Few individuals personify the miraculous rise of China as well as Zhang Xin. She started out as a penniless sweatshop worker who defied odds by making her way into Cambridge University and later to Wall Street. She predicted that China’s fast growing economy would need the support of real estate and co-founded Soho China with her husband in 1995. Today, the company is one of the largest developers in China and Zhang one of the world’s wealthiest self-made women.
The 46-year-old said, after having lived through periods of change in China and studied and worked in the West, she understands China better. She appreciates the tribulation of her early life, which perhaps helps her appreciate the riches she has now.
Zhang was born in Beijing in 1965, soon after China’s widespread three-year famine and right before the Cultural Revolution. She moved to Hong Kong with her mother in 1979 and started to earn her own living at the age of 14, toiling in different small factories making zippers, sleeves and electrical parts.
In difficult times she kept her goal simple. “I didn’t think much [when I was working in the factories]; all I thought about was leaving, leaving and leaving,” she said.
China was suffering the aftermath of a decade’s destructive movement, whilst Hong Kong at that time was a world leader in manufacturing, but offered little else for an aspiring mainlander.
Zhang decided to go abroad and the best way out was to study.
She worked in the factories during the day and studied in evening school at night. Although study meant extra costs on top of her already tight budget, she managed to make ends meet by repeatedly switching to any factory job that paid slightly more.
After five years of a spartan life, Zhang saved enough money to buy an air ticket to London and her night-time study helped her win a spot at university in the UK. Later, she earned a masters degree in developmental economics at the University of Cambridge, before joining Goldman Sachs as an analyst.
In 1995, when China was on track for an economic boom, Zhang went back to the country and founded Soho China with her husband, who was a former partner at a real estate company in Beijing. They got married five months after they first met. “We were both old enough to know what we wanted out of life, we didn’t need a long time to get to know each other,” she recalled.
Their company went public in 2007 with a popular $1.66 billion IPO managed by Goldman Sachs, HSBC and UBS.
The retail tranche was 169 times oversubscribed. The stock jumped 22% on the first day of trading in Hong Kong.
Even today, when many mainland property stocks are shunned by investors Soho China has been favoured by many analysts.
UBS and ICBC International named the company in a note in late August “the most preferred property stock”; Deutsche Bank noted in a recent report that the company is “a safe harbour among real estate players”.
Understand the environment Zhang and her husband Pan Shiyi have wisely gambled that Beijing’s austerity policies would only target the residential property market whereas the commercial sector still enjoys much freedom.
“We saw these [tightening measures] coming many years ago, so we deliberately moved away from the residential business because we knew that if we Zhang Xin, on the right stayed in the residential side we would be targeted by the government,” Zhang said.
“Anything that is related to minsheng [people’s livelihood] could spark social outcry; so we stay away from this as we want to avoid such politically sensitive areas,” she said.
Without the government’s interference, China’s commercial properties offer a needed oasis for developers. Soho has been able to charge buyers a steep premium of Rmb80,000 ($12,547) per square metre on average, while other listed developers such as Country Garden have priced flats at around Rmb1,000 per square metre.
Yet the company often records phenomenal sales, thanks to its strategy to peddle units to individual purchasers, rather than trying to sell or lease entire buildings, in order to reduce the risk of leaving whole buildings sitting vacant.
Billions of dollars worth of projects in prime areas of Beijing and Shanghai sold off within days after opening, with many buyers ordering an entire floor or half of the buildings. All the buyers are wealthy Chinese while most occupants are foreign companies. “People don’t want to sit on cash.
China is still in a high inflation environment and there’s not much going on in the A-share market, the equities don’t perform well when the expectations for interest rate hikes are very high. So despite the tight credit, money comes in.”
“We are not competing with other developers on the size of sites but rather the location of sites. All of our projects are located in prime areas in Beijing and Shanghai and because of this, our margins are higher than others.”
Know who you deal with
Observers generally agree that China’s property market is heading for a bust, but Zhang counters that the nation’s property sector is far from facing a hard landing because Beijing simply wouldn’t let it happen. Government policies toward the property market will swing back and forth between tightening and easing, to ensure continuity.
“The problem is not about the bubble but how long will the restrictions last. Once the restriction is unlocked sales will jump back up on pent-up demand. China’s housing market’s development is moving one step backward after two steps forward; we are now in the time of the step backward.”
Tao Dong, chief regional economist at Credit Suisse, has an even more vivid metaphor for China’s housing market.
“The market is a tea kettle on the stove; the government turns the heat down when the water is boiling too hard and switches the heat higher when it cools down,” he said.
Zhang also sees resilience in Chinese developers after having been targeted by the government for many years. “I think developers have found ways of avoiding the government’s policies over the years.
I have been watching most of the publicly-traded developers. They have done fantastic in the first half of this year despite the purchasing-and-price restriction. I was really impressed.”
Essentially, it has become a game of who is left standing. And Zhang is standing tall.
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