email@example.com; Associated Press
November 25, 2008
BEIJING -- When he bought his apartment last fall, Li Xiaofeng didn't even have time to read the purchase agreement. The Beijing property market was so feverish that 30 other buyers were crowded into the sales office, and dozens of units had already been snapped up on the first day of sales.
Mr. Li plunked down $50,000 (U.S.) in cash for the full price of the apartment within 10 minutes of meeting the sales director. The apartment hadn't even been built yet, and the developer told him he'd have to wait two years before he could move in. But he felt confident that he'd made a safe investment.
A year later, Mr. Li is spending every Saturday with scores of other angry buyers in a weekly protest at the sales office. After months of falling values and drastic price cutting by the developer of their compound, more than 100 buyers are demanding refunds or compensation for their losses.
Mr. Li calculates that the crash of China's property market has cost him more than $10,000 in lost value - a substantial amount for a 25-year-old television equipment salesman. He borrowed the entire purchase price from his family in a far-off province, and he hasn't dared tell them of his loss, especially since he still has to wait another year before he can move into the apartment.
"I can imagine how my family will feel," he said. "It's depressing. This is an injustice."
Mr. Li is just one of millions of middle-class Chinese paying the price for the dramatic declines in China's property and stock markets.
As China boomed, the ranks of the middle class swelled. From January, 2005, to January, 2007, the number of households with an annual income between 60,000 yuan ($8,800 U.S.) and 500,000 yuan grew from 65.5 million to 80 million. Some analysts have forecast that it will expand to 700 million by 2020.
Now, however, many of those households are being hit hard by the downturn. The property and stock market declines began many months ago, but the global financial crisis has ensured there won't be any turnaround in their prospects for many more.
The property and stock crashes in China have global implications. The real estate slump - which has slashed home prices by 50 per cent or more in some cities - has badly hurt the construction industry, which in turn has sharply reduced Chinese imports of steel and other commodities. The stock market downturn, meanwhile, has damaged the Chinese auto and luxury goods industry by cutting big-ticket spending among affluent consumers.
Although only 8 per cent of Chinese households have invested in the stock market, they tend to be the richest families. As a result, about 25 per cent of the financial assets of Chinese households were held in stocks. Since last year, Chinese stock markets have lost 70 per cent of their value, putting a major dent in the assets of the biggest consumers and dampening their spending habits.