Nothing sets of the bubble alarm like unrelated companies diverting from their core businesses to join the latest hot market.
A few years back, we sat in a meeting with a Chinese shipyard outside Shanghai who explained to us how they were using company funds to invest in the local stock market given how well it had performed. Core business profits can seem boring when compared to rapid price appreciation in stocks, or property.
Thus it’s a bit troubling how many Chinese manufacturing companies have become aggressive property players these days, and an independent analyst Ye Tan has tallied up a few examples:
Do you know Haier? They make home appliances, usually.
Haier Property Group, established in 2002, launched 14 real estate projects in the Qingdao Real Estate Fair. Haier Property Group and Hisense Real Estate have both become leaders in Shandong’s real estate market.
Youngor Group? They make textiles, usually.
Youngor Group (600177), a suit and garment producer, has a total of three million square meters of real estate projects. Youngor Group’s total revenue reached 47.4 billion yuan in 2009, of which 7.7 billion yuan generated by real estate development.
The problem is two-fold. First of all, such activities make Chinese property market look bubblicious. Secondly, any losses that could happen in the property space could hurt not only banks and property companies, but unrelated industries as well where companies have become far too exposed to property prices for their own good.