Economy

China's economic growth needs diversity

By Huang Shuo (chinadaily.com.cn)
Updated: 2010-12-15 15:27

China needs to take notice of the risk involved in its economic growth dominated by the real estate sector with excessive investments in the country’s housing market, according to a housing green paper issued by the Chinese Academy of Social Sciences on Dec 8, 2010.

The green paper pointed out that there was an increase in real estate investments, whose growth rate sped up throughout last year despite the Chinese government issuing an array of “serious” economic measures aimed at regulating soaring home prices, which directly leads to a hot property market and unstable factors for building a harmonious society.

From January to August this year, housing investment in China had reached a growth rate of 33.9 percent, accounting for 0.93 percentage points of economic growth, and contributed about 8.3 percent to the Gross Domestic Product (GDP) nearly twice the rate of 2009.

Currently, 802 listed companies have invested in real estate, taking up 60.53 of all A-share public companies of Shanghai and Shenzhen stock markets. In addition, many companies in 18 out of 20 sectors in the two stock markets are related to real estate businesses.

Those reasons account for the difficulties that low-income groups and young couples face in trying to buy homes. Moreover, middle-income people and families, called the sandwiched class, are confronting a tougher situation because they are unable to afford the high home prices, yet aren’t eligible to apply for affordable housing or government subsidies.

To some extent, the Chinese economy has been “kidnapped” by the real estate industry. Bubbles started accumulating under excessive dependence on the industry, which may result in another round of economic crisis affecting the nation’s economy and even the world’s economy. Economic regulators should be wary of that.

Housing price hikes in China, on the one hand, boost economic growth; on the other hand, they pose potential risks for the economy and social security in the transitional period after the reform and opening-up implemented in 1978. China’s economy should not depend solely on a so-called pillar industry’s contribution to the GDP growth. Diversified channels in economic growth are needed.

A prudent monetary policy, a key turning point from the moderately loose one, made by the Central Economic Work Conference of China on Dec 10-12, which maps out major macroeconomic policies for 2011, reflects on the importance of macro-regulation next year. After high home prices, inflation is also on the radar.

Furthermore, the widely-focused property tax had not been included in the final statement of that annual economic conference. Will it mean that housing prices recur rising waves in the fast recovering economy of China? Most people adopt a wait-and-see attitude for that expectation after dazzling and “tough” monetary and sales restriction measures from central and local governments.

Increases in housing and commodity prices are two big burdens for ordinary people. With the Consumer Price Index reaching 5.1 percent in November, rising from 1.5 percent in January, and the widening wealth gap, Chinese economic operation and society pose more hazards for authorities.

In a word, the next step for China is to lay a more solid foundation for future development. The quality of economic growth should not depend solely on the real estate industry.

The author can be reached at larryhuangshuo@gmail.com.