China's middle-classes lose property hope
By Antoaneta Bezlova
BEIJING - Courteous and efficient, Xing Xina is dealing with the long queue of
bank customers in front of her without a hint of resentment. After all, the air
is thick with talk of interest rates and mortgage loans and speculation of the
Chinese property market's hottest commodities. On this busy morning, nearly all
customers lining up at the Hong Kong and Shanghai Bank (HSBC) branch that Xing
works in are buying houses.
Does Xing own property in Beijing? Her polite smile disappears for a moment.
"Not one of my colleagues here can afford to buy into Beijing's market," she
says. "We are all renting or living with our parents. But the customers I serve
here every day are buying property like mad."
It is a scene played out throughout the banks in China's big cities, and is a
complaint heard increasingly often from the very same
middle-class that Chinese communist leaders are counting on to be their
staunchest supporters.
Housing prices in Beijing have now broken all records, rising by 40% since
2007. A square meter of residential property in the capital now costs an
average of 26,000 yuan (US$3,800), but the average per capita monthly income is
only 2,000 yuan.
A recent survey by the Chinese Academy of Social Sciences (CASS) found that 85%
of urban families could not afford an apartment.
The resentment by the country's burgeoning middle-class over failing to get a
share of the economic pie is now on par with the grudge held by many Chinese
peasants, who feel cheated out of their land, banned from settling in the big
cities and left out of the economic boom.
Yet the social consequences of the runaway housing prices are only part of the
problem.
The property bubble poses an international dilemma for the Chinese leadership
at a time when it is trying to convince the United States that it is serious
about rebalancing its export-driven economy and boosting domestic consumption.
Studies by mainland economists now show that high housing prices are in fact
undermining domestic consumption, squeezing cash and savings as people struggle
to keep up with the rising costs.
Yin Zhongli, a researcher with the Institute of Finance and Banking of CASS,
estimates that over the last 10 years, spiraling house prices have siphoned
some 10 trillion yuan out of China's consumption.
"It is a fortune that has been taken away from consumers and channeled into
real estate," Yin says. "It is one of the main reasons why consumption accounts
for so little of our GDP [gross domestic product] and why the Chinese economy
is so seriously unbalanced."
Wang Weihua, a real estate agent who had been saving to buy a flat and a car,
has given up on becoming a car owner. "I was so hopeful when house prices in
Beijing started rising before the Olympics - the games meant business for me
and more earned commissions," she said. "But it has all happened far too
quickly. Prices are too high. I can now save only for a flat and hope that the
market cools down a bit."
Lately, China's government has shown signs of alarm over the economic and
social implications that exorbitant property prices can have on its monopoly of
power and the country's stability. In the past few weeks, central authorities
have rolled out a series of measures aimed at cooling the red-hot market.
They have ordered 78 government-controlled conglomerates, known as yangqi,
that are not primarily engaged in real estate to exit the property market.
The central bank has been told to restrict credit for real estate. And having
ordered commercial banks to raise mortgage rates and downpayment requirements
for property purchases, Beijing also told provincial and municipal governments
to control speculative buying.
Premier Wen Jiabao appeared on television speaking about the need to protect
"people's dignity". In his government work report at the opening of the annual
session of the parliament in March, Wen went beyond Beijing's pledges to ensure
"survival" for Chinese people and called for "social and distributive justice".
But experts doubt the seriousness of Beijing's attempts to control the property
fever. They say powerful monopolies supported by the communist leadership have
been the main beneficiaries of the real estate boom, so that Beijing is
unlikely to clamp down too severely and endanger its own revenues.
"In many cities, land rights fees account for more than 50% of government
revenues outside the budget. It is a cash cow for local leaders," says Yin.
In 1998, at the start of China's housing reform, authorities at all levels
collected 6.8 billion yuan in fees for transferring state-owned land rights to
developers; this sum last year rose to 1.5 trillion yuan, according to Yin's
research.
Some state-controlled newspapers have launched an open attack on the
government-controlled conglomerates for speculating and pushing up property
prices.
"During the recession, these yangqi were the main recipients of
Beijing's stimulus money and this money is now fueling the property bubble,"
said an opinion piece in the China Times newspaper. "Without implementing
restrictions on these government companies, the arrival of a just and fair
society will be postponed indefinitely."
Exerting control, though, will not be that simple. Many powerful state
monopolies are headed by the children of senior Communist Party leaders, called taizi
or princelings. China may be a one-party state but street talk in Beijing
speaks of the rise of the taizidang - the princelings' party - and its
growing clout over the Party.
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