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China’s new restrictions: a blessing in disguise?
September 30, 2010Article by Ray Withers
In their zeal to rein in the property market, China’s leaders might well have been reading the Liberal Democrat manifesto. For one of the highlights of that little orange booklet was a promise to restrict the ownership of second and third homes. This would be accomplished through a blend of punitive taxation and ‘consultations’ with aggrieved ‘local communities’, their often justified anger stoked up by the same local politicians who had neglected them for decades.
Such pledges have probably not been quite forgotten. They will doubtless be revisited in a few years’ time as evidence of the party’s distinctiveness from the Tories. However for the moment they have been shelved in the interests of realpolitik. This is surprising, in a sense, for these policies tapped into a rich vein of populist irritability and might have acted as an ideological counterweight to the swingeing cuts. After all, it is easier to take than to give, easier to appease envious sentiment than promote social justice in any meaningful way. Punishing second home owners does not conjure up social housing through sympathetic magic, and nor does it even affect the very rich. But for the time being, the puritanical voices of revenge have been silenced, with the (inevitable) increase in Capital Gains Tax thrown to them as a crumb of comfort.
On to the larger issue of China. There, the government does have to monitor and respond to public opinion but need not be ruled by it. And, unlike tenuous coalitions, it can take the long view. Unlike populist western politicians, therefore, China’s leaders are not appealing to short-term grievances. Nor are they opportunistically stoking up envy as a substitute for doing something constructive. Instead, they are learning from the experience of others and planning ahead. In the late 1980s, they witnessed and learned quickly from the economic (and hence political) collapse of the Soviet Union and its satellites. In a similar way, they have watched the disastrous effects of the property bubble in the United States (and to a lesser extent the UK and Western Europe) and are determined not to fall prey to the same epidemic of greed.
Under the new rules, unveiled yesterday, banks have to suspend all mortgage rules to third-home buyers. Meanwhile, all first-home buyers have to stump up deposits of 30%. According to the official Xinhua News Agency, these measures are aimed at “consolidating the achievement in curbing the property market and promoting its healthy development” (quoted in The Independent, 30th September 2010). At the same time, the government is reforming property tax and reinforcing existing measures to prevent developers from hoarding much-needed land. The aim is to prevent speculation and cool the property market without derailing it altogether.
There will be a fair few commentators, not least in our industry, who rush to instant judgement and decry the Chinese government’s actions. But, as the great sage Lao Tse reminds us: ‘He who knows does not speak. He who speaks does not know’. Whatever we in the West might think about Tibet or human rights, China’s leaders have shown remarkable economic and political foresight since the end of the Cultural Revolution more than three decades ago. Instead of seeing their actions as a threat, should we not welcome them? For a stable property market is also a resilient one. That can only be good for long-term investors, whether at home or overseas.
And isn’t it refreshing to see a government that can tell the banks exactly where to get off?
Written by: Aidan Rankin