News / Economy

Property Sales in Small Cities Pivotal to China's Growth

A worker walks with a hammer past a residential construction site during sunset in Nantong, Jiangsu province, China, Aug. 6, 2013.
A worker walks with a hammer past a residential construction site during sunset in Nantong, Jiangsu province, China, Aug. 6, 2013.
Reuters
A property glut in some smaller cities raises questions over how far China's decade-long housing boom can last at a time when the fragile economy is more vulnerable than ever to a possible retreat in the red-hot property market.
 
A flurry of housing investment over the past several years, fueled in part by herd-like speculative buying, resulted in some developers building more housing than could be sold once the market began to slow.
 
Now, the concern is that the market could be cooling too quickly, and risk stalling one of the few engines in the economy that are still firing.
 
While new home prices in Beijing rose 14.1 percent in July from a year earlier and Shanghai prices were up 13.7 percent, smaller cities are lagging the major centers. The National Bureau of Statistics data showed average new home prices in China's top 70 cities up 7.5 percent on the year.
 
“Dozens and dozens of small cities -- still home to the majority of China's urban population -- have more housing than they need,” wrote Rosealea Yao, a principal analyst at GaveKal Dragonomics, a Beijing consultancy, in a report. “This excessive supply will put a serious drag on national construction growth for several years.”
 
'Steady and Healthy Development'
 
House prices have fallen for nearly two years in Wenzhou, a prosperous eastern city that had suffered fevered speculation before stringent controls on the property market took hold. In July prices in Wenzhou were down by an annual 2.4 percent in July.
 
While Wenzhou's falling prices remain an exception, the city's plight and its move earlier this month to relax some the toughest property market curbs are emblematic of the growing concerns about China's slackening economic growth and the risks of cracking down too hard on the housing market.
 
China's leadership, acutely aware of housing's importance to the economy, appears to have set aside concerns that a property boom was pricing millions of families out of the market.
 
That is how industry executives and analysts took a July 30 pledge to maintain “steady and healthy development of the property sector” by the Politburo, the top decision-making body.
 
“It was a clear signal that there won't be any new restrictions on home buying in order to temper price increases for a while,” said Andy Rothman, Chief China Strategist at CLSA Asia Pacific Markets.
 
But leaving the market alone may not be enough. With stock markets volatile and caps on bank deposits, property remains the only game in town for millions of Chinese savers.
 
Total property investment accounted for 14.8 percent of gross domestic product in the first half of 2013, up from 13.5 percent a year earlier. Residential property accounts for 70 percent of that total.
 
And in a market where most apartment and houses are paid for in cash, mortgage lending has been on the rise with new mortgage loans reaching a record 963 billion yuan ($157 billion) in the first half.
 
Wenzhou's two years of falling prices is the exception, but price rises in smaller cities are lagging the major centers. Average new home prices in 70 major cities rose 7.5 percent in July, the NBS data showed.
 
Most economists believe incomes will keep growing enough to sustain relatively healthy demand for at least a year, and the government does plan to encourage urbanization.
 
“We expect a stable property sector policy in the coming year and see a modest property recovery to continue,” said UBS chief China economist Tao Wang.
 
Industry executives say there is now a tide of new investment coming to top cities and provincial capitals, because demand remains strong. Over time, economists say, that could ease housing price inflation in China's biggest cities.
 
They also argue Beijing may have no choice but to scale back its ambition to spur more development in lower-tier cities.
 
That, said Dragonomics' Yao, could help China avoid what otherwise could be “a brutal construction crash.”
 
Scaling Back
 
The stakes for Beijing are high. A slowdown in exports and fixed investment means the economy is more reliant on the residential property market than it was even a year ago.
 
In the second quarter, employment in the property sector rose by 8,000, while manufacturing lost 164,000 jobs.
 
Tax income from the property sector rose 45.7 percent in the first half from a year earlier, while growth in the overall tax revenue slowed to 7.9 percent.
 
Housing, moreover, props up at least 40 other sectors, from cement to steel to furniture and home appliances. Local governments also depend heavily on revenues from land sales to developers to help service a debt pile worth trillions of yuan.
 
Still, some developers are scaling back.
 
Last month, Yu Liang, chief executive of China Vanke, the biggest listed developer by sales, said the company was pulling back from Yixing city in prosperous Zhejiang province.
 
And Yi Xiaodi, the president of Sunshine 100, a mid-sized residential developer based in Beijing, has put off plans to expand in Zhuzhou, a city with 3.9 million residents in Hunan.
 
“We changed our mind because of oversupply risk,” Yi said. “We will avoid investing in cities where industrial competitiveness is fading and the market is plagued with over-supply. That will be very dangerous.”

(Note: $1 = 6.1229 Chinese yuan)

You May Like

Multimedia US Defense Secretary: Iraqi Forces Lack 'Will to Fight'

Ash Carter criticizes Iraq's reaction to Islamic State; National Security Advisor Susan Rice echoed Carter's concerns in an interview on CBS More

Boko Haram Surrounds Havens With Land Mines

Chad and Cameroon say huge numbers of land mines planted by Boko Haram fighters along Cameroon's border with Nigeria are a danger to people, livestock and soldiers More

Women Peace Activists Cross Korean DMZ

Governments of Koreas give international delegation of women peace activists permission to pass through heavily fortified border, but some critics say symbolic crossing only benefits Pyongyang More

Featured Videos

Your JavaScript is turned off or you have an old version of Adobe's Flash Player. Get the latest Flash player.
Turkey's Main Opposition Party Hopes for Election Breakthroughi
X
May 22, 2015 10:23 AM
Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Turkey's Main Opposition Party Hopes for Election Breakthrough

Turkey’s main opposition Republican People’s Party has sought an image change ahead of the June 7 general election. The move comes after suffering successive defeats at the hands of the Islamist-rooted AK Party, which has portrayed it as hostile to religion. Dorian Jones reports from the western city of Izmir.
Video

Video Europe Follows US Lead in Tackling ‘Conflict Minerals’

Metals mined from conflict zones in places like the Democratic Republic of Congo are often sold by warlords to buy weapons. This week European lawmakers voted to force manufacturers to prove that their supply chains are not inadvertently fueling conflicts and human rights abuses. Henry Ridgwell reports from London.
Video

Video Class Tackles Questions of Race, Discrimination

Unrest in some U.S. cities is more than just a trending news item at Ladue Middle School in St. Louis, Missouri. As VOA’s Kane Farabaugh reports, it’s a focus of a multicultural studies class engaging students in wide-ranging discussions about racial tensions and police aggression.
Video

Video Mind-Controlled Prosthetics Are Getting Closer

Scientists and engineers are making substantial advances towards the ultimate goal in prosthetics – creation of limbs that can be controlled by the wearer’s mind. Thanks to sophisticated sensors capable of picking up the brain’s signals, an amputee in Iceland is literally bringing us one step closer to that goal. VOA’s George Putic reports.
Video

Video Afghan Economy Sinks As Foreign Troops Depart

As international troops prepare to leave Afghanistan, and many foreign aid groups follow, Afghans are grappling with how the exodus will affect the country's fragile economy. Ayesha Tanzeem reports from the Afghan capital, Kabul.
Video

Video Poverty, Ignorance Force Underage Girls Into Marriage

The recent marriage of a 17-year old Chechen girl to a local police chief who was 30 years older and already had a wife caused an outcry in Russia and beyond. The bride was reportedly forced to marry and her parents were intimidated into giving their consent. The union spotlighted yet again the plight of many underage girls in developing countries. Zlatica Hoke reports poverty, ignorance and fear are behind the practice, especially in Asia and Africa.
Video

Video South Korea Marks Gwangju Uprising Anniversary

South Korea this week marked the 35th anniversary of a protest that turned deadly. The Gwangju Uprising is credited with starting the country’s democratic revolution after it was violently quelled by South Korea’s former military rulers. But as Jason Strother reports, some observers worry that democracy has recently been eroded.
Video

Video California’s Water System Not Created To Handle Current Drought

The drought in California is moving into its fourth year. While the state's governor is mandating a reduction in urban water use, most of the water used in California is for agriculture. But both city dwellers and farmers are feeling the impact of the drought. Some experts say the state’s water system was not created to handle long periods of drought. Elizabeth Lee reports from Ventura County, an agricultural region just northwest of Los Angeles.
Video

Video How to Clone a Mammoth: The Science of De-Extinction

An international team of scientists has sequenced the complete genome of the woolly mammoth. Led by the Swedish Museum of Natural History in Stockholm, the work opens the door to recreate the huge herbivore, which last roamed the Earth 4,000 years ago. VOA’s Rosanne Skirble considers the science of de-extinction and its place on the planet
Video

Video Blind Boy Defines His Life with Music

Cole Moran was born blind. He also has cognitive delays and other birth defects. He has to learn everything by ear. Nevertheless, the 12-year-old has had an insatiable love for music since he was born. VOA’s June Soh introduces us to the young phenomenal harmonica player.

VOA Blogs

World Currencies

EUR
USD
0.8957
JPY
USD
120.93
GBP
USD
0.6393
CAD
USD
1.2199
INR
USD
63.470

Rates may not be current.