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Home>>Columnists >> Li Hong's column

Be steadfast in curbing home bubbles

16:31, July 05, 2010

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By Li Hong

China's economy is not faltering or girded for a major slowdown, as some have feared, because of Beijing's ongoing high-note fight on housing market speculation, and a seemingly halting global economic recovery from the 2008-2009 Great Recession.

On the contrary, the world's No 2 economy is set for an ideal "soft landing" – from an overheated first-quarter expansion of 11.9 percent to a sustainable growth of around 10 percent in the second half of 2010. Health of a global economic engine of China is by all accounts more important than blind pursuit of speed. It is desirable that China's growth has slowed to about 10.8 percent during the second quarter, and the third- and four-quarter growths are expected to reach 10 percent, as predicted by most economists.

Premier Wen Jiabao said lately on his South China inspection tour that China is facing a "complicated" dilemma in conducing macro control policies. His concern is logical as the outside recovery in the United States and Europe is slipping, which will restrict China's export shipments later, and Chinese government's avowed clampdown on property market irregularities is to affect domestic investment and home-related consumption.

But, the slightly slowing economy should not warrant a repeat of the giant stimulus spending the country has seen in the aftermath of the financial crisis, and flooding China's local governments with bank loans, as some Chinese newspapers have anticipated. The last wave of extraordinary government stimulus and monetary policy has saddled China's bank system with an unprecedented risk of local government borrowing.

All the more, Wen's government is suggested not to upend its efforts of cooling the real estate industry. The moratorium, now in place, on loaning to third and more homes, and imposing higher mortgage rates on second homes (10 percent more than the first home) must not change, although, the much-heated discussion involving all homeowners triggered by Beijing's leaked intent to launch a property tax, may take the back-burner now.

The State Council, which Wen leads, should this time dissipate the powerful lobbying forces planted in the government who represent the filthily wealthy real estate tycoons, and be steadfast in rectifying China's problematic urban home market. Provided the government keeps on the restrictive credit policy for another 12 months, hoarding of homes by the speculators will become extremely difficult, and the skyrocketing home prices will spiral down, eliminating a potential catastrophic US-style time bomb.

It is normal that the economy is to slow down proportionately with a suddenly weakening housing sector, which, for many years has been a major driving force of China's dynamic economy. Since Beijing's announcement on April 16 to implement the "New Home Policy", home sales in most Chinese big cities have dropped by more than 40 percent to date.

The policy should continue. Only after the bubbles are squeezed out, health of the home market, and coherently of China's overall economy, could be regained.

After we have witnessed the boom and bust of American housing sector in the first 10 years of the new century, and its dreadful impact on the strength of a superpower, China will find it is absolutely necessary to carry on its macro-control policy on homes.

To make up for the housing slack, the State Council will resort to other measures to nurture growth. I would rather not recommend the government come back to the previous tax-reducing policy to instigate auto sales (for vehicles are jamming up streets and poisoning the air, and contributing to global warming, too), Beijing could increase benefits to new energy development and consumption, revs up investment on high-speed trains and urban metro construction, and give more tax breaks to families to inspire consumption.

And, Beijing is expected not to raise the benchmark bank interest rates any time soon considering the tepid global growth is sputtering, Europe's entangled in sovereign debt woes and China's own growth has clear signs of slowdown. Record-low rates will continue to generate vigorous private sector investment and public consumption.

As the economic settings will remain stable and there is no danger of a hard-landing – a free drop of the economy, Beijing could count on its resilience and adeptness to shepherd a growth, say, at roughly yearly 10 percent, which fits China fairly well.

The articles in this column represent the author's views only. They do not represent opinions of People's Daily or People's Daily Online.

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Another factor worth watching is how the 'Playstation generation' will affect the housing market. Gaming and a virtual existence doesn't seem to be a passing phase among addicts, but more a chronic condition. People who are addicted to games or virtual worlds are less likely to want all the distraction of looking after a bigger house or garden than they really need.

Edited by blankster

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Another factor worth watching is how the 'Playstation generation' will affect the housing market. Gaming and a virtual existence doesn't seem to be a passing phase among addicts, but more a chronic condition. People who are addicted to games or virtual worlds are less likely to want all the distraction of looking after a bigger house or garden than they really need.

Hmm. I rather imagine the same words could have been written when the novel was invented... or radio... or television...

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Hmm. I rather imagine the same words could have been written when the novel was invented... or radio... or television...

Exactly Danny De Vito in Tin Men " A man is judged by his house, his car,his shoes, his wife" (not saying that is right I think the inference is that physical things have substance)

Hasn't there been a couple of surveys recently backing the idea that the ideals of love marriage, home etc haven't changed much in a couple of generations.

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Exactly Danny De Vito in Tin Men " A man is judged by his house, his car,his shoes, his wife" (not saying that is right I think the inference is that physical things have substance)

Hasn't there been a couple of surveys recently backing the idea that the ideals of love marriage, home etc haven't changed much in a couple of generations.

Have there, don't know, not seen Cosmo in ages. But thanx for that.

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  • 259 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
      • down 2.5%
      • Even
      • up 2.5%
      • up 5%



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