THE OUTSIDER
Understandably, it is easier for ports to become trade centres than inland cities, but there is one city, located in the south-west corner of China, for which many have high economic hopes. Kunming is the capital of Yunnan, a province that borders Vietnam, Laos and Burma and is famous for its ethnic diversity.

“In the next decade Yunnan is likely to emerge as China’s primary trade gateway to South-East Asia,” says Chris Horton, managing director of the Meridian Group of Hong Kong, a consultancy with operations in Kunming. The reason is that in 2010 the China- ASEAN Free Trade Area (FTA) comes into effect, removing tariffs on goods moving between China and countries such as Singapore, Thailand, Malaysia and the Philippines. “The FTA will be the world’s largest in terms of population and will have profound implications for everyone involved. Yunnan province, and Kunming in particular, is preparing to serve as the entry point for raw materials from South-East Asia as well as the last stop before finished goods in China make their way toward South-East Asian markets.”

So for Kunming, building infrastructure, not factories, is key. A highway connecting the city with Vietnam was finished this year, a railway that will reach Singapore is being built, and so too is China’s fourth largest air port. What Kunming shows is the diversity of Chinese cities, and that there is no model for their development. In the future there will be more like Kunming, taking advantage of their circumstances to become cities of economic significance.

DRAGON’S DEN
With the overall economy in China consistently achieving double-digit growth, it should be no wonder that there are corresponding figures in the housing market. But property speculators looking to make a quick buck in this still-attractive property market should be aware of two things.

The first is legal. Ever since the summer of 2006, foreigners have been limited in their property purchases. A foreigner can only buy a property if they have worked or studied in China for at least a year, and the property should be their primary place of residence. The law was introduced to curb foreign speculators, which the government considered responsible for the incredible price rises. It has subsequently been targeting domestic speculators by making it harder to finance buying a second home.

If you manage to overcome the legal hurdle, there is then the financial one. Although cheaper than nearby Hong Kong and other major finance centres, buying a high-end property in Shanghai isn’t as cheap as might be expected. A standard 100m², two-bedroom flat can fetch €180,000, and luxury flats go for anything between €3,100 and €7,200 per m².

This may seem cheap compared to London or New York, but for a young Chinese professional, who would be thought successful if earning €16,000 a year, buying is beyond their means. Those that can are called fangnu, or mortgage slaves, as so much of their income goes on the loan.

For those that are still eligible and interested, it is worth it. Hingyin Lee, director of research and consultancy Colliers International China thinks foreign buyers have little to worry about. “Lots of foreign people still don’t trust the property rights system here, which is based on leases, so the property rights might not be guaranteed. But after the new property law comes into place, things are going to get better.” The property law passed last year increases the rights of homeowners across the country.

Having an investment in renminbi is also attractive as it appreciates against the dollar: 6.5% in 2007. “People are attracted by appreciation in the renminbi, and if it keeps accelerating, there will be a rush to buy property. However, if there is a slowdown due to the slowdown in the US, this might lead to the appreciation to slow, too. This will stop people from buying,” says Lee.

Foreign managers are most likely to be able to buy a house – after a year they will meet the legal requirements, and they will likely have the cash to buy. Even on their short contracts, says Lee, the steady capital appreciation still make it worthwhile.