Global Issues
CHINA: Sky-high Property Prices Leave Middle Class Out
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, the grudge in her voice palpable. '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 a complaint heard more and more 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 percent since 2007. A square metre of residential property in the capital now costs an average of 26,000 yuan (3,800 U.S. dollars), but the average per capita monthly income is only 2,000 yuan (292 dollars).
A recent survey by the Chinese Academy of Social Sciences (CASS) found that 85 percent 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 sky-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, spiralling house prices have siphoned some 10 trillion yuan (1.4 trillion dollars) out of China’s consumption.
'It is a fortune that has been taken away from consumers and channeled into the real estate,' Yin says. 'It is one of the main reasons why consumption accounts for so little of our GDP 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 — it meant business for me and more earned commissions,' she says. '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 last 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.
For the first time ever, Chinese Premier Wen Jiabao was seen on public 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 percent of government revenues outside the budget. It is a cash cow for local leaders,' says Yin. If in 1998 — at the start of China’s housing reform, authorities at all levels collected 6.8 billion yuan (1 billion dollars) in fees for transferring state- owned land rights to developers, this sum last year rose to 1.5 trillion yuan (220 billion dollars), according to Yin’s research. Some of the liberal 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 are 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.
© Inter Press Service (2010) — All Rights Reserved. Original source: Inter Press Service