China Seeks a Way out of Its Property Spiral
Faced with ever-spiraling property prices despite the strenuous attempts by officials to control them, Beijing appears close to attempting to design a comprehensive new housing policy that among other things seeks to break the bond between local officials who see rising real estate markets as the path to career success and often ill-gotten riches.
Reports of the new policy were contained in a weekly Chinese-language magazine published by the state-owned Xinhua news agency. It is questionable what kind of system the government could create to hold down prices, however.
Hundreds of millions of migrant workers have moved to the cities in the past two decades, with scarcity of housing a major problem. Of China’s 1.3 billion people, half now live in cities, the greatest migration in global history. Fast-rising incomes have exacerbated demand that local governments have sought to fill.
Local government officials since the reforms that brought about development of a market-based economy have been inextricably tied into the property market, either because they are personally invested or because they have been bribed to okay property transactions, building plans and infrastructure expenditure, or all of them.
“It’s a very complicated issue,” a Hong Kong-based China economist told Asia Sentinel. “There are lots of issues involved. I don’t think this could be solved overnight. We all know local governments are criticized for pushing up property, but in a way they are forced to do it.”
Local governments, said the economist, have to be responsible for the infrastructure buildup to handle burgeoning urbanization, but they have no legitimate channels to do so. The central government takes 60 percent of tax revenues, leaving just enough for skeleton operations for operation spending.
“So how do they finance this kind of urbanization-related infrastructure buildup? They do it through land sales. The central government can’t cut that link, they basically need to tell local governments what is the alternative to funding for infrastructure.”
Pent-up demand and official approvals created a housing bubble that began to falter earlier this year. Beijing has been doing its level best to continue to deflate it, saying nothing would be done to prop up property despite the pleas of local government officials across the country.
Nonetheless, in recent weeks property has once again begun to rebound. Although market expectations were that overall sales could decline by as much as 10 percent in 2012, they have begun to stabilize, rebounding significantly in recent weeks. Reportedly 50 of 70 major cities across the country in July showed rising month-on-month housing prices, double the month of June. Bank mortgages have also reportedly begun to rise rapidly.
Amid the reports of a strong recovery, the government sent monitoring groups to 16 provinces and cities to check on local markets and the implementation of tightening measures. As market rumors floated that the government might relax property curbs, it appears the opposite was the case. Four municipalities – Hunan, Hubei, Hebei and the Guangdong city of Jiangmen received warnings to comply with centrally prescribed property restrictions and the others got reminders to strictly enforce curbs to ease upward pressure on prices. There have also been reports that the government might roll out a broadly-based property tax.
Property starts and investment have remained relatively weak, either dropping sharply or slowing in several areas, although construction continues on a backlog of already-started projects.
Amid those developments, ENN Weekly, a national Chinese-language financial publication supervised by Xinhua, reported earlier this week that a unit of the National Development and Reform Commission, the country’s main planning body, has completed a comprehensive field study of various urbanization-related matters across eight major provinces including Zhejiang, Guangdong, Jiangxi, and Guizhou. The story was picked up by local Chinese-language newspapers in the mainland.
The report, titled “New Way of Urbanization,” was said by ENN Weekly to have analyzed issues concerning the vast exodus of migrant workers from rural area, inter-city infrastructure, land supply, energy, industrialization, and reform of the Hukou system, a system of residency permits used by the Communist Party minimize the movement of people between rural and urban areas. However, it is estimated that as many as 280 million rural residents have ignored the Hukou system to move to urban areas anyway.
The details of the NDRC have not been made public. But the agency is said to have begun designing a fresh way out by drafting a revised urbanization plan which is expected to be submitted for State Council’s consideration in due course.
The next leader in-line and the present Vice Premier Li Keqiang, also a standing member of the Politburo, has repeatedly pointed to urbanization as the most important source of domestic demand and the key to China’s structural reforms.
“They need to basically change the system, they have to give local governments other options to borrow. Those are not things one minister or one state agency can do something about,” the economist said. “The state council needs to come out with comprehensive solutions. It is a very important issue, but on something like this, the NDRC can’t do it alone. It’s like I’m fat. I’d like to be skinny, but the NDRC can’t tell me how to do that. It’s good for them to face the issue, but they have to realize that the problem is not equal to the solution.”
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