If China Sneezes, New York City Will Feel The Chill
“May you live in interesting times,” goes the Chinese curse. And if the Chinese economy tanks, things could get quite interesting for Gotham.
China's economy may be stalling out. Growth in late winter and spring was the slowest since China tried to jump-start its recovery from the world financial crisis six years ago.
But China needs insane growth.
Because China sells us so much stuff — probably all the electronics, clothes and shoes you buy — it built up a lot of dollars. Over the past decade, Americans have bought $2.7 trillion more from China than we've sold to it.
Chinese investors have no idea what to do with all of those dollars. The economy isn't growing fast enough for people to spend and invest them.
For years, they poured money into their property market, building office and apartment towers. But that bubble may be bursting, with one major developer unable to pay its debts.
The Chinese government is so nervous that China is telling its banks to keep lending to builders who can't pay back the money they've already borrowed.
And now, Chinese investors are so anxious about property, they're pouring money into their stock markets.
The Shanghai Stock Exchange has more than doubled in a year. This mania has tempted millions of “regular people” to gamble — often borrowing money to do it. People have borrowed $322 billion to speculate on Chinese stocks, says Bloomberg News — five times the amount last year.
Irrational exuberance never breaks well. Why should we care?
Two reasons. First, Chinese tourists have helped create tens of thousands of New York jobs since 2008. In 2008, 174,000 Chinese people visited New York. In 2014, that number was 809,000, according to early figures from the city's tourist arm, NYC & Co. We're expecting 932,000 this year.
Those extra tourists and business travelers spend a lot of money.
Chinese people stay, on average, 13 days and spend $3,591 — for total spending of $2.3 billion, says NYC & Co.
The sophisticated Chinese 20-somethings taking selfies at Shake Shack are a big reason why New York now has 175,300 more tourism-related jobs — at hotels, restaurants, luxury stores and the like — than in 2009.
Yet Chinese tourists may be pulling back. Last month, Macy's reported a profit slump. “Sales were negatively affected by lower levels of spending by international tourists visiting major US cities ... including New York City,” its CEO said.
Luxury retailers, from Gucci to Michael Kors, are reporting weak sales. (The strong dollar doesn't help, and is related to this type of global turmoil.)
You can see it, too, in New York's hotels. This year so far, New York saw a 4.8 percent drop in revenue per available room, one of only two American cities to see a drop, according to hotel-data company STR.
If the Chinese slowdown persists, people will lose their jobs. So far this year, we've added only 25,300 new tourist-related jobs. The previous year, we added 30,400.
The second way a Chinese slowdown matters to New York is property values.
Already, Chinese investors nervous about keeping their money at home have pushed our office-tower and condo values to record levels.
This year so far, Chinese investors have bought $2.1 billion worth of New York's commercial real estate, according to Real Capital Analytics, up from $1.4 billion the entire year before, and only $250 million in 2010.
Just one example? In 2013, Chinese investors' purchase of part of the GM Building on 5th Avenue put the building's worth at $3.4 billion — up from $1.8 billion (in 2013 dollars) in 2003.
It might seem great that office and condo values are soaring.
But if it's all just a bubble, it means a big headache later. In the meanwhile, it's really not so great for us — high prices make it harder for middle-class entrepreneurs to live and work in the city.
Another old saying is: “When America sneezes, the world catches a cold.” When China's fever for our handbags and towers breaks, New York workers will suffer chills.
This piece originally appeared in New York Post
This piece originally appeared in New York Post