Recently, when I delivered the Fei Xiaotong lecture to the department of sociology and anthropology at Tsinghua University, I met an American postdoc in economic anthropology, Megan Steffen. She has an extremely interesting draft paper on the real estate market in Zhengzhou, Henan province. When I visited Zhengzhou two years ago, some of my Beijing friends told me that this is a place of high risk business and huge uncertainty. Indeed, many outside people think that the real estate market is in a bubble and will soon collapse. However, Megan did a two-year fieldwork on the real estate market, investigating into its practices, and most interestingly, how people perceive the economic situation and dynamics. She argues that there is no bubble. Why?

Her argument is very simple. How do we know whether real estate prices are too high, and that investors herd into what is an unstable state? One indicator is empty houses, deceptively straightforward. If unoccupied houses and flats accumulate, this is indeed a ‘bubble’, with nothing inside, right? But no, the Chinese private owners of empty houses do not think that they are worthless because they are empty. Megan just makes the point that their reference is not occupied houses, but houses, that do not exist. ‘Emptiness’ has a different meaning, signalling safety, orderliness, family wealth, hence a range of very positive values. The worst case is when you give your money to a developer, and he does not deliver, that is, fails to build the houses.

Megan’s account fits well to a recent paper published in the Journal of Economic Perspectives, Winter 2017 issue, by Glaeser, Huang, Ma and Shleifer on the Chinese real estate market. For them, owners who accumulate empty houses are investors in the long run. Short run movements of prices and rents would not matter so much. That partly fits Megan’s views, although the difference seems to be that even long run prices do not stay at the centre of attention of many private owners of multiple empty houses, because they do not necessary intend to sell later. They really seem to believe that they arelong-term owners, even in the family line, which matches with traditional Chinese conceptions of wealth. So, although Glaeser et al. certainly make a good point in analysing the long-run stability of the real estate market in terms of long-run ‘real’ conditions, we still need to consider the special ways how perceptions are framed. For Glaeser et al. government holds the key, for example, via zoning policies and restrictions on land use. For Megan, the economic anthropologist, culture is the key.

For our project, these observations clearly show that herding behaviour cannot be simply analysed by assuming information asymmetries and gaps between private and public information. In Zhengzhou, people seem to be rational and well informed, and there is continuous gossip and exchange of information. It’s all public. I think what comes into play here is ‘narratives’, as introduced by Akerlof and Shiller in their book ‘Animal Spirits’. The narratives of American actors on the real estate market and the actors in Zhengzhou are different. There is no way to objectively root the diagnosis of herding and bubbles. We need to analyse the narratives that maintain a certain state of the real estate sector. That was Keynes’ point in his famous ‘Chapter Twelve’ of the ‘General Theory’: The state of long term expectations is essential for understanding the macroeconomy, and this is a ‘convention’. I would prefer to say, a ‘narrative’ which is maintained by incessant story-telling.

Megan’s paper can be found at: http://www.meganasteffen.com/papers/#/the-value-of-emptiness/