A crumbling hulk of 1930s art deco grandeur, the Battersea Power Station in London casts a long shadow but not as long as the queue that formed to buy a piece of the building. A Malaysian consortium is transforming the brick colossus, made famous on a Pink Floyd album cover, into swanky apartments, pools and garden penthouses and almost every one of the 866 flats was sold within a few months of the off-plan marketing launch in Singapore and Hong Kong.
It's reckoned to be the fastest marketing ever of a development on such a scale in London. If you want to know whose money is making a home in the multi-million-dollar riverside suites, ask the China Society of Economic Reform (CSER). In a recent survey, it concludes that the "shadow" or unofficial income of Chinese households totalled 6.2 trillion yuan in 2011 ($1.05-trillion), a sum that is equal to 12 per cent of China's GDP.
Chinese capital is flowing up the Thames like a tidal bore. Advanced Business Parks, a Chinese property developer, is investing $1-billion (U.S.) in the Albert Docks, near Canary Wharf to transform it into a 3.5 million-square-foot Asian business hub. Due to the restrictions on overseas investment by mainland families, the Chinese investors tend to use offshore companies to buy apartments. According to Knight Frank, a London realtor, 20 per cent of buyers of new homes in Central London are from Singapore and 16 per cent from Hong Kong. So significant is the flow of money that developers are hiring feng shui masters to ensure that nothing in a building's aspect is likely to deter Chinese investors.
While the Battersea Power Station's riverside prospect seems to have good feng shui, the torrent of cash flowing from China to London may be evidence of trouble brewing back home. CSER's analysis of the scale of shadow income also exposes the widening gap between rich and poor in the People's Republic. According to Caixin magazine, the richest 10 per cent of Chinese households had annual income 21 times that of the lowest 10 per cent, more than double the official government multiple of 8.6, calculated by the National Bureau of Statistics.
The disparity between the official income gap figure and the CSER number is the "shadow" income – money from kickbacks and rent-seeking, a consequence of the huge interface between China's publicly-owned corporations and the private sector.
According to Caixin, the huge expansion of shadow income is due to the government-sponsored credit boom between 2009 and 2010 and the expansion of state investment during the same period. More troubling still, is the survey's discovery that the top 20 per cent of wealthy Chinese households accounts for almost three-quarters of the total shadow income. In other words, the richest Chinese families are salting away some $720-billion every year.
China's wealth gap is being noticed, and not just by economists and London property developers. Labour unrest is growing – Foxconn, an Apple contract manufacturer, which achieved notoriety with worker suicides, is again in the news. This time, the scandal is a drunken brawl escalating into a riot involving 300 to 400 people. It underscores the tough conditions under which China's bottom 10 per cent earn both the nation's official and shadow wealth.