By: Dr. Mike Campbell
China has usurped Japan as the world’s second largest economy and its economy has been leading the world out of recession with strong growth figures. Property prices in China’s major cities have risen strongly, leading to fears of a property bubble and the risk of fall out to the wider economy when it bursts. According to a Chinese survey, housing prices had risen in 68 out of 70 cities studied in January compared to how they stood a year before.
Chinese authorities have sought to deflate the bubble by introducing property taxes in some cities for the first time. Other measures have included a requirement for a 30% deposit, a curb on loans for second homes, and a policy to dissuade people from buying homes and settling down before they need to. The government is keen to prevent further inflation of the housing bubble by property speculators out to profit from the recent increases.
China's Plan of Action
China has announced that it plans to spend $200 billion to construct 10 million low-cost homes this year. The move is part of a larger policy to construct some 36 million new homes over the next five years. Even in communist China, the laws of supply and demand still apply to the economy. The provision of a significant number of low cost homes ought to cool the property price. However, it could be that the new constructions will see a rapid rise in value as the market tries to stabilise.
The authorities are very sensitive to the prospects of civil unrest in the country. Whilst China’s economic development has been little short of miraculous, the lot of the average citizen has not improved markedly, but the distinctions between rich and poor have become increasingly evident in a state where everybody is supposed to be a worker and communal good is supposed to prevail over private gain.