Contrary to popular belief, China is no longer the cheap place we thought of about labor costs. Labor costs and real estate are soaring, making it more expensive to do business. Jason Hartman hosts Shaun Rein, author of The End of Cheap China and Managing Director of China Market Research Group in Shanghai. Rein debunks common myths, such as whether China is stealing U.S. jobs.
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Jason Hartman 1:15
This is your host, Jason Hartman. We’ve got a very interesting show with an update from China today. Actually, our guests will be talking about China and the opportunities and the perils and the pitfalls of what is going on in China and the global economy. So I think you’ll find that to be quite interesting. And it’s funny, as I was just about to record this intro, I had CNBC on the station that is for the vast Wall Street conspiracy, I like to say, and I saw our guest on TV on CNBC as they were reporting from China. So kind of interesting that that just happened by synchronicity, I guess. Anyway, we’re going to do a different format on this show today. By the way, we’re going to start with our guest interview, and then I will be on after the guest interview. So don’t stop After our guest, and I will talk about a few issues, announcements and articles and commentary on economics and real estate investment in personal finance. So let’s go right to our guests now. And I’ll be back after our guest to talk to you a little bit more. Here he is. My pleasure to welcome Shawn Ryan. He is with China market research group. And he has got some fascinating perspectives on China on what it means to the rest of the world economy. And he is the author of the soon to be released book the end of cheap China and looking forward to having him on the show today. Shawn, how are you?
Shaun Rein 2:37
It’s a pleasure to be here. Jason, thank you for having me.
Jason Hartman 2:40
Well, my pleasure. Now you’re in Shanghai as a as an American would pronounce it or Shanghai? Yes, I’m in Shanghai, the business financial capital of China, where it is very expensive from what you tell us to have an apartment or a condo,
Shaun Rein 2:55
right? Actually business in China is no longer cheap. So an office rent in the central part of Shanghai is actually more expensive than a lot of places in the United States right now. And actually, my consulting firm is thinking about opening an office in the United States to save costs.
Jason Hartman 3:11
Now I know isn’t that Contrary to popular belief? So the the end of cheap China, Shawn, what is going on there? And what are the factors that are changing the game?
Shaun Rein 3:21
So I decided to write this book, Jason because I wanted to cut through a lot of the hysteria and myths that are being perpetuated in the United States about China’s rise. The first thing, you know, you see people like Paul Krugman, who say that China is actually stealing jobs from the United States by keeping its currency, the RMB artificially low, just doesn’t really hold up to basic scrutiny. So I wrote the book and I looked at a couple things. The first is that China’s no longer a cheap place to do business anymore. labor costs and real estate costs are soaring, which is actually making it more expensive to produce in China than in and say in Indonesia or Vietnam. So China has really worked Winning and out compete in the United States for manufacturing jobs because of efficient labor pools and really the best world class infrastructure in the world. And the second thing is I just wanted to sort of give tips for American businesses and policymakers and how to stay ahead of the curve, how to adjust and evolve to China’s rise so that they can profit from it, rather than be left behind and sort of, you know, end up in sort of a middling country like the United Kingdom is now
Jason Hartman 4:27
it’s pretty interesting, though, Shawn, how you talk about labor labor costs increasing pretty dramatically in China, I think you’ve mentioned around the 20% mark, which is a huge increase, but the floor to start with was set the bar was set so low. I mean, is it really that big a deal with if wages go from a very low number of few bucks, 10 bucks a day, something like that to $12 a day. Remember, you’re listening to flashback Friday. Our new episodes are published every Monday and Wednesday.
Shaun Rein 5:00
Well, you know, here’s thing, Jason it’s not only just, uh, you know, minimum wages gone up, you know, last year 21 of China’s 31 provinces increase the minimum wage on average by 22%. But the government is trying to increase wages long term. So what they’ve said is in the next five year plan that they want them to the minimum wage should go up 15% a year for the next five years. They’re also starting to enforce Social Security benefits a lot better. So what you see in the last two years, probably on average, the typical factory cost per worker is gone up 70%. And so in a five years, right, in period, it’s going to be extremely expensive to do business here on manufacturing. The second thing is Chinese younger workers just don’t want to work in factories anymore. Frankly, you know, they they’re because of the one child policy. As workers retire, there are fewer young people who are willing to work in factories, because they want to realize they were white collar dreams. So even though it’s still relatively cheap to produce here than say, in the United States or Germany. You know, you have this confluence of trends and issues that’s gonna make it extremely expensive on a worldwide basis and 510 years, so companies are gonna have to adjust.
Jason Hartman 6:10
It’s interesting that you say the Chinese government wants to see wages go up at a rate of about 15% annually. And what kind of growth rates are they looking at? I mean, are they looking at six to 8% growth in each of those years? Of course, these are goals, targets and projections. But that’s, that’s about double the growth rate Anyway, you slice it, right?
Shaun Rein 6:29
Well, we expect GDP growth, to grow about 8.4% in 2012, and we expect it to be in the eight to 10% range for the next five years. Part of the issue is we’re close to hitting the mid income gap in China, which is around 6000 US dollars. And usually when that happens, the rich get richer and the poor get poorer. So the government is really trying to ensure that you don’t have a great disparity of wealth so that are really trying to boost up and create the middle class. That’s where you’re going to get a more sustainable and vibrant economy, and you’re going to reduce some of the ills of the manufacturing sector such as massive pollution that it was really starting to hit the health care system and just the general well being of everyday Chinese. So they really have to push for this middle class development,
Jason Hartman 7:15
when we were talking just before we started the interview. And I told you about my friends there that are starting companies in China and so forth and doing business over there. And how they talk about how capitalist it is. I had Jim Rogers on the show, of course, you know, he’s been quoted as saying China’s far more capitalist than America nowadays. And you said it’s your your phrase was, it’s capitalism on steroids. Tell us about that. But you know, and I think maybe a lot of the listeners know about that,
Shaun Rein 7:40
but maybe how it interplays with the fact that technically speaking, at least, China is a communist country. Sure. Well, I think you know, I do like to say that China’s kind of like capitalism on steroids, because everybody here wants to make money. There’s this electric optimism in the business community and it’s because people are just so dirt poor. Even 15 years ago, you know, everybody here knows somebody who 15 years ago was working on a pig farm in or picking rice, who made a big dinner who’s now driving a Mercedes or BMW and has multiple villas. So this created this community. And this real can do attitude throughout the entire country. And everyone’s just rushing to try to make money. The problem with that is there’s some downside, I think, culturally, there’s too much of a focus on money right now. And there are a lot of entrepreneurs who might be willing to cut corners in pursuit of the dollar. And that’s why you see problems in the food supply. The food supply system here is a mess. And I actually have a whole chapter on some of the dangers on that in my book, and that’s causing problems both internally but also globally, because so much of the food supply chain in the world originates or has a part of it in mainland China, and that’s why Americans should be concerned about QC and food here.
Jason Hartman 8:54
Chapter one in your book says that there are more Chinese billionaires than American billionaires. And what I have read is that China, wealthy Chinese are looking to move their assets out of China, at least to some extent, I doubt there’s a hard number on this because it’s probably pretty hard to quantify. But a lot of them are, of course, coming to the US and buying real estate buying businesses, opening bank accounts here and so forth. Do you see that there’s a flight of capital from China at least on a maybe a personal level? If not,
Shaun Rein 9:26
I don’t actually, like capital J. This is one of another myth that’s been taking place in sort of sees the Western media in the last year. It is true that many mainland Chinese on the wealthier side are trying to immigrate to the United States or Canada, Australia, and picking up foreign passports but we actually interviewed three dozen Uber wealthy Chinese with investable assets of more than 10 million US dollars. And the majority of them said that they did want to look abroad and secure a foreign passport but the reasons are a little different than what you see in the Wall Street Journal or bye bye And Chang over the coming collapse of China fame, what we find is the first two main reasons why they want to get a foreign passport is they want to secure better access to education and health care for the children. The second thing that’s important to key is that while many people are getting, say, a Canadian or American passport, they’re actually keeping their businesses in China. They’re still trying to make a lot of money here. But the third most final reason why they really want to get a foreign passport is just convenience. A mainland Chinese passport really is inconvenient. It’s very difficult to travel around the world to go to the United States, you have to wait months to get a visa. Well, if you have, say an American passport, you can go anywhere in the world and you can still open and do business in China. So it’s more a matter of flexibility. And at the end of the day, just serve an insurance policy. You know, people are confident here but if something goes wrong, it’s always better to get out because if something goes wrong politically, generally communist countries don’t have easy transitions.
Jason Hartman 10:57
Well, speaking of things going wrong, talk to us about With a little bit about a civil unrest, and I mean, you don’t hear a lot about it, but then sort of on the on the sly you hear about riots and things like that, I guess they’re quashed pretty quickly there. It’s not like occupy wall street or they sit around for months. what’s what’s going on with that?
Shaun Rein 11:19
Um, you know, I actually have a chapter on this too. And basically, I think, you know, there may be 200,000 cases of civil unrest in China every year, those numbers actually are not really increasing. And I think, you know, many of these cases are very similar to just an everyday protests in Wisconsin. You know, these are not protests or people are trying to destabilize the entire government system, they tend to be targeted at one local corrupt official, or it’s their way of expressing dissatisfaction with something in their lives. So it’s more isolated, much more like a protest that I used to engage in when I was in high school in the United States. It’s not really you know, we’re trying to overthrow the entire system, China’s actually fairly stable. I totally disagree with john mccain who thinks, you know, China’s product for an Arab style spring. A couple issues on that is that if you look at the political system here, there’s a lot more diffusion of power than a lot of Americans think there’s mandatory retirement ages, you don’t have one single family that are controlling the whole system. So even if people were mad, it’s not like you have the qaddafi’s and Libya or the move rocks in Egypt that you could really target and try to overthrow, you know, there’s a lot of people involved. And the second thing, they’re over 60 million party members in China, which means everybody here has a friend or a relative in the party system. So I think there’s a lot more stability than people think. You know, obviously we need to improve the quality of life for everyday Chinese and cut down on corruption here because those are serious, serious issues. But I don’t see it causing an Arab Spring systemic threat.
Jason Hartman 12:56
It’s sort of surprising really shown that corruption is Such a problem there. I mean, with the government there is so swift and harsh in dealing with corruption. I mean, I remember what was it the guy that was overseeing the what was it the melamine and the pet food or something? Didn’t they shoot that guy? I mean, I got a lot of oil. You know, I got to say, and in some ways, I think the US could learn a few things, frankly, as long as they’re sure they’ve got the right guy. That’s my only caveat. But it’s pretty risky to be corrupt there, isn’t it?
Shaun Rein 13:29
It is risky. I mean, if they catch you, they do the punishments are much more serious here than in the United States. You’re often put to death or put in jail forever for what would be considered relatively minor white collar crimes in the US. I think the issue is, the corruption is so systemic, it’s at every level, that a lot of people feel that they can get away with it. And I think there is some truth to some critics, that maybe you don’t get caught unless you fall on the wrong side of the political struggle.
Jason Hartman 14:01
Just a reminder, you’re listening to flashback Friday, our new episodes are published every Monday and every Wednesday. Modern Chinese women there, they’re different, aren’t they? And, well, first, maybe before we go into that subject, is there a shortage of Chinese women?
Shaun Rein 14:19
Well, I think this is another one of the great myths about China’s society, which I tried to cut down in the book. I have a chapter on them. And basically, you know, my image before coming to China was that Chinese woman were served like concubines treated like cattle, and that they had a horrible life. You know, these were sort of the images that were shaped me by the last emperor, you know, Bertolucci’s movie, but actually Chinese woman are extremely moving up extremely fast, both in terms of power in the household and society in the 1950s. They only accounted for about 20% of household income now went up to 35% in the 1990s. And now women account for about 50% of overall household income. And that’s actually going to continue to grow. There are more women getting university degrees than men right now. And one of the keys is that as China shifts away from being manufacturing oriented to service and consumption, women are the big winners, they’re actually getting better jobs than men. So I actually track in the book, a lot of couples, say migrant workers who come to a city like Shanghai, the man can get a job making 120 hundred and 50 US dollars a month and construction. But women are able to get jobs making three, four or 500 US dollars a month as a maid, or working in legitimate massage parlors or doing assembly of higher end goods. And so what we find is men are making less than woman and many migrant households. And so you’re changing family dynamics, because women are the major breadwinners. And so there there are issues, though about, you know, gender imbalance and I think that’s a serious problem in some rural areas, but it’s actually getting better because now a woman like I said, her making more money than men. And so the demand for strong hands to work the fields is not as big as it used to be 20 or 30 years ago. So they’re more modern, but there’s not a shortage, there really isn’t a shortage. I mean, you see in the urban areas, I think in some rural areas there are and that’s actually why some local government officials turn a blind eye to the prostitution that’s taking place because they want the men to be able to have an outlet
Jason Hartman 16:28
no comment on that, but that’s interesting. So you know, some of the one of the chapter titles that I find to be really amusing in your book here is why Chinese consider Kentucky Fried Chicken helpful is that because of the the problems and they in the in the supply chain in the food, say food issue?
Shaun Rein 16:46
Well, let me ask you a question. Are you scared of the made in China label? No, you should be really
Jason Hartman 16:52
well, I mean, I’m not looking at it as far as food but certainly, most of the other products in my house are made in China.
Shaun Rein 17:00
How I love China. I’ve been here 12 of the last 14 years. But I’m stared at the food supply here. And you know, actually we my firm, which is a market research firm, we interviewed 5000 consumers in 15 cities last year, and their biggest concern in life ahead of being able to pay for medical care costs for their families or education for their kids with food and product safety. People here are really really scared about eating something and dying. So actually, when we interview consumers because I actually work with KFC as one of our clients when I go out and we find Why do you go to KFC You know, one of the major reasons to go is they view it as healthy. Now, I think Chinese know that KFC is not healthy that if you’re going to eat cooking oil is going to hurt your heart in the long term, but they’re worried about they they trust that KFC is going to use good quality cooking oil and ingredients and it’s not going to be toxic because people are petrified about eating food on the streets where a lot of the restaurant owners use cooking swill oil they inject formaldehyde or other dyes to make things appear healthier and taste better. So yeah, there is a real concern of food supply here. And I think Americans should be concerned about products that are made in China. for food, it’s definitely getting better. You know, we’re lightyears ahead now than we were 10 years ago. But it’s still a serious problem.
Jason Hartman 18:20
But when you say product safety, you’re really talking mostly about food, safety,
Shaun Rein 18:25
right? food. And I mean, I think even you know, there’s always been concerns about lead and some of the coding of toys. You know, those were problems from 510 years ago. But frankly, those problems are being reduced. Chinese consumers are demanding better quality products, and now they have the money for it. So what’s happening is factories are really getting better. And then the poor quality ones are just shutting or they’re moving to Vietnam. So the stuff that’s being produced in China, you know, in hardcore physical products that are getting exported to the United States actually is much better now than it was five years ago. Food still remains the serious issue. I mean, you saw the Chinese government even shut down 50% of the nation’s dairies in 2011 because there’s too much poor quality milk and people adding additives like melamine to the system.
Jason Hartman 19:13
Yeah, boy, that’s that’s that is scary. So I guess what we’d say is KFC isn’t healthy. It’s safe. Right? That would be the distinction.
Shaun Rein 19:23
I genic. Yeah,
Jason Hartman 19:24
right. Right. Yeah. Okay, good point. Well, what about real estate? I mean, people are always talking about real estate in China. And the first thing I’ve heard that I’d like to ask you about, besides the main more mainstream real estate topics are that I’ve heard that there are just really giant cities that are basically vacant. Is that true?
Shaun Rein 19:45
Yeah, there are ghost towns here. But the issue is, the reason why I’m not concerned about them is that they’re not being held by the developer not for sale. These empty buildings basically have sold out to end consumers. Who put down 50 70% to buy the homes, they’re not highly leveraged in the United States. So even though they’re empty, it’s it’s not causing a problem because there’s no debt in the marketplace. And so there won’t be panic selling basically, wealthy consumers here don’t know where to put their money. You don’t have the same financial instruments for investing like you have in the US. Many people here don’t trust the equity markets because of rampant fraud. So they basically put their money into housing, and they’re willing to hold it for 10 1520 years. So it might be the real estate sector. And these ghost towns might indicate economic inefficiency, but they don’t really cause concern for me about a systemic threat.
Jason Hartman 20:42
Well, I think it’s really interesting and actually very positive, that Chinese favor tangible assets, like real estate, something that they can see and touch versus paper assets that are rife with fraud, like the stock exchanges in the equity markets. Yeah,
Shaun Rein 20:59
exactly. There. Willing to hold on to these assets for for 1020 years. You know, one of the differences between Chinese real estate and American is most homes in America come furnished, are finished. And so when you buy it, you have to spend a lot of money and regular ongoing maintenance and you have to pay annual taxes in China. There are no annual taxes on most homes. And most homes are sold as an empty concrete Hall, that shell basically when you’re a homebuyer, you actually have to put in the pipes yourself put into tiles. So it’s really quite cheap for somebody just to buy a home and hold it for 1020 years.
Jason Hartman 21:34
You can see they’re saying yeah, that’s an interesting point. It’s almost like buying a piece of vacant land and then you didn’t mean furnished you meant finished. And so so in other words in these in these Chinese homes that investors are are buying for these long term holds. There are no cabinets, air conditioners, pipes, there’s nothing to really steal or vandalize. So it’s simpler that way too, right?
Shaun Rein 21:59
There’s nothing it’s really Just an empty concrete Hall. It’s like a subway, you know, in New York subway in that type of concrete. And so what happens is, you know, nobody, even if they paid for the home, nobody wants to be the first person to move in. Because if they there’s 300 units in a building, if you move in, you then have to deal 199 other people renovating this noisy, you’ve got the workers who are doing the renovation living there. And so the concern is, Will people ever end up moving into these ghost towns? Or are they always going to remain empty? They might remain empty for 1020 years. But my bet is that some developer will come in, buy the units, knock down the buildings and put up even nicer ones. And do then finish them all at once and have
Jason Hartman 22:44
it all at once. Yeah, the way they do in the States. Right? That’s, that’s really interesting. Let me take a brief pause. We’ll be back in just a minute.
Shaun Rein 22:53
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Jason Hartman 23:13
well, what is going on with with prices? And I’m not talking about vacancies, I’m just talking about normal markets where you have, you know, occupancy and so forth. What’s happening in Chinese real estate?
Shaun Rein 23:23
Well, real estate market is not collapsing, it is softening. And I think we’re getting to a far healthier range. Because before everybody was just betting that real estate would always go up. And so they were grabbing money and putting in. But what you’ve seen is no panic selling. So even though prices have softened, those prices are more from the real estate developers selling to the consumer. But the second hand market, consumers selling their own homes to other consumers, those prices have remained very steady. Because again, there are you don’t see underwater mortgages. So we’re in a much healthier state in real estate than we were a year or two ago. So I certainly see a soft landing in that sector. Again, the key is not how much average income, you know is in the country, or how high prices are. It’s really the people who are buying the homes, can they afford them, which they can? And are they over leveraged, which they’re not. You also don’t see hedge funds in China buying up tons of units, and then splitting off the mortgages into CEOs and selling it out to other hedge funds, who are borrowing $30 for every dollar in hand like you had in the United States, which caused the financial crisis there. Here. It’s still banks pretty much are holding the mortgages. It’s the financial system here is really very plain vanilla, and very outdated, but that’s actually helped the country from being able to avert a financial crisis. Well, yeah,
Jason Hartman 24:48
I don’t know if that’s a bad thing, Shawn. I mean, I love how these pundits in America call call all the stuff Wall Street has done as financial innovation. I think it’s really just really Ridiculous some of these products they’ve invented and these quote, innovations, unquote I mean, those things are the problem. They cause all sorts of malinvestment, and bad behavior. And, you know, everybody’s now focuses on ways to game the system rather than to actually create legitimate value in an economy. So when you when you say an outdated system of banks that actually have to hold loans and probably underwrite loans on more legitimate bases, the way it used to be an old fashioned America, that all bad,
Shaun Rein 25:30
I totally agree. I mean, it’s sometimes frustrating here. You know, actually, as a consumer, you can only take out about 7000 US dollars or so in cash without applying in advance and getting permission. So sometimes it can get annoying to try to get financial transactions done, but because it is outdated like that, it’s beneficial because you don’t have runs on banks and you know, it is a lot more stable. The whole system is set up to be simple, it slows it down, but that really makes you Understand why wealthier Chinese want to expatriate their money because they want control of it. That’s that’s way too controlling, I wouldn’t like it if my bank said I could only get $7,000 out at a time that would really, that would really bug the heck out of me.
Jason Hartman 26:16
Well, let’s talk about China for a moment on the international stage. What is it? And I you know, not in terms of superpower stuff, I’d like to get into that Max, maybe. But, you know, in terms of its business dealings around the world with Africa, and you have a chapter talking about the end of American hegemony tell us about how China acts there. I mean, we hear the American spin on it over here, but it’s always been interesting to me when I travel and I’ve done a lot of travel. I’ve been to 64 countries, when I read newspapers from different parts of the world, how different the angle is, and maybe it’s a lot more accurate reading it outside of the corporatized American media, but
Shaun Rein 26:53
Chinese investment abroad is a double edged sword, you know, so I do talk with people from Africa and Canada and Australia. Pakistan, about China’s investment and many people be welcoming, you know, so I was talking with some people in the mining industry, from Perth in Australia. And they love the Chinese investment because they’re making tons of money. But for the people in Perth, who are not involved in mining, they’re getting killed. You know, housing prices and food prices are going up so high, that they’re really just not able to live well. And so that’s causing a backlash. You know, I think, you know, many politicians are saying, Do we want this Chinese money? Or if we want it, how do we handle it? How do we ensure that people who are saying retail and or health care and has nothing to do with mining or going to be okay, so I think China generally has to do a much better job at how it focuses on soft power and how it relates to people from other nations because they can’t they’re too big now it’s just invest in other countries and say that we’re going to go below the radar because in many of these nations that are seriously impacting prices, And so China in general just needs to get a more well thought out well planned foreign policy and help some of their companies figure out maybe you can open up charities, maybe you can do stuff for local people, rather than just focusing purely on making money.
Jason Hartman 28:14
Well, that would require sort of an altruistic view of it. I mean, or is that just Are you saying that’s just good business sense long, good long term?
Shaun Rein 28:22
business, frankly, yeah.
Jason Hartman 28:24
Right. Okay. Well, gentlemen, I agree with you. So what’s going on with China in Africa,
Shaun Rein 28:29
China, and this is why I’m very bullish overall in the commodity sector, is China’s just investing billions of dollars it’s doing over 100 billion US a year and trade with African nations. They’re going there to countries like Angola to buy up copper and oil and other minerals that are needed to sustain China’s growth. I think at the end of the day, the government here knows that the only major threat to China’s continuing growth is access to natural resources. So they’re going to be continuing to expand out there. And so investors should be really looking at getting excited To the commodity sector. Yeah, well,
Jason Hartman 29:02
I agree with you there. I mean, resources are our key. That’s what is the fundamental underpinning of human life has resources. So no question about that commodities. Very good. Talk to us a little bit about whether people should consider China to be a threat and not from the angle of cheap China. Maybe we’ll close with that in just a moment. But militarily speaking, I mean, I see stories from time to time about China building aircraft carriers and I don’t know really what’s going on with this but military stuff. Do people in the states have to be concerned about war with China or any sort of violence or maybe this conflict with Iran and Israel and and nuclear war and in North Korea, that sort of the proxy issues there? What
Shaun Rein 29:48
about America creating a threat where there really isn’t one and creating You know, when you start to fear monger you know, many of your prophecies sort of become self fulfilling. I think right now, it’s very clear that China is not a threat. You know, the Chinese government spends more money on internal Public Security spending than on the military. A lot of their military spending is more just going for upgrading, or, you know, a lot of housing for soldiers is bad. You know, and I think, you know, on the one hand, China, the US wants China to take greater responsibility in global affairs, but the other hand is scared about China that spending money on aircraft carriers so that they can pay for better security and shipping lanes. So I don’t think that China is a threat now, by any means, you know, the official bone looking more internally, and I think the officials are trying to make money for themselves and their families, and they don’t really want to go into war. But I do worry that there could be more increased tension. If the United States continues to scapegoat China for all of America’s economic ills. And I do think that threats could emerge. If you continue to attack China politically, but I don’t think that there’s any concern for Americans as a looming Chinese military threat. I mean, I think at the end of the day, most Chinese actually like the United States. And that’s true the political system, the presumed next president, China, Xi Jinping, his daughter is a student at my alma mater, Harvard, you know, and you know, many of China’s political leaders have sent their kids and grandkids to Harvard and Duke and Yale over the years. So I hope that you’re going to see more rational minds on both sides of the Pacific sort of prevail. My concern, though, Jason, is that you’re seeing too much scapegoating, especially in a political election year in the United States of China. And I worry that that’s going to provoke trade wars or even worse, if mainland Chinese military people say you know what we need to shed the United States role as the world’s policeman and as a hedge demonic power, so we need to stand up to them, but I think the odds of that happening are really more on 1% For the United States, I’m far more concerned about Iran as a threat than China, China’s sort of a benevolent, rising power but could emerge as something else.
Jason Hartman 32:10
You mentioned about people going to all those American universities. does China is China coming up in the part of I never hear about Chinese universities. I just never hear about it. Maybe I’m just totally ignorant of it. I never hear about Chinese higher education. I always hear about people coming to the US for higher education. is China really, I mean, they’re working so hard and doing such a good job in so many areas of developing this country in terms of infrastructure, manufacturing, of course, what about education, higher education specifically,
Shaun Rein 32:42
in general, I’m fairly supportive of the Chinese government, but there’s two areas that I’m scathingly critical one is health care and second most important, the education system. It’s a total complete mess. I actually have a whole chapter on that, because it’s so bad that it could prevent China’s rise into true sustainable economic and political superpower status. The education system here is terrible. I mean, you read in the New York Times how a lot of Shanghai students are outperforming the Americans on test scores, who cares? I mean, there’s a big difference between being able to take tests and to be able to innovate and create and think analytically, which is why the best Chinese are now all going to the United States to study. You know, you have over about a million Chinese have gone abroad to study in recent years. You know, my boarding school, there are only two Chinese I believe it was who applied three years ago this year, there are over 200 when I was at Harvard in graduate school, there were more people from Mainland China than from any other nation except for America. And the reason is that the higher education system in China is simply horrible. I mean, you have you know, thousand person class sizes, people aren’t being taught to think critically. And that’s why what you see Jason is this big problem in the workforce. When we my firm, interviewed fortune 500 firms here, they say that their biggest problem is being able to recruit and retain talent they’re constantly trying to hire. And that’s their biggest problem and obstacle for growth in the next three years in China. But at the same time, 15% of university graduates here, were unable to find a job three months after graduation. So there’s a disconnect. The market is looking to hire more people, but the universities are graduating people who are under qualified. And so you need a major overhaul of the education system here. And it’s not something that the government can wait, it’s gotta go now. I mean, every nation, historically, that’s a superpower has the best, finest institutions of learning and attracts people from around the world. You know, the United Kingdom had Oxford and Cambridge, the United States at Harvard and Princeton, but China, it has nothing. Well,
Jason Hartman 34:52
yeah, and just distinguish that though if you would maybe segregated between grade school and higher education and university system. Though, how about on grade school?
Shaun Rein 35:02
I think the grade schools are pretty bad too, because they’re still also focused on just test taking. And they’re not training the whole person. You know, I interview in the book many families who benefited from economic boom, here, you know, they were the sons and daughters of elite Chinese communist officials, and I even interview one family as a billionaire. And what they say is we need to send our kids to the United States, because we want to train the whole person. In China. It’s all about test scores, we, we want them to learn about art and drama. We want them to learn about morality, and sports. And that’s something that really isn’t taught in grade school in high school in China. And it’s something that forms the bedrock of the education system in the United States. So Well, obviously America needs to improve. It’s still far better than anything else in the rest of the world.
Jason Hartman 35:54
This is really interesting because I look so down on the American education system. It’s so many times. That’s it. Interesting that sort of more liberal arts perspective really would you mentioned, guess we just sort of take that creativity for granted here. It’s just sort of part of the culture. It’s kind of like the air. Hopefully you never notice it because it’s clean enough that you don’t notice it. Lastly, and just wrap up with this, if you would, your final chapter is basically the book title, the end of cheap China and what it means to the rest of the world.
Shaun Rein 36:22
I talked about in the final chapter, what what is China’s new role going to be? You know, is it going to be a savior for businesses? You know, in many ways China has become the largest or second largest market for many of the world’s companies like Apple, Intel, Starbucks, or is it going to be a major threat? And so I just sort of go through those issues and come up, if you’re going to really capitalize on China’s growth, what are you going to do? Because if you don’t, China’s rise will ultimately be a threat to your corporate well being very good points. Well, Shawn, thank you so much for joining us today. give out your website, if you would, and of course the book will be available on amazon.com When does it when isn’t actually going to be released. The book hardcopy comes out March 27. But you can actually download the Kindle version now on the kind of surprising the publisher doesn’t control when Amazon releases the version so downloads of the version are taking place and selling like crazy, but the hardcopy comes out March 27. Fantastic and you can preorder that, but if you don’t have one, folks get a Kindle. I love my Kindle. That’s great. And what is your website? Sean, my firm’s website is www dot CMR consulting.com.ca. Sean rain.
Jason Hartman 37:32
Thank you so much for joining us today. Appreciate it.
Shaun Rein 37:34
Thank you very much for having me.
Jason Hartman 37:41
Well, I hope you enjoyed that interview today and few articles and comments I have for you on things I know we’re turning this around backwards and I’m coming on after our guests for most of the talk today, which is unusual, but we thought we’d just do something a little different. Maybe it’s in honor of Easter. So Happy Easter to you. That’s why we’re doing it. How’s that sound? turning things upside down.
So there’s an interesting article in new wire investor, you’re seeing more and more of this nowadays. And I don’t really give a lot of credence to this being any big, fundamental, super exciting shift what I’m about to talk about here, they actually have two articles, I want to talk to you about that dress this issue. I’ll say two and a half, actually, because one sort of does. But I tell you frequently that all real estate is local. You hear me say that constantly all real estate is local. And that’s certainly true. But I would love to see more statistics, and more of these forecasts and more of these reports, where we look at pricing data, and depreciation and appreciation data and just the general health of markets overall across the country, but not only in a geographical form, but in a price segment form because if you think about it, all real estate is local, but all real estate also is Relative based on its price segment, for example, as you know, I live in the Greater Phoenix area now for about eight months, having moved from the Socialist Republic of California, and happily so happily having left California and in this market, I mean, you’ve got like any market, you’ve got a broad range of housing. But it’s it’s almost more extreme here because there is so much sort of middle class housing that is, you know, reasonably nice that you can buy that our investors buy all the time for 90 to $130,000 say, but then you can go into areas of Paradise Valley in north Scottsdale, and other areas, and you can spend millions and millions of dollars on a property. So when someone talks about the Phoenix market, what the heck are they talking about? It’s like talking about the national real estate market. When all real estate is local, right? All real estate is local, but all real estate is also price setting. augmented, most certainly. Okay. So in relation to that I find these articles interesting and I’m seeing so many articles like this, which does does connote some degree of a change in the marketplace for sure. And it’s worth noting, but it’s probably not worth getting, like incredibly excited about, it’s worth getting a little excited about. And here it is housing market bottom found, says, Bank of America. I guess that’s why BFA is so willing to do short sales nowadays, because they want to get these properties back. So maybe that’s part of the reason, or maybe that’s part of the reason they’ve finally cleared out their foreclosure machine and, and they’re making that process happen a lot more quickly. So just a little bit from this. It says Bank of America Bo a Merrill Lynch analyst and bank of america purchased Merrill Lynch a couple of years ago. As you know, BMA and Merrill Lynch analysts have announced the bottom of the US real estate market and that bottom has been found, and that gains should be expected as soon as 2014. This is a revision from a previous forecast that saw price falls continuing into 2013. But a larger than anticipated decline in the inventory of distressed properties is prompting experts to move the marker Bo a bowls. The bowls, bullish economists, right also count new regulatory schemes and recent mortgage fraud settlement as feathers in the economy’s cap. Although they are quick to point out a quicker bottom does not equal a faster recovery. So you know what they’re saying there is that the market has bottomed we’ve found a bottom now of course, I completely disagree with that in expensive price segments and expensive land value areas like California, northeastern states, Chicago land some areas of Florida Of course, and expensive segments anywhere they’re found. I think those prices are still declining. I don’t think That’s about him at all, and is an opposite to that. And what I talked about a couple of shows ago, in our segment, the segment in which we’re dealing where our investors are buying, I mean, prices are going up. They have been for a while now no question about it. So you got to take all of this stuff with a total grain of salt. Okay, the article goes on to say just one more thing. Housing prices are bottoming now, though the recovery will not begin in earnest until 2014, according to Bank of America, Merrill Lynch report released Thursday. So that’s kind of interesting. And I’ll have a little more on that as a moment. Remember the call in line, you can call me for later broadcast on one of our shows, with your questions, your concerns, your thoughts on the market, on what you should do with your IRA, how you should invest, just like a radio call in show the number for the call in line again, where we will record the call. Play it back on a later show. 949-200-8009 Again, that’s 949 200 At 8009. And so take advantage of that, just like you would call any radio talk show. You know, I’ve talked to you before about self management and how I am a total believer in self management. I have not had one thing bad happened to me, in my self management experience over the last several years, that would discourage me from self management. So anytime I find a property manager in my portfolio across the country that I don’t like they do something wrong, whatever, I just get rid of them one way or the other, and I self manage the property. If I like my property manager, if they’re good if they’re doing a good job, heck, I keep them because I think a good manager is a huge asset. And a bad manager is not good at all, of course. But on the self management note, it’s interesting. One of my properties that I have never seen that has a tenant that I have never met the tenant emailed me the other day and this property is in Texas, and you know, I won’t tell you about Exactly where and I won’t read the complete details of the email. I’ll just kind of paraphrase but he sent me a note saying that the air conditioner wasn’t working that well, you know, it was cooling, but it wasn’t cooling enough. So probably needed a Freon boost or something like that. Anyway, so I got a referral from my former property manager, actually, of all things. I said it was a good air conditioning person. So she sends me a referral, and he checks back with me. Hi, Jason. Just wanted to check to see where you were, if there were any updates on the AC unit. The repairman didn’t say much when he left yesterday, and I haven’t heard anything from him since. Let me know if I can help with anything. Thanks. And you know, this little salvo that I’m going to talk to you about in the emails, it really goes to show you that all of these horror stories you hear about tenant problems and so forth, in my opinion, they are totally overrated. Look, I have been a landlord since I was 20 years old. Okay, well, really a little earlier if you count dealing with my mom’s properties, but I’ve been a landlord. 100% on my own since age 20. And, and that was years ago, and I’ll tell you something, I hardly ever have a bad tenant, I hardly ever have a problem tenant. And most people and most tenants are just good people that just want a fair deal. And they take good care of your property that you know, it’s just not that big a deal. These sort of horror stories you hear about tenants, okay? But, you know, like anything in life, negative stuff sells. And if it bleeds, it leads just like the old newspaper saying, and you know, they say if you have an unhappy client, they’re going to tell 12 people on average, if you have a happy one, you’ll be lucky if they tell one person, right. That’s just the way the world works. And so that’s why those negative stories with tenants, I think it totally blown out of proportion on the whole tenants, good people just want a fair shake. They want to be taken care of reasonable expectation. I write them back and I say, I need to get two more quotes. The guy that came out emailed me Totally informal quote with no detail. And then he went out of town since you know your schedule, and I don’t? Do you want to just Google to AC repair people, have them come out at your convenience and email me the quotes. As soon as I have that I can authorize and pay for the work. Sorry, this isn’t working as well as it should, Jason and then he emails back and says, Sure, Jason, that’s not a problem. I’ll get a few guys out and email you the quotes. I mean, don’t you love this? The best person to watch my property most of the time is actually my tenant. So go on here. I’ll just read up the string and the email is here. I write back. Thanks much. Let’s get this fixed for you ASAP. Then he writes back. Hey, Jason, I’m getting the same from everyone around here about 60 to $65. To come out and give a quote on the repairs. I found a few companies that come out and give a free bid with another company’s written estimate. I tried to schedule an appointment with the company name for a free quote because This is one of the companies he’s saying that gives free quotes for tomorrow morning, but the homeowner must make the appointment and you know that’s true. Sometimes I find that is that you have to actually call and say, hey, it’s okay to come out and see my tenant, can you call them set up the appointment for tomorrow morning, I can get a free estimate from them in the morning and get some more quotes from other companies in the afternoon. Once the appointment is set, I can be the contact for it. And I can send you all of the info and the company policy to deal with the homeowner directly for the appointment. Sorry for the inconvenience. He has the name and the phone number of the air conditioning company I write back, I say thanks. You can just tell them you’re the owner. Obviously, I’m cutting corners a little bit I’ll be the first to admit if you like so you can get the quote or just three way Call me at and then my phone number and I’ll tell them that it’s okay. So I mean folks, look at the best person to watch your property most the time is your tenant, and he writes back after that and says Okay, I’ll take care of it. So that’s how easy this self management stuff is. It really is in luck. I’m not new with this. I’m doing it with several properties now. And I’ve been doing it for years. And think about how that changes the performance of one of your properties. If your management fees, and I think management fees, by the way, are quite reasonable, with most managers, most managers, like most tenants are good people, and they do a good job. But again, when I don’t feel good about a manager, I just self manage the property and use that as my way to decide. But if you can save 12 or 1500 dollars a year on management fees, heck, that can increase your ROI pretty dramatically. And and people are all afraid of the old story of, oh gosh, I’m gonna get the call at midnight with the garbage disposals broken or some silly thing like that. First of all, I’ve never had any calls like that most of the tenants, they just email you and when they do, you know, you just email them back. I mean, how many of you are on You’re email all the time you have it on your iPhone, you have it on your Android phone, whatever anywhere you are around the planet. you’re responding to emails constantly. So it’s, it’s asynchronous, it’s not intrusive. And you can respond at your convenience. You know, you do have to take your business and, and be a responsible landlord. But Heck, I’ll tell you something. Sometimes dealing with a tenant is easier than dealing with a manager. I think the self management thing is great. And by the way, I did a whole lesson on a man it’s about an hour long, and it’s in the members only section if you are a member at Jason hartman.com. And you can take advantage of it. There is another article. This is from hw housing wire and it says that buying is cheaper than renting in nearly 100 major US markets. According to the real estate website Trulia and I would say buying is cheaper if you can buy and this is what really makes it such an incredible opportunity for them. Those of us who can those of us landlords who can. The article here it says buying is more affordable than renting in 98 of the nation’s 100 largest metropolitan areas. Even in New York, Los Angeles and Boston. According to real estate company truly is rent versus buy index. The index is based on asking prices for rental units and homes for sale on the company’s website between December 1 and February 29. As rents rise and prices stagnate, homeownership is becoming even more affordable. But rising rents created dilemma for people who can’t afford to buy yet says Jed Calico truly as chief economist, quote, rising rents make it harder for people to save for a down payment, which is the biggest barrier to buying a home that aspiring homeowners face. homeowners are choosing or being forced to rent rather than buy. Even though the ladder is cheap. cheaper in markets truly are reviewed. But as they turn to renting the influx of demand squeezes the nation’s rental supply, pushing monthly rents higher, folks. Don’t you love being a real estate investor right now? Wow. I mean, everything is just coalesced to be. This is the this is the proverbial Perfect Storm we are in low interest rates, the opportunity to get 30 year long fixed rate debt by below the cost of construction, a huge student loan debt bubble or Gen Y can’t afford to buy because they’re pressed by this huge student loan debt. That is not dischargeable in bankruptcy, there’s no second chance with student loan debt you got to pay it Wow, what a time to be a real estate investor. What a time to serve these people who are faced with all of these challenges in today’s life and it is just a phenomenal time. There is a huge generational shift in the making in the housing market and it is based on some So many the factors that we’ve talked about, folks, this is an unbelievable time to be a real estate investor. Well, rather than go too long with this, because I know we’ve already had our guests. I’m gonna save my now. Oh, how big is it? I’m saying I think I think I’ve got the stack of stuff I want to share with you down to one in three quarter inches now, and I’m going to save that for future shows. We’ve got a lot of great stuff coming up. I interviewed Harry dent again today, having him back on the show. And what he had to say was very interesting and a quick 22 minute interview. We’ll have that up for you soon. And just have a lot of great stuff. Remember, we have a lot of unique financing as well. We have $5,000 down opportunities in St. Louis. We have foreign national IRA financing, and financing for people with too many Fannie Mae or Freddie Mac loans who can’t get that type of financing. So if you are a foreign National, if you want to buy us real estate, if you want to invest with your IRA, or if you have too many loans, or if you only have $5,000 down, we can help you contact our investment counselors through the Jason hartman.com. website. And we have lots of lots of really innovative opportunities. By the way, I did want to mention and we don’t have this on the website yet. Well, we may by the time you actually hear this show, it should be up in the next day or two. But we are planning a tour actually not a tour, but a creating wealth bootcamp. That’s sort of our seminal event. We’ve had thousands of people come through that over the years that I’ve presented that to and just with great reviews, we’re going to have that on Saturday. It’ll be a Saturday in mid May, and then we will have a tour a property tour the following day on Sunday, and this will be in St. Louis, Missouri. So that should be a great opportunity for those of You are on the East Coast, or the middle of the country that haven’t been able to make it out west. For one of our events, we will bring the creating wealth boot camp there to St. Louis, and then have a tour the next day. And guess what, we even have another bonus if you’re interested. And there’s no additional charge for this. It will be the following Monday, where you can also do a tour of that market. I love so much that below the radar market I’ve talked about so many times. And that is of course, St. Robert, Missouri. So we will have a tour of St. Robert on Monday. Again, Saturday, St. Louis, creating wealth bootcamp. That’s a full day. And then Sunday, St. Louis tour, and then Monday, optional if you want to go St. Robert tour. So just a great way to see two markets that you might not normally visit. If you’re closer in that part of the country. It’s a great opportunity for you folks to come and see the creating wealth boot camp that you may not have yet experienced more information on that on the Jason hartman.com website under events. Check that out. And we will look forward to talking with you on show number 253. Very shortly. Thanks for listening today.
What’s great about the shows you’ll find on Jason hartman.com is that if you want to learn how to finance your next big real estate deal, there’s a show for that. If you want to learn more about food storage, and the best way to keep those onions from smelling up everything else, there’s a show for that. If you honestly want to know more about business ethics, there’s a show for that. And if you just want to get away from it all you need to know something about world travel. There’s even a show for that. Yep, there’s a show for just about anything, only from Jason Hartman calm or type in Jason Hartman in the iTunes Store
Jason Hartman 56:03
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