Christine Song of http://www.smallinvestinginsights.com/
I’m home for the holidays (ho ho ho) after spending this month traveling through China visiting companies, factories, the Wall, and of course, stuffing my face with the local foods. My first time there and to call the country vast is an understatement – a 2 hour cab ride in off peak hours and I’m still in the same city! now a lot’s been written about China’s ”ghost towns” – rows and rows of newly constructed but empty buildings as far as the eye can see, the government’s effort to essentially, employ people. And driving around Beijing, i couldn’t help but feel like i was in Vegas.
Third Point's Dan Loeb discusses their new positions in a letter to investor reviewed by ValueWalk. Stay tuned for more coverage. Loeb notes some new purchases as follows: Third Point’s investment in Grab is an excellent example of our ability to “lifecycle invest” by being a thought and financial partner from growth capital stages to Read More
Beijing is littered with hotels that make the Wynn look like a Super 8. All the major international hotels are there and then the domestic ones with Chinese names but Western architecture. And like the Nevada desert, Beijing is sprawling with room to build these monster hotels. But unlike Vegas where the hope is that the economy rebounds and people once again return to frolic and play, it will take another Olympian feat to fill these Chinese hotels.
Even with the recent 21% hike to the minimum monthly wage, earning USD175 a month ain’t going to cover the average hotel stay of USD50 per night. So the question isn’t who’s staying at these monster hotels, but who isn’t – and that’s the majority of the Chinese people.
China’s hotel industry is a reflection of a real estate market (and government policy) gone awry. The rest of the world’s experience has debunked the “build it and they will come” policy yet construction continues because of the disconnect (i.e., manipulation) between supply and demand. and as i learned in Econ 101, any time there’s government intervention to set supply or demand, deadweight loss is created.
As an investor, i try to make sense of how the things I see and read impact the stocks I own and the ones I hope to buy (or short). investing in emerging markets like China requires a long term perspective because you’re banking on the rise of the middle class – an inevitable but drawn out phenomenon. However it will take decades to get cash flow coming out of these hotels, if at all. Since a lot of China’s real estate developers are state owned, private or only traded on Chinese exchanges which bar foreigners from owning stock, China’s doing us a favor by keeping their real estate investments local. So perhaps government regulation isn’t so bad after all.