My maid just asked for leave," a friend in Beijing told me recently. "She's rushing home to buy property. I suggested she borrow 70 per cent, so she could cap the loss."
It wasn't the first time I had heard such a story in China. Some friends in Shanghai have told me similar ones. It seems all the housemaids are rushing into the market at the same time.
There are benefits to housekeeping for fund managers. China's housemaids may be Asia's answer to the shoeshine boy whose stock tips prompted Joseph Kennedy to sell his shares before the Wall Street Crash of 1929.
Another friend recently vacationed in the resort city of Sanya and felt compelled to visit a development sales office. Everyone she knew had bought there already. It's either buy or be unsocial.
The evidence in official corruption cases is now apartments. One mid-level official in Shanghai was caught with 24 of them.
China is in the throes of a vast property mania. First, let me make it perfectly clear that calling China's real-estate market a "bubble" isn't denying China's development success. As optimism is an essential ingredient in a bubble, economic success is a necessary condition. Nor am I saying that prices will drop tomorrow. A bubble evolves and bursts in its own time. When it is about to burst, I'll let you know.
Expectations of a Chinese currency revaluation are, perhaps, the most important force inflating the bubble. First, it plays to the latent human desire for a free lunch. You just need to exchange your money for Chinese yuan. Second, the revaluation story has kept Chinese money inside the country. The dollar has always been the safe-haven asset for Chinese.
Why would corrupt officials keep apartments rather than cash? Well, according to Wall Street, the yuan is going to appreciate. So holding dollars is out of the question. And why hold Chinese cash when property prices are always going up?
The massive liquidity waves have prompted Chinese banks to lend as much as possible. One Wall Street tradition adopted quickly in China was bonus recipients signing company cheques to themselves. All you need is to report eye-popping quarterly earnings.
For a bubble to last you need a force to hold it together when it stumbles. Wall Street kept pumping out new natural or synthetic products to turn debt into demand for assets. Local governments play this role in China.
Now housemaids are in the market. Who else? Never underestimate 1.3 billion people. In China, they say you should take the shoeshine boy's advice. Many would listen to him.
Welcome to China, the land of getting rich quick.
