Long-term objectives, clear tax system needed to ensure sustainable housing market in China

In 2009, house prices in major Chinese cities rocketed by as much as 60 percent. This has two main implications for house prices. First, if the housing bubble is not controlled, it could potentially cause a financial crisis in China because of increases in non-performing loans and bankruptcies, thereby affecting the sustainable development of the Chinese economy. The second implication is that high house prices will exclude ordinary Chinese, especially the medium and low-income people, from the housing market as houses become unaffordable. This will further increase inequality in China, which is a big issue in Chinese society, as it can potentially trigger social and political instability.

The government is aware of this problem. Its first policy document in January 2010 contains specific policy options to contain house prices. First, it urged city governments and industry to gear up construction of low-cost economy housing. Secondly, it required a minimum down-payment of 40% for purchases of second homes. These and some other policy directives will certainly have a short-term effect.
But, the policy still does not specify clear long-term development goals for the housing market. My view is that China has a huge population so the demand for housing is not going to go away. As income increases, people will continue to buy houses. Therefore, without clear objectives, a short-term housing policy may only work to a certain extent. To have a sustainable development of the Chinese housing market, one must have a clear-cut policy for the long-term. For example, houses should be divided into different categories and sizes. So, local government and firms could be legally bound to not only build large houses, but to focus more on medium and small-size homes, because the majority of the Chinese population can only afford these, while only the well-off people can afford the big houses. Due to land shortages and environmental constraints, good housing policies should actually not encourage people to buy big houses, or more than one house for one household. This kind of policy will also make sure Chinese society will not be divided any further.
However, to achieve this goal, a very clear tax system must be designed and implemented. For example, owners of bigger homes, those of more than 150 square metres, must bear more taxes, while buyers of small houses (less than 70 square metres) should receive subsidies rather than be taxed. Secondly, people who buy two or more houses should also pay more taxes. Only when such an economic incentive system is implemented can the market be stable and sustainable. But currently, this kind of policy is very difficult to implement because of the dilemma between the need to contain home prices and to ensure social equality, and the need of local governments to raise local revenue. In 2009, for example, the Beijing Municipal Authority realised revenue of 200 billion RMB — 45% of which (90 billion RMB) came from selling land. The over-dependency on selling land for revenue is a major cause of high housing prices in Beijing and other big cities.

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The US needs to socialize into East Asia

Zhengxu Wang

With the East Asian Summit completed and the APEC meeting round the corner, it is an appropriate time to look at the role of the US role in the East Asian integration process. The US interest in joining the still-in-the-making East Asian Community is clear. At the very least, the US wants to maintain a strong presence in any regional organization being brought together by the East Asian countries.

Compared to other interested parties such as Russia and Pakistan, that the US becomes a member of the East Asian Community may be more appealing to some. As the world’s only superpower, the US is an important player in every major economic, political and security area in East Asia.

But how a high level of trust can be created to enable all East Asian nations to embrace the US is still a big question.

Many are uncertain about the motivations of the US. Does the US simply want to ensure that its core interests are protected and not neglected in such a process, or does it want to be in to help make a more successful East Asia?

In other words, is the US joining in order to check against an emerging East Asia Community, or is the US joining with an enthusiasm to make Asia better? Many are suspicious that it is the former reason instead of the latter.

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China’s Soft Power Handicaps

Yiyi Lu

Grave product safety problems have repeatedly undermined Beijing’s effort to fashion a positive international image for China and build up its soft power. Many around the world still remember last year’s contaminated milk scandal. Now, reports of children in Shaanxi and Hunan provinces falling ill because of lead poisoning are likely to revive memories of previous international recalls of hazardous Chinese-made toys with high lead content.
 
While instances of shoddy products damaging China’s reputation are already well observed, the recent controversy over mainland China’s aid to Taiwan after Typhoon Morakot has shown another link between product safety and Beijing’s ability to wield soft power.

After the typhoon’s devastating effects became clear, the Mainland moved quickly to offer aid and assistance to Taiwan. Officials in the pro-independence region of southern Taiwan, however, declined the quick-assembly homes donated by the Mainland on the grounds that these homes might contain excessive levels of toxic chemicals. Although subsequent tests showed the goods products donated by the mainland to be safe, the bad reputation of Chinese products had apparently provided anti-China officials in Taiwan a convenient tool to resist Beijing’s charm offensive.

It is widely believed that China’s soft power has grown in tandem with its hard power in recent years. Not everybody welcomes this development. Plenty of people worry that the spread of Chinese soft power poses a threat. Such fears are premature. The Taiwan aid controversy has again demonstrated the vulnerability of China’s soft power.

In the foreseeable future, domestic problems such as poor product safety standards will effectively act as a rein on Beijing’s international soft power ambitions.