is relatively low.  On the contrary, it is substantially easier for foreigners to purchase property in the United States.  In fact, New York City and Washington D.C. topped the list of the best cities for real estate investment published in 2008 by the Association of Foreign Investors in Real Estate (AFIRE).

The Latest Real Estate Trend.
Popular tour packages that showcase sound real estate investments for Chinese citizens.  Considering the current economic downturn, with the US real estate market hitting all time lows, Chinese investors find unbelievably great deals in foreclosed houses.  An important note is that most Chinese ‘property shoppers’ are not looking to live in their new homes, rather, the common intention is to rent commercial and residential property back to US clients.

Controversy.
This is where the controversy enters since US citizens end up paying for a foreigner’s revenue stream, money that is spent abroad.  There are also many rumors out there that the US has guaranteed the Chinese government ‘eminent domain’ over US property as collateral towards the $696 billion in US public debt holdings.  These rumors are ridiculous and have been dispelled.  However, it is true that China owns over 22% (over $696 B) of US Foreign Debt (US Treasury).

Where US Public Policy Comes In.
Claims of protectionism are at their peak, and given the tough economic times it’s easy to understand why governments are opting to place legislative priorities on their own industries.  Nevertheless, the American Recovery and Reinvestment Act (ARRA), more commonly referred to as the Economic Stimulus Bill, dedicates $275 billion for housing recovery assistance that includes refinancing help and incentives to lenders.  The US government also bailed out mortgage giants Fannie Mae and Freddie Mac in late 2008 to the tune of $200 billion around the same time as it seized control of insurance giant AIG for $85 billion.

Irony? (switching places)
Once heralded as one of the best examples of successful free market capitalism and democracy, the United States is now finding itself nationalizing private companies.  Nationalization being a key identifier of socialist and communist states.  And in the other corner…we have China who for decades has been moving towards privatization, a reversal of nationalization policies that were introduced about 2,000 years ago by the Qin dynasty.

Here’s a very informal yet revealing timeline that provides an example of this ’switching’ of roles between the US and China:

• 221 BC: China - Qin Dynasty arguably begins ‘nationalization’ (unification of country, currencies, etc.)
• 1939: US - Nationalization of the Tennessee Electric Power Company
• 1980: US - The Resolution Trust Corporation seizes control of failed Savings and Loan Associations
• 1991: China - Sells a portion of a privatized perfume factory to Sara Lee Corp.
• 1997: China - Endorses the sale of all but the largest state-owned enterprises (around 262,000 remain)
• 2002: China - The amount of state-owned enterprises drops to around 159,000
• 2008: US - Assumes control (or Conservatorship) over Freddie Mac and Fannie Mae (Mortgage Giants)
• 2008: China - Passes land reform laws that move towards increased privatization
• 2009: US - Potential for auto industry ‘bailout’ (would involve a level of control over Automakers)

Wrapping this up: BRIC Nations & US Awareness
I don’t have an agenda here, and I’m not trying to skew facts - this is merely proof that we cannot ignore the importance of BRIC countries (Brazil, Russia, India, China) in relation to the US economy.

Passing off Russia and China as communist countries that can never play a role in today’s fast-paced and globalized economy is terrible policy - and we’re quickly (very quickly) learning that.  Similarly, Brazil and India are no longer just impoverished third world nations that are weighed down by large masses of uneducated citizens…in fact, literacy rates are substantially higher for young populations (ages 15-24) than the nations’ overall literacy rates - that is just one critical socio-economic indicator that provides us foresight into the future of global economics.

Add’l Reading: US Public Debt, Trading Places by Jon Nadler, NPR on Chinese Landlords