How the US dollar is creating billionaires in China

Forbes magazine recently released its list of the richest people in China. Of the top 10, 5 made the list primarily as property developers while another 3 have real estate interests in addition to their primary businesses. The poorest of this top 10, had US$3.6 billion, while the wealthiest was worth US$16.2 billion. Looking at the list, we can’t help but think that the US dollar is creating billionaires in China.

Real estate prices have tripled over the last five years in many cities in China. Although China’s strong economy has been a driver of this growth, the Red Cat Journal can’t help but wonder whether part of the real estate price rise has its source in the US dollar. The Chinese Renminbi (RMB) is effectively tied to the US dollar as China has chosen to peg its currency primarily to the US currency. As a result, whenever the US dollar is devalued relative to other currencies or hard assets, the RMB must follow suit. Chinese real estate is effectively priced in US dollars. Could it be that the rapid rise in Chinese real estate values is due as much to the fall in the US dollar as to the rise in value of the real estate itself?

Tony Blair recently made US$500,000 for a short trip to promote a Shenzhen real estate tycoon's newest villa development. Perhaps the next billionaire real estate developer to do a promotion should include an invitation to Alan Greenspan instead. After all, it is perhaps Mr. Greenspan who is most responsible for his billions.