Forbes has put out its latest list of China's wealthiest men and women. Here is something that initially surprised me when I looked at who is on the list. We think of China as a manufacturing powerhouse, with growth being led by an undervalued currency and a phenomenal export performance. So you would expect that China's most successful business people come from tradable activities rather than non-traded sectors.
Yet the most common source of wealth among the billionaires is property, not manufactures. Five out of top ten richest individuals are in real estate, none in manufacturing. You go down the list and the same imbalance continues to hold.
I think because incomes from real estate are based on scarcity rents: you buy the right property at the right time, and you get rich very quick. No-one can dissipate your rents. But if you are in manufacturing, you have to compete not only with your international competitors, but also with copycats and imitators at home. So the rents from successful ideas get dissipated quickly. It's not that the overall gains are not large, and even larger than in successful property investments. It's that the innovators can hold on just to a small share.
So real estate creates billionaires; manufacturing creates a middle class.