Selling Natural Resources and Land to People in Other Countries

(Note: this post is more philosophical than usual. I’m interested in what people think, as I can understand both sides.)

We’ve had something before on this blog about wood exports to China. I think some people have brought up selling coal and oil and gas products, although not necessarily on this blog. I thought this piece was interesting about Chinese buying property, from a blog here by a local realtor..
I ask you, even if you disagree, not to say mean things about Jim.

Why are we doing this, and is it good policy to facilitate the purchase of American real estate by Chinese nationals?

It turns out that 85% of China’s 2.8 million high-net-worth citizens already send their children to study abroad and last year spent an estimated $50 billion buying real estate in 36 countries.

The United States is just one of many countries where the Chinese are buying real estate. A June 2013 report which I’ve posted at http://JimSmithColumns.com shows extensive buying of real estate in Europe, Asia, Australia, the Middle East, Brazil and Africa — not by businesses, but by individual Chinese wanting to invest/live outside China.

According to the China Private Wealth Report 2011, prepared by China Merchants Bank and Bain & Company, the key motivations for Chinese nationals to invest abroad are 1) children’s education, 2) getting cash out of China for security, and 3) preparation for retirement.

Chinese are not the only foreigners investing in and moving to the United States. Analyzing the list of sold homes published in last Saturday’s Denver Post, I figure that 4.5% of metro area sales are to buyers with Asian or Middle Eastern names.

But China is the only country with high-end cash buyers which severely limits online access to American real estate websites like realtor.com, Trulia and Zillow, as well as search engines like Google. That is what has driven the success of domestic Chinese websites like Juwai.com, which records 90 million searches per month within China.

Two readers sent me emails expressing the same questions and concerns which I had before signing up for this service, so I thought I would address them in this week’s column.

A reader from Morrison urged me not to “sell out” to the Chinese, who already own the Panama Canal. (I didn’t know that.) He suggested it was greed that would motivate me to advertise our listings in China….

First, there’s my responsibility to my sellers to market their home and sell it for the highest possible price. Having learned of this pool of cash buyers, could or should I refuse to show them our listings?

Secondly, these high-net-worth Chinese, themselves capitalists, are interested in the United States because they like living here in our free society.

Now, for natural resource exports, reason 2 does not apply. Do you think the landowner is “greedy” to sell outside the US, or “welcoming of strangers”? does this just apply to people in other countries, or Californians in Oregon? Why or why not?

If we have indeed extracted natural resources using our own (adequate) regulations, does it matter to whom we sell them? Is there something intuitively, or otherwise, different about selling products and selling land?

9 Comments

  1. Whether selling resource stuff to other countries grates my forester feelings or not, any time any country has restricted trade, the imposition of export restrictions usually have been negative to the country which imposed them.

    Trade means that we weigh the costs (not just the price but also the social implications) against the benefits (the need for the thing and its cost to our bank account and its result to our reputation) and do the one that outweighs the other.

    By trading we do not have to be good at a lot of skills or have a lot of products; we only needed one thing. Of course, by doing only one thing we need to rely on others to do those other things. Matt Ridley in his book, The Rational Optimist: How Prosperity Evolves, argues trade is a good thing. “Interdependence of the world through trade is the very thing that makes modern life as sustainable as it is,” he writes, “suppose your local wheat farmer tells you that last year’s rains means he will have to cut his flour delivery in half. You will have to go hungry.” Today, you benefit from a global marketplace “in which somebody somewhere has something to sell you so there are rarely shortages, only modest price fluctuations.”

    It does not matter if the item traded is wood or wheat, only that the outcome benefits both the seller and buyer.

    • Real estate in a polity with stable property rights is probably the soundest long-term investment possible. Banks might fail, but the dirt etc will always be there. Then, there’s the fact that God ain’t making any more land unless we boil off the seas.
      Given the real-estate bust in China, and how crowded the place is, and the fickle nature of a furthermore totalitarian government, if I had assets convertible to something more stable, you bet.
      As for commodity exports, the crux is as Norman points out — mutually beneficial. Timber exports when the internal market is soft is a good thing. They are GREAT when you have a massive kill and your market can’t absorb the casualties.
      Coal is the same deal, perhaps natural gas, although I would like to reserve NG because it is a process catalyst as well as raw, clean heat energy. PRB coal is considerably cleaner in terms of sulfur than most Chinese reserves — that’s a fact of geology. So if the Chinese are going to boil water with coal to make useful energy anyway, we are going to breathe their smut no matter what. Getting less smut while keeping Americans busy is a complete no-brainer to me, yet the red shirts can’t figure that one out.

      • Slightly off-topic from wood, but still discussing exporting of a resource (and on Dave’s point about NG), there is an article in The Economist worth reading on shale gas (http://www.economist.com/news/business/21589870-capitalists-not-just-greens-are-now-questioning-how-significant-benefits-shale-gas-and?fsrc=scn/tw/te/pe/fromsunsetdnewdoawn).

        The growing supply of cheap shale gas has led to a wave of investment in converting terminals that were built to handle imports of gas into ones that can export it. Some, such as Andrew Liveris, the boss of Dow, a chemicals giant, worry that if too much of America’s gas is exported, prices will rise, robbing it of its competitive advantage. However, the new export facilities will come on stream slowly, especially if the government keeps dragging its feet over granting export licences. And even if all the currently planned facilities are opened, which would make America the world’s largest gas exporter, gas prices in America would still be some way below the world price—probably no more than $6 per BTU, says McKinsey. So America should be able to enjoy a boost to its trade balance while still preserving its manufacturers’ advantage over foreign rivals.

        • Gotta love the irony. Six years ago, the screaming was about LNG IMPORT terminals into Astoria and Coos Bay, the construction of the El Paso line from Opal to Malin, to feed the PNW, of course.
          Now, the fight is to stop LNG exports from the same places.
          Frankly, I’d rather sell the Chinese our gobs of coal so we can buy THEIR rare earths — or maybe Molycorp will finally get a permit?
          The world would be a lot more rational if environmentalists would allow it to be.

  2. I rode Amtrak from Seattle to Salem today. Only passed two coal unit trains headed north, full, and three unit trains of grain headed for Puget Sound ports. There were few ships unloading containers in Seattle or Tacoma. None on the Columbia River. We import cars, electronics, appliances, clothing and ship timber, coal, now oil and natural gas, and grain overseas. The US is a colony, economically: We export commodities and import finished goods and food.

    • And if I want to ship a container load of wood products overseas think I can use Coos Bay? Nope, closes port is Tacoma, go figure. (not even Portland)
      One of the problems with wood exports is, if you have a overseas customer that is willing to pay you many times more for certain unfinished product then for same finish product, and much more than any one domestically is willing to pay for that same finished product, what would you do?
      I remember when the Japanese were “buying up the country”. I think that actually turned out pretty well for some people when the Japanese ended up selling it back for less. Markets are changing all the time.

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