What's land reform? You always hear the people debating economics like, "Oh, they instituted land reform or this is really important." This someone else says, "Oh, no, actually land reform was not that." What is land reform?

Yeah, I I've got a chapter on this in the book and it was sort of towards the end of it quite carefully worded to not upset the people that feel very strongly about land reform.

things you don't talk about on Twitter.

Yeah. Yeah. Yeah.

L Apost L asterisk L and ND reform. The bots don't attack you.

Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Aloway

and I'm Joe Weisenthal.

Joe, we've talked before in reference to I think it was the US real estate market, but 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? Is it supposed to be this social good, this affordable thing we all can live somewhere that we can, you know, preferably a place 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. This is uh I mean the dream like what I my personal preference is for uh housing to be very affordable very briefly and then that time that I buy house buy accumulate more housing and then it stops being affordable. That's my I don't many people have different takes. I just want a very brief period of

it's very important that in that brief period I don't lose my job. It's brief very important that in my that brief period my other investments don't go down. I just want a very brief period of uh housing affordability.

But this is another thing about housing which is like historically it is one of the few ladders to big wealth for the masses. Right. We've all heard the stories about artists in Soho buying a loft correct for like $500 and now it's worth 10 million. So

correct

good 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 cuz they didn't allow zoning in San Francisco or whatever." And it's like maybe, but like I think any question about housing affordability has to wrestle with the fact that um this is a really global phenomenon. So it can't be some idiosyncratic 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, Japan. Oh, look how cheap Tokyo is. It's like a Yimi success story, but like they had a massive bubble and it's been deflating ever since. And it's not like Japan is at like some cutting edge of particularly any booming industries and it population.

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 to Japan. It seems like one of the nice places. And the other thing that's interesting about this, which is that there are all kinds of ills that sort of bedevil particularly the rich world these days. And then we look at China, it's like, oh, they have it all figured out. It seems like housing is a mess in China, too. One of these rare congratulate like sort of like moments where we could shake hands with China's like, "Yeah, we're dealing with a lot of the same issues."

Well, here's the thing. China is like the ultimate example of that tension between investment, asset, and social good, right? Because even in China, as you point out, there are affordability issues. And every once in a while, you see policy makers try to put limits on house prices in like really expensive cities. 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 communists and I mean that unironically like where did communists get the idea of real estate speculation.

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 houses in the old days used to like be owned by the companies and they're more dormitories and then when that sort of split apart I don't know maybe our guest knows more.

Yeah. So, we do in fact 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 Land Trap, 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 to have

also someone who spent some time in Asia when 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. Um I guess it started I started my career in London and there's 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 even worse in the UK than the US because you know the the culture of equity investing and all sorts of other things is so much weaker.

Um but I guess I I really got into it when I moved to Hong Kong. Um 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 surge in Hong Kong.

And learning about how land was really expensive, but also the government owned all the land and leased the land out, made money from the land. I found that very confusing. And it helped me to sort of dig into things. And I think it helped me to come up like start thinking about this as like a framework of of how land works in different places and how you can use it and abuse it and and whatever. Um and yeah, Hong Kong was a great place to think about that because it's such a example story of how bad things can get, you know?

So if you buy property in Hong Kong, what exactly are you buying?

You are buying like you're buying apartment, right? But you don't own the land. So if say you're a real estate developer, right? you buy a land lease from the government, like a 75 year, 99 year land lease that they've clipped back and extended the 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 it ever just go away? Like other examples like you know what 75 years is up, not your land.

This is a big problem. This is a big problem. And in these places, in places like Hong Kong and Singapore, you know, there is a 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, right? Just let people keep it or whether you kick them off and start again, whether you knock something down and rebuild. It's a big difficult issue. Yeah.

Mosamb beek is the other country I know that does this, which is kind of funny. Um, also communist history there. Anyway, what role does housing actually play in the Chinese economy?

So, I think that 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 deading consolidating power and you're in a strange position where you have to start uh or Dong wants to start bringing in market forces into the economy but it's pretty dangerous. He's got a lot of political opponents. You got to step pretty slowly and housing is one of the areas that's most difficult.

China's housing at the time is pretty ramshackle and terrible. It's attached, as Joe suggested at the beginning, to like the industrial base, like your employer houses you on a on a farm or next to a factory or wherever it is. But what China needs is urban modern residential housing. So, uh, Jao Xiang, who's the the premier of China, uh, later on, and he's one of the the sort of peak reformers in Dung, China, um, he credits this to a conversation with a Hong Kong real estate developer called Henry Faulk,

who said, um, uh, in a conversation with him where where Jiao was explaining like the difficulty of, oh, we don't have any money and we can't get foreign investment in and, and Henry Fox said, but if you have land, why why Don't you have money? How can you not have money? Um, and basically they started adopting on a small scale initially the 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 gavl to to do the auction. They're auction off a pretty small piece of land, but this is a symbolic thing because, you know, it's a communist country and the Chinese government owns all the land. They hadn't even at this point changed the the constitution to make this legal. are sort of experimenting just at 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 it's a really good way of making money. Um, especially if you're the government and you own all the land. China owns that in in the mainland for for communist reasons, but it's actually a handover to some degree from from Hong Kong.

Actually, can I back up a few decades? What's land reform? You always hear the people debating economics like, "Oh, they instituted land reform or this is really important." heard this. Someone else says, "Oh, no. Actually, land reform was not that." What is land reform?

Yeah, I I've got a chapter on this in the book and it was sort of towards the end of it quite carefully worded to not upset the people that feel very strongly about land reform. Um, land reform

things you don't talk about on Twitter.

Yeah. Yeah. Yeah.

L Apost L asterisk L and N reform. The bots don't attack you.

The land reform uh is a mostly middle of the 20th century phenomenon. Um and and it's basically there was a lot of economic thinking at the time. There's a guy called uh Wolf Ladinsky who was a US Department of Agriculture employee. He was an economist. And he was an obsessive about land reform which is essentially is redistributing really concentrated ownership of land to larger numbers of people especially in the the developing rural world. We're not talking about like you know cities or anything here.

Um and he went into Japan after World War II. a bunch of other reformers basically forced the 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. It happens in South Korea and there's a huge amount of attempts to do it 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. They try it in India, it doesn't work. you try it in Vietnam at South Vietnam, it doesn't really work. You know,

I think one of the most depressing recurring themes on this podcast, etc. is the number of times there is some like sort of very successful project in industrialization or economic development and then at the end there's this but it's only ever worked in three like East Asian countries and we have no evidence that any of this works anywhere else. So now we have now we have another one that you cannot use.

Yeah. Um Okay. Okay. Well, the other thing about land in China, and again, we're sort of fast forwarding um back to the '9s, and we should talk about the hookah system as well later on, but land has this really unique position, I guess, culturally, socially, and financially for Chinese people, right?

Like, 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 you don't necessarily see them for stocks or bonds, right?

Totally. Um I think there's a big cultural thing there. I I'm never I'm never too sure whether I'm like a culture is downstream of policy or policy is downstream of culture guy. But there clearly is a big cultural impulse there. Um whatever it's driven by. I remember when I lived in Hong Kong, obviously not mainland China, but you used to get adverts pushed through your door and they'd be like, "Invest in the Northern English Riviera, right? There's there's housing in Leeds and Bradford to be bought as investment properties."

This is a big thing. You didn't get those in Leeds and Bradford, right? If you live in the UK, you don't get those adverts. So, yeah, it's a it's a big cultural thing. It's also a big thing in the mainland, I think, because of um financial repression.

Basically, you can't invest long-term in the equity market in China, right? It's a it's a sideways game. Um it's a terrible way of compounding wealth. Um bank accounts in general in China for a very long period of its modern history had like near a real negative returns um because of financial repression. So the question is if you're saving a lot of money, where do you put it?

Um and there's only really been one answer. It's been a completely rational thing for Chinese households to do that. um 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 the symptoms of both a housing shortage and a housing glut, right? It manages to get the worst of both worlds.

Joe, you know what I call this?

What?

China's great ball of money.

Yeah, that's right.

Within the country from asset class to asset class.

So, okay, the stock market hasn't done well for a very long time. rates on savings are very low. How did like Chinese leaders feel about this emergence of a very speculative high growth high return at least during the good old days? Yeah.

Before a few years ago about the emergence of this industry about this emergence of this sort of um thing that's crucial for living and also becoming a major speculative vehicle.

Houses are for living not for speculation as some people say. Um, yeah, it's a I mean I I should say it's an incredibly useful way of building out a city. This this tool is like super powerful if you're just starting out and no one wants to invest. It's a really good way of pairing real estate development with infrastructure. You can pay for a lot of things. You can do it sort of expanding very very rapidly.

Plus, you boost other sectors, construction, manufacturing,

employment, buildout, right? Um, you don't steel industry.

Yeah. You don't have to do that much administration. It's fairly it's fairly easy to do this stuff, right? Um, 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 these sort of early 2010s, right? And you get this series of like whack-a-ole 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 bond markets where most of the the Chinese property developers fund themselves. Then you see the limits on uh borrowing from the bond market which sort of come in and out uh during the 2010s and eventually sort of um seriously limited in 2020 2021.

But even then you see Chinese developers trying to essentially borrow through pre-sales uh from ordinary Chinese households, right? Which is like you give me all the money to build your house upfront, I promise I'll get round to it. um you know not stating actually I've got 20 other projects that I've got to build with your money first. There's no escro system here. Um so yeah you you do see the Chinese government sort of waking up to the problems but it's like it's like in any other country you know it doesn't have uh same sort of western democratic politics but how do you get off the train while it's moving? Yeah.

So, yeah, you you do see the Chinese government sort of waking up to the problems but it's like it's like in any other country you know it doesn't have uh same sort of western democratic politics but how do you get off the train while it's moving? Yeah.

Right. And and they've tried with the three red lines and the campaign against the real estate development sector in the last 5 years and it hasn't gone very well. You know, something I'm wondering about. You always hear about the CCP trying to uh learn the lessons of the collapse of the Soviet Union and they don't want to have that fade and 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. Uh, you know, I'm not in I'm not in direct touch on a day-to-day basis. My understanding was that they that they did that this was a preoccupation of the Chinese leadership. I used to hear it a lot from people close to economic and financial policym 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 uh at the very end of the 1980s early 1990s.

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

Um, 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.

We certainly know that they look at it now, right? because we had Richard Coup on the podcast a couple of times and we know that uh deflationary spiral caused by real estate collapse is kind of a uh topic duour 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 policy makers 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 flood them right

yeah totally um so the three red lines were basically the Chinese government identifies the the real estate developers as the tool through which they're going to cool the housing market down and they come out with the three red lines which are three different metrics of, you know, uh debt to cash and and other sort of debt metrics. And they basically say if you violate uh 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. Um, 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 Everground and you're paying like a 15% interest on a on your borrowing, you've got to keep borrowing to expand, right? Um it's not a good idea, but you've got nothing else,

right?

Um so

the funny thing about Everrand 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 Everrands all all their 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 were just so many of them like spled out.

You know what it sounds like?

We work which had I mean that was a company that had diversified into literal wave a wavepool business um and about a hundred other things. So and also just an insanely complicated leveraged organization that was a multi-billion dollar unicorn. Now is worth the bag of Fritos.

We mocked when they they bought um Faraday Futures, the US EV company, and we all mocked, right? Ever Grand saying,

but honestly now I'm like I'm like may maybe if they the three red lines hadn't come in, we'd be like seem to be this um carization of Chinese companies. We're on a long enough timeline they're all becoming EV companies. Like I there was a great article in the Bloomberg in Bloomberg today about or earlier this week about multiple vacuum cleaner companies in China that are now releasing EVs. So I guess it makes sense.

Their argument was always like you know where do you put your car in the car park in the estate that you live in. Who built that? It was vertical integration.

Yeah. Yeah. They believed in it. But ba

basically yeah they they bring the three red lines in. Um the 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 that borrowed at pretty low rates um are are getting into trouble fairly quickly as well. Your sort of country gardens, China, Vancer, like they they're all getting into trouble quite quickly.

Um, what the way I think of it is that basically they the Chinese government attacked the 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 and 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. I see.

And destroying them does nothing really. You know, it causes a lot of distress. construction activity drops, lots of people aren't going to get the the homes they invested in in through the pre-sale system, but it doesn't really address the actual core driving forces.

Talk a little bit more about um the local government finances and what it is about land that is particularly important because there are other ways that local governments could theoretically taxes all that stuff, etc. I was never sure what the driving if 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 auctions, land sales from 1987. it starts to get more popular in the the early 90s, but it's 1994 when they change the tax and spending system. Uh 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. Um 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 uh independently. And then 1994, they switched the system and the central government says you you could raise a rev, but we'll take most of that, right? We'll tell you how much you get back of that. It became a much more centralized system.

And overnight, the local governments were left with huge spending responsibilities that 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 um administrative fees and fines placed on things. This actually gets them in trouble because it's very politically sensitive.

You know, there's rural uh Chinese residents being absolutely rinsed for anything the local governments can get their hands on. And they land on on on land basically. They they see the the land auctions which are offbalance 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 we'll raise money."

And you see the proportion of income rise and rise and 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 fundraising tool.

And then they're in the trap.

Yeah.

The land trap. is has any country ever successfully gotten out of this type of situation?

It depends what you mean by success.

Yeah, depends what you mean by

without a massive collapse or without a period of very long stagnation, which seems to be what China is in now.

I would say basically no. Um I would say basically no. And funnily enough, I actually think one of the best cases for relatively rapid like return to normaly is after 2008 in the US specifically. You can tell how few cases there are that I'm using the great recession.

This is the best one.

I was like this might be the best outcome um for a number of different reasons, but yeah, that might be the best outcome. There are places that didn't get into the trap in the first place, but yeah,

that that seems to be the ideal probably. I've obviously uh 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. Again, 100% of my China news consumption makes it look like paradise on Earth. Is it actually uh again because I only consume propaganda, is it actually stagnating?

I I will say I I can't claim to have been to mainland China for for years now. Um I I think 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 and dropped and dropped to drive it into the manufacturing sector.

But the real the reality is the manufacturing sector as big as it is in China isn't big enough to productively absorb all of

this is this is the question like can the U can the Chinese manufacturing sector just be so dominant that it just offsets the decline of real estate and your analysis is no

uh my analysis is no Chinese economy is too big I would say I would say and and too big means that the domestic real estate market is absolutely gargantuan right the thing you're trying to place 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 campaigns

trying to get consumption up.

Exactly. The the pressure against it because the the the sort of consequences, the negative consequences already starting to display themselves. And we're really like three years into this really big push to drive the investment into manufacturing. Um, and it's showing those problems in a way that it took real estate much longer. I I don't think it can be a like forlike replacement.

Wait, 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 in China and what it's done to productivity. So if you think about it from the perspective of we're going to get into a banking argument that's already that's going to get me in trouble as well in terms of like the you know 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 like targets and and limits.

It's still a fairly stateoriented 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, you know, steel and concrete and copper and everything else. The real estate sector in general in the long run, I think, has pretty low productivity, right?

You you can build constructively in in places where, you know, housing's really in demand, but there's only so much you can get out of it. So,

you're not making new stuff.

No, totally. And certainly in China, what has happened and what was certainly happening during the the run-up to the 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 during the 2010s, right? Because there's so much money to be made. Why not why not do that as well?

And uh there's really interesting research from Yushi at the IMF talking about how individual uh Chinese um entrepreneurs would go into real estate over time because there's so much money to be made. Um and it and it is productivity destroying especially if I think you're in a stateoriented financial system where you're not probably going to see like a 2008 style crash.

This is where you see the consequences come through.

Ah it's interesting. You know, I I'm thinking about that line in the Sopranos where AJ tells us he's like, "Buy real estate. They're not making any more of it." Whether China elsewhere, that's not really true. Like a artificial islands exist. B uh again in the

artificial islands literally a drop in the ocean.

You got to start somewhere. You got to start somewhere. But more importantly, um again with the uh 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 is greenery here. Can't like whether it's China or elsewhere in the history of land. Like it's not really that fixed. They always find new ways to sort of uh create habitable land. That's that's what it means to be human.

I I think there's there's two things there. 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 the English language reclamation cuz it's like it means turning watery land into land but the implication is like we are reclaiming it and we are reclaiming what used to be ours. I think that's such a powerful word right there.

It's very like Francis Bacon sort of thing. It's very like you know man's dominion.

Yeah. It's like we what this land that we can't live in was only a we were temporarily embarrassed unable to live

in the grand scheme. It's always good to do land reclamation where you can, but there's really not very much of it. I think that the more interesting way that you can create more land in the way that I think of it is is more like if you think of land as a like a commut a commutable reachable area, then we've always more land, right? It's like the Bronx wasn't useful land 150 years ago and now it's extraordinarily expensive land because you can get into the productive center of New York.

Um and that's actually one thing that uh loosens the 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 loosen a lot of its problems with housing and real estate because suddenly it was like these the outer burrows you could populate full of people and they could work in Manhattan still and that was fine. And that was a bit like creating multiple New Yorks worth of land to attach to it. Oh, here's where we can talk about the hookout 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 uh 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 a sort of savings technique more than it is. Again, in China, it feels like the the land use and the land as an asset are 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 aren't expensive. Even even in, you know, the the really popular cities, they're not expensive at all. Um, so that that sort of gap and the hookah system really feeds into this by essentially it's another force driving Chinese households to invest more and more and more.

Sorry, I don't totally understand. Explain a little further. What is the essence of the system? What are the constraints of play? and then clarify like how it how that the incentives therefore are to inquire.

Got it. So the 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. It's usually the place where you grew up, right? So you're able to get all sorts of different ordinary welfare state things um 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 in Shanghai for example and these things are really really

so you can move there

you can move there and people want to move there

you really be a sort of literally a secondass citizen. 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 sort of uh you know poorly paid migrant workers turning up who don't have many rights in the place they're moving to. These are the people doing the construction jobs. They're 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 early 2000s, if you walked around Beijing at night and looked in the windows of some of the restaurants, the waiters would be sleeping on the table because most of them came in from the farmland, didn't have access to housing. So, kind of crazy.

Yeah. Yeah.

It's interesting. One of those things uh people who are sort of more on the immigration restrictionist end in the US will often say things like you know what 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 I don't know it makes me your description of that makes me think that story doesn't really hold water.

Totally. And I 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 and the sort of hyper futuristic elements of it to say that that doesn't represent the overwhelming share even Chinese industry right which is relatively low productivity relatively low return it's at scale but it's not enormously like futuristic.

and certainly once you get out of the manufacturing industry you are going into the the standard East Asian development model where the service industries productivity is absolutely awful right? Really really poor service productivity. Um so yeah, I 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 um 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 the 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 house. 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 Mah when he got really slapped down. Yeah. Right.

Basically, you need to allow that sort of behavior, right? You need to allow the innovation. And 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 and 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 hyperco competitiveness? I mean people say wow 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. I love this story. 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 repeat it.

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 and they're really competing. It's driven all this abundance and so forth. Like is there something to that that like the reason Chinese equities haven't done well is because with such intense competition with the provinces all having their normal champions that none can really uh sort of capture something that might reflect sort of monopoly rents.

I think there's definitely something to that in a way. Um I think that when when I think about that I would say it's true when you're subsidizing the competition. It's not true competition in general. It doesn't seem it seems crazy to me to say like net bad if everyone's getting like cheap inputs and there's lots of competition.

But the provinces still do have a role in subsidizing either 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 5 years." They all go, they still do that, right? They scramble to find their local spark plug.

And I I think I think there's lots of like American examples and examples elsewhere in sectors where people said, "Oh, it's too competitive and no one will ever achieve this." Like Uber's a good example, right? People said this would never work. It does work, right? So there is a scale that you can build where I think you you develop a value even in a market with that's really competitive and really sort of low entry costs.

But you won't do that if every other imagine a world with Uber, but where every other ride share company was aggressively subsidized every time Uber got above a certain market cap.

Then yeah, you wouldn't have Uber in 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 that you looked at across different ways that different countries treat land across the world, it also goes across time, like 3,000 years worth of human history.

Yeah, I should emphasize to anyone listening, it's like the the I was really interested in the China stuff, but it's not a not a China book. Um the two most interesting to me, one of which because I I live there and I think it's the most unusual and fascinating real estate system in the world is is Singapore um which has defied in many ways a lot of the limitations that other countries have seen.

and um the one of the first parts of the book which is like colonial America where there were all of these efforts to uh turn land into money, 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. Um it seems to be relatively fertile and good and more people turn up and but have shortages in 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 and colonial America.

We have a few minutes left. What is it about Singapore that makes it I actually I don't know why I sort of assumed they did the same 99-year land base and that's similar.

This is the most interesting thing. They start off with all the inherited things that Hong Kong starts off with. You know, 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 Singaporean direction is basically how do you maximize home ownership, right? Um 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, you know, it's very impressive where the government owns most of the the city's 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 to 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 for. There's an internal market, but you can only sell them to Singaporean citizens and permanent residents.

The building is done, the the amount of building is done to make sure that everyone can afford them.

So, they've really um they've really divorced uh usage from speculation.

Totally. They've divorced usage from speculation. and a place that I think most people think of as very capitalistic free market low tax has basically decided this asset class land and real estate this is something different and we're doing yeah we're doing a different thing with this where you know the the normal forces Singapore there's so much international money center of like capital and trade flows it's rich

you have commercial re though in Singapore

they do I remember this because when I was in Singapore I always saw the ticker symbol on the side of a few buildings it's like you can invest in this but anyway yeah but they got commercial real estate

But the residential real estate um and 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 uh at extraordinarily low prices through the sort of 60s7s 80s um and and it's allowed them to do something very very different um 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 describes it to me as piracy what they did in the in the 70s and 80s you know pennies on the 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. um they should is 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 talk to someone like Richard Coup and he'll give you he'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. Um they should do all that.

Um, and maybe they will be sort of drumed 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? Everyone's sort of no one there got to be a lot of countries that are not thrilled by

no one's totally happy with it. It's it's a weird it's a weird mix because for some countries it's like, you know, if you're not going to make some of these items, right? If you're a country that's 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.

Um, everyone wants to have their own local steel sector and they don't like the Chinese dumping of steel. In Indonesia, they don't want like cheap Chinese uh, you know, direct to consumer merchandise coming in because it messes with their small and mediumsiz businesses. I guess for most of these countries, the difficulty is do you want to pick a fight with the Chinese government? um it's not an obvious question like it is in the US.

I I guess I just have one last uh question and you know the sort of Singapore example is what reminded me like land is weird like uh and there there even like the idea that you could have a capitalist system except for residential land. A lot of people actually kind of think that you hear what is uh the georgists right and they think like no land is special and we need to have these like 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 etc.

Maybe there really is something to do. It's sort of unfair like I get born in the year 1980 and I already a bunch of people already own the land around me which doesn't really seem fair. parents like I was just born. Where's my chance? I have um like 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 like sort of further hammer home the idea that residential land is for living?

Yeah, I think there's there's dozens of different things you could do, but I mean, one of the big things is that the the legacy of Henry George and the politicians in municipal America that really loved Henry George is that America has relatively high property taxes.

Anyway, you can do all sorts of things with property taxes to lean more of the value on the 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 store of wealth is about whether your parents decided to buy in the right place at the right time.

You can't even I talked to a lot of 70-year-olds who'll be like, "Well, I picked I picked my two-bedroom flat in 1973 and yes, I bought it for $35, but um but it's mine." um that's going to be a lot less tenable I think when it's handed down wealth. Um so yeah there's there's loads and loads of things and you know Henry George is in the book the political consequences how Georgeis and fell apart in there too.

All right Mike Bird thank you so much for coming on all thoughts. Congrats on the book.

Thank you very much for having me.

Yeah that was amazing. Thank you so much.

That was so good. Joe, that was really great and I genuinely the book is great.

Yeah, I love talking to Mike once again. And I'm just like, hasn't he been like on the internet as much as we have? How do you how did you write a book at this time?

I have no idea.

I don't understand how anyone writes a book, especially a very serious book on a very big meaty topic. But uh I just

while tweeting constantly

while tweeting, he tweets a lot.

Speaking of product,

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

Um Okay. You know, you a 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 a highly futuristic luxury shopping mall in Beijing and also the worst one ever in my entire life, which was in a rural a rural

Please describe it in vivid detail.

No, I won't. But it was basically a hole in the ground, right? It was terrible.

China, it's a land of contradictions.

Thank you. Thank you for uh highlighting the cliche. Um, no, I thought like it did it always did seem very interesting. It still does that like uh there's so much speculation that happens in China and I always found that to be a little weird. I also just find the idea of like buying a property but it's actually really you're not buying it, you're only buying the property for like 75 years to be a little weird. But on the other hand,

that kind of exists in New York.

Yeah. Yeah. And in the US, like look, we pay property taxes in perpetuity, which means to some extent that when you own 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 uh Singapore specifically, like 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 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 and then it goes back to being uh really expensive.

All right. Well, you can suggest that Joe when we go to

Beijing. I'll run on that. I'll run on that. Uh I'll run on that platform.

All right. Shall we leave it there?

Yeah.

All right. This has been another episode of the All Thoughts podcast. I'm Tracy Aloway. You can follow me at Tracy Aloway.

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