Chinese property prices were soaring to record highs late last year, defying gloomy predictions, when the alarm about a real estate bubble sounded from a most unlikely source: developer Zhang Xin, the 44-year-old chief executive of Soho China. "If you look at the central areas of Shanghai, Beijing, Shenzhen and Guangzhou, prices have doubled," Zhang says. People rush to build and sell more property to speculators, though there is no apparent need for more buildings, and the bubble keeps growing, she says: "For the country, I think it's very dangerous."
The irony, not lost on Zhang, is that few private citizens could serve as better symbols of the China bubble than she and her husband, Soho Chairman Pan Shiyi. (He transferred his shares to her in 2005.) Last year they made the biggest land purchase in Beijing by a non-state-owned company, at $586 million for 12 acres, and also broke ground on their most ambitious architectural effort yet, the Zaha Hadid-designed Soho Galaxy. They are, if not speculators, certainly enablers of those folk.
Declares Zhang: "My role as a producer is to produce. I happen to know that they don't need it so much. But it still doesn't stop me from producing so long as they are queuing up outside and want the product."
This is the Chinese economy in a nutshell--sellers selling a product for which there's no natural demand, buyers buying whether they need it or not. In a market boosted by government-directed lending, both sellers and buyers have been getting only more ambitious and frenzied.
For the seller, at least, this is perfectly rational. To not get in while the economy is hot means missing easy profits. Even as Zhang the Cambridge-educated leftist argues the real estate bubble is disserving the nation, Zhang the Wall Street-trained executive can argue reasonably that not participating in it would be disserving her shareholders. Sales at Soho China nearly doubled last year to $2 billion.
As Zhang wonders where her country is heading, the tycoon is at the peak of her capitalist career, 15 years after she cofounded the company that became Soho. Fifteen years from now, will Soho China's many skyscrapers in the Beijing's skyline be admired? Or will they be scorned as icons of short-cut capitalism, built cheaply and sold for piles of cash to mining magnates and corrupt officials?
Zhang Xin is now keenly aware she and her husband are, culturally and economically, the face of such questions. That is partly due to their decision to lead high-profile lives, unusual among Chinese billionaires. Pan's bald head, toothy grin and chunky black-framed spectacles are staples of the Chinese-language media, and the English-fluent Zhang's open-faced smile and stylish coiffure appear periodically in Western publications like FORBES.
They have consciously equated themselves with the Soho brand. Still, Zhang sounds taken aback by the vitriol that followed her initiation of a Chinese microblog on Sina.com.cn last year. (Sina calls its Twitter-like service "Weibo," which means microblog.) "Since I opened my Weibo, I realized how profoundly hated real estate developers are in China," says Zhang, whose microblog touches on real estate, her two sons and her charity work through the Soho China Foundation. "I was naive in thinking that you know we are doing this clean, we are building the brand name, we're providing good jobs. You know we are building the city. We are bringing architecture into China. We are paying tax. We have always been rated as the model taxpayer. I was very proud of what I was doing, right? Honestly I did not know."
The realization is painful for Zhang because she considers herself a reformer who wants rule of law in a country that still lacks it and a progressive who's fretful for the poor in a society where the chasm between rich and poor is as wide as any on Earth.
The problem for Zhang is that the chasm between the poor and her is also one of deep suspicion. In the Chinese public's mind, and often in reality, developers get rich by acquiring land cheaply through connections and kicking residents off that land with much less compensation than they deserve.
In response to the question "Who is your favorite developer?" on celebrity publisher Hong Huang's microblog last month, for which four possible answers were provided, including Pan Shiyi, most of the 400-plus comments declared hatred for all of them for ripping off society. One commenter responded, in the spirit of Rockefeller's critics a good century ago, that developers like Pan give money to charity out of guilt: "The more money they donate, the more guilt you know they must feel."
Seeing such sentiments, Zhang turned to her own microblog: "Every time I read Hong Huang's weibo, I realize how real estate developers are pushed to the front of social confrontation. I feel like I'm in the Cultural Revolution again."
The daughter of ethnic Chinese immigrants from Burma, Zhang grew up poor in Mao's upheaval and worked in a Hong Kong factory as a teenager before making her way in 1985 to university in England. With a master's in developmental economics she got a job at Barings in Hong Kong, analyzing the emerging private market of her native China--naively, she says, seeing this as an extension of her graduate research. Goldman Sachs shortly acquired her unit, and she went on to work for Goldman and then Sandy Weill's Travelers in Hong Kong and New York, where, as she tells it, she grew disillusioned with Wall Street-style capitalism. She had to return to China to embrace capitalism in a different form.
In Beijing Zhang met Pan, now 46, who'd profited as a property wildcatter in the early-1990s Hainan Province real estate bubble in the south and was a partner in one of Beijing's first big real estate ventures, Beijing Vantone Co. He broke from Vantone to join Zhang in starting Soho's predecessor firm in 1995.
Zhang says that Pan didn't bring much money to the partnership--that she brought more, in fact, from her Wall Street savings--and that the first parcel they acquired was an undesirable mess of former factory land outside the city center. She tried raising money the Western way from investment banks and funds to develop that first property, which became Soho New Town. But after the Asian financial crisis of 1997 she ceded to Pan's Chinese way of raising money piecemeal, often through high-interest loans, and building and selling accordingly. That essentially remained the Soho model for raising money and expanding--build and sell, floor by floor--until the company went public in Hong Kong in 2007 at a market value of $6 billion. (Soho now trades at less than half that market valuation; Zhang's shares are worth $1.6 billion.)
Soho's brand now dominates the Beijing cityscape; it has completed over 20 million square feet of office, commercial and residential space. Some occupants gripe that the company's success is a triumph of hype over quality, that the buildings are cheaply made and left to languish once they are finished. Zhang responds that "comments are cheap" as customers keep buying Soho's properties at premium prices, but she also notes Soho will soon be taking a more direct role in managing all of its properties. She also essentially disavows one much-criticized project, the redevelopment of the old central Beijing neighborhood of Qianmen into a Disney-fied pedestrian mall. Zhang says the government dominated that project, which involved wiping out one of Beijing's oldest neighborhoods, and that her input was rejected at every stage. Her final assessment: "It's what the government wanted."
Now Zhang is assessing where a government-led market economy has left China. It has enriched her family, but it has also fostered gross excesses. "Corruption is everywhere," she says. "No wonder public opinion of anyone who has money equals corruption." She has noted that the attitude is little better in the U.S. toward her former employer. "I was talking to a friend of mine who was a partner at Goldman," she says. "I said to him, 'We are the number-one hated people in China.' And he said, 'We're the number-one hated people in America.'"
"Having gone through 15 years of participating in the market economy I am also the one who is most aware of its own shortfalls," she says. "If you just let the market run by itself it has no direction. It has only one direction, which is chasing profit. I think that, with the financial crisis, this is a moment for all of us to reflect and think."