Such a fast-rising wealth gap is not just an academic pre-occupation; it inflicts real economic and social damage. The ADB estimates that if China’s economic growth between 1990 and 2008 had been achieved with no increase in inequality, an additional 110 million people would have been lifted out of extreme poverty.

To put that another way, 110 million people – equivalent to the entire population of Guangdong – with all the inhabitants of Hainan thrown in for good measure – are still living on less than US$1.25 a day because a few of their more well-connected compatriots got very rich first.

Naturally enough, these paupers have limited spending power, which is bad news for an economy looking to rebalance itself more towards consumption-led growth. Countries with widening income gaps, the ADB warns, also tend to have deteriorating growth prospects.

Abolishing the hukou household registration system and giving farmers land ownership rights, he suggests, could go some way towards addressing the problem. A China Daily op-ed on Thursday similarly recognised the urgency of reducing income inequality, and launched its own flotilla of proposed remedies. For example:

… [A] set of strict ownership definition standards should be set up to prevent the flow of State-owned assets to certain groups and individuals in the process of economic re-organization. At the same time, an effective monitoring system should be put in place to restrict or eradicate the power of individual local leaders in resource redistribution ….

In addition, the country should try to strengthen the trade union and wage negotiation system to help raise wages. At the same time, practical steps should be taken toward building an inclusive and balanced education system to uproot one of the key causes of the current income gaps.

Last but not least, the influence exerted by vested interest groups on the country’s income distribution policies should be eradicated by promoting a democratic, fair and transparent decision-making mechanism for income distribution.

Resentment of widening inequality is sharpened by the growing cost of living; an effort to tame one aspect of this by providing millions of affordable homes is already underway. But according to a recent Reuters report, the scheme’s numbers “don’t quite add up”, while the AP added this week that the subsidised accommodation drive would be “no cure-all”:

On paper, building affordable housing seems like a tidy way to provide inexpensive homes at prices low-income families can manage, while keeping property developers and other industries busy by generating demand for home furnishings, autos and building materials such as steel, copper and cement.

But whether the plan to provide housing for a fifth of the country’s urban families will achieve its aims is in doubt. Problems with financing, quality and corruption are plaguing the project. And for many, the prices are not low enough to offset disadvantages such as the out-of-the-way locations of the housing estates.

On Monday, meanwhile, The Wall Street Journal’s Tom Orlik reported higher than expected inflation figures:

Consumer prices rose 3.6% in March compared with a year ago, from 3.2% in February. That’s a move in the wrong direction, and higher than the 3.3% consensus forecast.

To examine the cause of the increase, it’s time to take another stroll to China’s countryside. Food prices rose 7.5% year-to-year, with sprouting vegetable prices the main contributor ….

The proximate cause of March’s inflationary rise might be a shortage of vegetables. But the underlying cause is the massive increase in the money supply in the past three years, and sharp rises in wages that means more of that money is ending up in consumers’ pockets.

Analysts’ comments collected at the WSJ’s China Real Time Report played down the severity of food inflation, calling it “benign so far in the year”, and predicting that high vegetable prices were merely “transitory”. The Financial Times’ Jamil Anderlini acknowledged that that the food price spike could be ominous, but argued that “in a sign that consumer inflation may resume its downward trajectory, China’s producer price index turned negative in March for the first time since late 2009, dropping 0.3 per cent from a year earlier.”

But in his latest Bloomberg World View column, Adam Minter pointed to netizens’ more heated views on food prices, in the wake of a magazine feature on almost-free lunches available to officials in government canteens.

The hashtag #One Sentence Attesting to Rising Prices# has spent much of the week at the top of the heavily censored trending topic list at Sina Weibo, attracting responses such as this anguished complaint by a netizen in Tianjin:

Lately, the fuel-price rises, the cooking-oil price rises, the green-vegetable price rises, the shampoo price rises, the wedding-celebration prices rise, even a pancake is 4.5 yuan…People can’t afford to drive, a meal, bathing, a wedding, even breakfast. Little is left in our pockets at the end of the month!

Under such circumstances, it isn’t surprising that a sizable number of tweets on Sina Weibo openly question whether the March consumer price index increase of 3.6 percent is actually a lowball estimate. “I went to the supermarket and bought a watermelon for 40 yuan,” a netizen wrote on Monday, and then cracked a joke: “There’s a mistake, CPI is 13.6 percent.”

There’s nothing new about anger at Chinese officials’ misuse of public funds for personal ends. It’s become such a problem that the use of public funds for international travel, automobiles and entertaining is characterized by the catch-phrase “the three consumptions.” They are, among other matters, a major source of corruption and, in the eyes of the Chinese public, a significant reason for the widening gap between the party cadres, and those they are supposed to be governing.

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Post tags: food prices, housing prices, income gap, inflation, Zhu Rongji
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HSBC’s economists said they expected bigger new loans and at least two additional 50bp reserve ratio cuts in the coming months. “Interest rate cuts will remain a secondary monetary policy tool of choice. We only look for a 25bp interest rate cut when headline CPI falls below 3 per cent, likely towards the middle of the year.”

But some disagree. “Markets should not take this RRR cut as a sign of a bigger monetary easing,” said Ting Lu, China economist at Bank of America Merrill Lynch. “We believe the RRR cut is merely part of the ongoing fine-tuning which was started in October 2011.”

The increased lending capacity should help China’s real estate market, which has seen an extended period of cooling. The policy decision by The People’s Bank of China came the same day that the National Statistics Bureau reported that China’s housing market experienced its worst performance since the government began releasing prices across 70 cities at the beginning of last year. None of the 70 cities surveyed saw an increase in home prices in January, and prices in 48 cities fell from December levels, stats which The China Daily attributed to the tightening measures introduced by Beijing to reel in China’s real estate market in 2011. Some Chinese cities may have already begun tweaking policy to dance around property market restrictions recently handed down from the central government, according to The Wall Street Journal:

Late last month, Zhongshan, an industrial city along the Pearl River Delta in southern China’s Guangdong province, raised the temporary price ceiling on newly built apartments to 6,590 yuan ($1,046) a square meter. The previous cap, set in November, was 5,800 yuan.

The new cap is 11% above last year’s average selling price of 5,935.6 yuan a square meter, so the increase matches the city’s GDP-growth target for 2012, Zhongshan’s housing and land bureaus said in a joint statement. By limiting the increase this way, they say, they are still adhering to directives from central and provincial authorities to maintain property-tightening measures this year and to further stabilize the prices of newly built homes. The rise in the average housing price in Zhongshan last year was about a percentage point below its GDP growth.

Zhongshan’s new cap increase may stand, but elsewhere the Anhui city of Wuhu scrapped a new home buyer subsidy policy almost as quickly as it announced it. Wuhu’s policy ran counter to comments this week by Wen Jiabao that China wouldn’t seek to relax real estate cooling measures, suggesting a disconnect between local officials and Beijing as the country attempts to balance out its housing bubble.

Finally, while the RRR reduction should provide some breathing room for China’s lenders,  one analyst told Bloomberg that interest rate cuts will likely remain a “secondary monetary policy tool” as the government hopes to avoid rising inflation. Consumer prices rose 4.5% in January, reversing a steady decline from last summer’s high, though experts cautioned to take the data with a grain of salt in light of the Lunar New Year holiday.

Spotlight: Europe

A slumping housing market serves as just one of many pressure points on China’s economy, with the European debt crisis also continuing to weigh on this year’s outlook. Despite its growing popularity as a investment destination for private Chinese companies, the eurozone has yet to receive a financial commitment from the Chinese government as it seeks to resolve its sovereign debt woes. And with senior Chinese and EU officials gathering for a summit last week, a People’s Daily editorial reiterated China’s confidence in the European economy but again avoided a firm pledge of financial participation in the bailout:

Europe should also consider China’s participation in solving the European debt crisis in a rational and peaceful way. China does not have the ambition or capacity to “buy out” or “control” Europe like what some European media said, and China always supports the euro and the European Union, which is a sharp contrast to the negative international voices on the prospect of Europe.

When and if China does decide to deploy its massive foreign currency reserves in support of a European rescue package, which many believe would occur through the International Monetary Fund, it has agreed to do so in cooperation with Japan. Japanese Finance Minister Jun Azumi wrapped up a weekend visit to Beijing by saying that he shared China’s view that Europe should do what they can to strengthen their positions amid the crisis, adding that the two sides would approach any potential assistance in close consultation.

The head of China’s sovereign wealth fund, for his part, said last week that the fund remains hesitant to invest in European government bonds.

Chinese Labor: Cheap no More?

In a Friday New York Times Op-Ed, Beijing-based journalist Michelle Dammon Loyalka highlights a fundamental shift taking place in China’s labor market which may threaten the manufacturing dominance that has fueled China’s historic economic rise. While the Lunar New Year often leads to labor shortages as millions of migrant workers head home for the holiday, luring them back to work has proven increasingly difficult:

Although nearly two weeks have passed since the Lantern Festival that officially marks the end of the 15-day holiday, cities across China are still facing a serious labor shortfall. In order to lure new workers and retain the old, some companies give employees sizable bonuses just for coming back to work, while others offer cash for every new employee they bring along with them. And in many areas, wage increases ranging from 10 to 30 percent have become the norm.

Despite all this, cities like Beijing, Shenzhen and Guangzhou are still short hundreds of thousands of migrant workers. Shandong Province is missing a full third of its migrant work force, and Hubei Province reports a loss of more than 600,000 workers. Last week, the Chinese government released a report describing this year’s post-Spring Festival labor shortage as not only more pronounced than in years past, but also longer-lasting and wider in scope.

As Loyalka writes, the structural roots of China’s present labor problems go beyond the typical holiday hangover.

Other News:

• Speaking of China’s currency reserves, estimated at around US$ 3.2 trillion, The Wall Street Journal’s China Real Time Report examines where the cash might be parked.
• Three years since its launch, Reuters examines China’s offshore yuan market and asseses its likely future. Meanwhile, The Wall Street Journal highlights the struggles of the offshore yuan-denominated bond markets as investors have turned to dollar-denominated debt amid concerns over slower-than-expected yuan appreciation.
• With World Bank chief Robert Zoellick announcing mid-week that he would step down in June, a foreign ministry spokesman said China hopes the next leader would be chosen “based on merit and open competition.” The comment reflects growing agitation from the developing world, including the BRIC nations, for a greater voice on the World Bank and IMF. The World Bank expects to choose a successor by the time its April meetings.
• China has raised a mining tax on iron, tin and other resources as it seeks to boost conservation and curb pollution.
• South Korea’s Yonhap News Agency reported last week that China has agreed to invest US$ 3bn to develop North Korea’s northeastern free trade zone.

© CDT Money for China Digital Times (CDT), 2012. | Permalink | No comment | Add to del.icio.us
Post tags: CDT Money, debt crisis, housing prices, inflation, labor shortage, peoples bank of china, real estate bubble, reserve requirement ratio, Wen Jiabao
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Data on 70 Chinese cities released by the National Bureau of Statistics and analyzed by The Wall Street Journal show average home prices declined by 0.17% in November compared with October, compared with a 0.13% decrease in October and a 0.01% increase in both September and August. Prices rose 2.3% on average in November from a year earlier, moderating from a 3% increase in October.

Prices of newly built homes in major cities such as Beijing, Shanghai, Shenzhen and Guangzhou—often described as China’s first-tier, or most developed, cities—were marginally lower compared with October, the statement said.

Analysts said that while the central government has shifted its priority to supporting economic growth from combating inflation, it remains set on controlling property prices. The People’s Bank of China cut banks’ reserve-requirement ratio by half a percentage point effective Dec. 5, helping ease liquidity in the country.

There are predictions that the prices will drop further due to the slowed economy. Business Week adds:

Chinese developers will face challenges over the next 12 to 18 months including slowing sales, tight bank credit and downward pressure on prices and profit margins, Moody’s Investors Services said in a Dec. 15 report.

The government may ease its property measures in the second half of next year if home prices in major cities include Beijing and Shanghai fall 20 percent from their 2011 peaks, according to Mizuho’s Shen. Shanghai’s new home prices gained 2.4 percent from a year earlier in November, and those in the capital city added 1.3 percent.

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Post tags: economic slowdown, housing market, housing prices, real estate
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“The decision has been made that there will be no more property bubble,” said Andy Xie, an independent economist based in Shanghai.

Measures to control the market — such as limits on home purchases and high downpayments to qualify for mortgages — are at a “critical period,” Vice Premier Li Keqiang said last month, stressing a need for more progress on controlling prices.

Nobody is predicting a meltdown akin to those that led to the global crisis: most Chinese homeowners hold relatively modest mortgages, and demand in the long run will be sustained by demand for better, more spacious housing among increasingly affluent families.

The easing in property market controls, when it does come, will likely be piecemeal and low-key, as is the case for most Chinese economic policy changes, says UBS economist Jonathan Anderson.

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@Pan Shiyi: Apple’s board of directors should make the following decision: To immediately manufacture iPhones and iPads that are under 1000 Chinese Yuan (about $157 U.S. dollar) so that more people can afford Apple products. This is the best way to commemorate Jobs.

@潘石屹：“苹果”董事会应该马上做一决定：大量生产1000元人民币以下一部的iPhone手机和iPad，让更多(人)用上“苹果”，这是对乔布斯最好的纪念。

The following response, which focuses on China’s surging housing prices rather than Jobs’ death, has apparently caught many netizens’ attention and been widely re-posted:

@Tang Rouding 9983: When Mr. Pan passes away some day, your company should offer homes that are under 1000 Chinese Yuan per square meter. Over a billion people will commemorate you by then.

@唐若丁9983：潘总哪天要也去世了，也请贵公司推出1000一平米的房子吧，十几亿人民都会纪念您。

Pan soon deleted the original tweet. However, his new title, “the 1000 Pan,” has been spread all over the cyberspace. Meanwhile, a new form of currency named “Panbi,” has also been created by netizens ["bi" means money in Chinese]. According to netizens’ definition, Pan is the base unit of Panbi, and one Pan equals 1000 Yuan/sq m. Thus, an apartment home that normally costs 24,000 Yuan/sq m would only cost 24 Pan/sq m in the world of Panbi. Here, netizens have turned their frustration at China’s housing bubble into a humorous yet sarcastic joke.

Below is a sample of a bill of one Panbi which features Pan’s portrait:

On top of the bill it reads “SOHO Bank of Real Estate of China.” Pan Shiyi is the founder and president of SOHO China, the largest real-estate developer in Beijing.

Netizens have also made a chart comparing major cities’ average housing prices by using Pan as the currency unit:

Following are some more examples of netizens’ responses that explain why there would be a joke like this in the first place:

@Jiafu Erxiaojie: It’s not that we don’t like the 1000-Yuan iPhone4s, it’s just that we’d prefer 1000-Yuan homes a lot better.

@Yezhiyexing: Mr. Pan’s hoping that we’re playing with our new iPhone4 so that we can temporarily forget the pain of having to pay dozens of Pan for our homes.

@Post-70 Xiaoheizi: It’s not just a random saying or whatever Pan was trying to justify–People are complaining about the skyrocketing housing prices with contempt and frustration.

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Post tags: housing bubble, housing prices, pan shiyi, steve jobs
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On Wednesday the city’s leader Donald Tsang said in his annual policy address that the government plans to provide more than 17,000 apartments between 2016 and 2020

The programme is aimed at families who earn too much to qualify for public rental housing but cannot afford to buy a home of their own.

The flats will cost between 1.5m Hong Kong dollars ($193,000; £124,000) to HK$2m in a bid to make them affordable for households with a monthly income of between HK$20,000 to HK$30,000, he said…

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Post tags: Hong Kong, hong kong economy, housing, housing boom, housing policies, housing prices
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Beijing said it will stabilize new home prices this year and aims for a drop from 2010, the local government announced on its website late yesterday. Shanghai said on March 28 it will limit gains in new home prices to no more than the pace of economic growth and average income expansion.

About 40 Chinese cities said they will cap new home prices below annual economic and disposable per-capita income growth after local governments were ordered to submit home price control targets by the end of March. The Chinese government is intensifying efforts to keep housing affordable after prices gained for 19 consecutive months to December and climbed in all but 68 cities the government monitors in February.

“The capital city of Beijing’s property curbs always are the most severe among peers,” said Jeffrey Gao, a Shanghai- based property analyst at Royal Bank of Scotland Group Plc. “But even that target was almost like nothing.”

Since last year, the Chinese central government has announced policy changes to curb housing speculation. From Global Property Guide:

Measures approved in January 2011 to cool China’s housing market:

• Higher down payments for second homes (from 50% to 60%)
• More areas where home purchases are limited.
• The government is also testing new property taxes in Shanghai and Chongqing, in southwestern China.

The introduction of cooling measures began in April 2010, when the government raised real estate transaction taxes, increased minimum down payments, and hiked mortgage interest rate margins.

However, the article continues, constraining housing speculation may be easier said than done.

Analysts nevertheless question the effectiveness of these regulations. With economic prospects in the US and Europe dull, global investments are heading to China. Chinese companies are raking in huge profits from exports. All this money has to go somewhere; a huge chunk is being spent on housing.

Cracking down on speculators is not easy. China’s corruption-ridden bureaucracy is incapable of prosecuting investors with strong links to the Communist Party.  New regulations simply make speculators move to other areas, shift to another industry, or increase their bribes to regulators.

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Post tags: Beijing, housing bubble, housing market, housing policies, housing prices
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Editor’s note: In maintaining the livelihood of the people and promoting harmony, an important goal is to gradually form an “olive-shaped” distribution configuration in which middle-income workers are the majority. As the middle class, the middle-income population should be society’s stabilizer. However, distorted high housing prices have overdrawn on much of what they will make in a lifetime. Then consider “early retirement,” the intensity of work, children’s education, residency (Hukou system) … The nation’s so-called middle class is saddled with all kinds of pressures. “Housing slaves,” “automobile slaves,” “credit slaves,” “slaves to the expenses of their children” … permeate the middle class, causing frustration and helplessness. Perhaps the establishment of an “olive-shaped” society is a long way off.

Recently, a journalist has gone among this population, experiencing some of the real life conditions of the “middle class,” and giving us a listen to their voice.

Pendulum-like days

One hundred eighty-five kilometers separates home into two halves. A ride on the metro, on the fast train, in a taxi…one trip home is a harrowing four hours.

Cheng Yueqiang, customer service manager of a Shanghai securities company

Fridays are the most crowded at Changzhou, Jiangsu’s train station.

Sept. 3 was another Friday. At 7:20 p.m., fast train G720 promptly enters Changzhou Station from Shanghai. Cheng, who lives in Changzhou’s new district, is the first off the train. Tomorrow is his daughter’s 10th birthday. He can’t wait to get home.

Although the fast train has pulled Changzhou and Shanghai closer together, from 38-year-old Cheng’s office in Shanghai’s Pudong District to his home in Changzhou, he must ride the subway, the fast train and finally take a taxi. He suffers at least four hours on the road.

“A trip home is far from easy.”

In 2002 Cheng left his home in Changzhou for the securities company in Shanghai. For eight years his home has been spit in two by 185 kilometers. He’s like a pendulum swinging between these two places.

“When I went to Shanghai for work, at first I just wanted a change in environment,” he said.

Cheng said he originally worked in a trust company in Changzhou. When a Shanghai securities company came recruiting, he applied without thinking about it and ended up being hired. Although Changzhou isn’t far from Shanghai, he had to live in two different places.

His daughter was two when he arrived in Shanghai. Eight years have passed in the blink of an eye but he has never been on time for his daughter’s birthday, never attended a parent’s meeting at school. Cheng feels incredibly guilty.

For his daughter’s sake, Cheng considered moving his family to Shanghai.

“But this is really too complicated.”

Consider housing first. When Cheng moved to Shanghai he never considered buying a house. Because he and his wife started working relatively early, they both had a home originally provided by their work unit. Prices in Shanghai were low and they weren’t hurried to buy. But the prices now are too high for them to handle. City center housing has climbed to nearly $90,000 per square meter. Suburban housing is nearly $30,000 per square meter.

“We couldn’t trade both our homes in Changzhou for a single home in Shanghai.”

Then consider work. Cheng’s wife is a public servant in Changzhou’s new district. She’s an integral part of her department and could not enter a similar office if she were to transfer to Shanghai. Her previous work experience would be useless. Does it seem worth it?

Speaking of the “middle class,” Cheng said he’s gone from a basic level customer service manager to the director of a customer service department. His annual salary has gone from less than $9,000 to nearly $45,000, plus his family’s two homes. Judging by his salary alone, Cheng is already part of the middle class. But during these eight years, except for returning home for the weekend, he’s lived the entire time in a rented “den” of a home in Pudong District.

“If a member of the middle class spends five out of seven days a week in a “den,” is this kind of middle class (worker) a success or a failure? It’s really hard to say.”

“I have many friends in Shanghai,” Cheng said. “But based on my observation, few have homes in Shanghai, especially the younger ones who have just started working in the past two years. Relying on one’s saving power alone, there’s fundamentally no way to deal with the world of high-priced housing.”

Cheng said there are many people these days who work in Shanghai but live in Changzhou, Wuxi or other southern Jiangsu cities. On Friday, the Shanghai Train Station is a dark mass of people hurried to get home. Although their days of brief reunion and long separation are tough, most would still choose to work in Shanghai if they could choose again because “people move toward higher ground.” Life in small to medium-sized cities like Changzhou is comfortable, but it’s easy to see a future with nothing to look forward to. The stress is high in Shanghai, but the opportunities are many.

“Life is like that. As soon as you have it, you have something to lose.”

It’s Cheng’s daughter that keeps him from giving up. He told the reporter he’s already made up his mind. He’ll definitely move his family to Shanghai within two years, putting a quick end to this “pendulum-like” life, because, “Middle school is still compulsory education. For people like me without a Shanghai Hukou (household registration), I can still bring my daughter to Shanghai for middle school. But high school is not compulsory. Bringing my daughter to Shanghai at that time wouldn’t be easy.”

© Don Weinland for China Digital Times (CDT), 2010. | Permalink | No comment | Add to del.icio.us
Post tags: Changzhou, housing prices, middle class, Shanghai
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The housing sector in Shenzhen further dipped to new lows in December, according to statistics released by a research center with the Shenzhen Zhongyuan Properties (深圳中原地产深港研究中心). In the year-ending month, buyers only purchased 170,000 square meters of properties among the stock of 800,000 for sale. The city-wide average price of new apartments further dropped to 15,000 yuan/square meter, after previous lows in the previous months. The market peaked in September, climbing as high as 16,777 yuan, a surge over the January’s 10,872 yuan.

The third quarter of this year was bad enough, registering only 1.03 million square meters of first-hand property sales, down 36% from the second quarter and 44% down from the first. Then came the icier quarter, with October-December recording 160,000, 150,000 and 170,000 square meters respectively, the slowest in three years and a day-and-night contrast with the same period last year, the hottest period. The continued cooling in Shenzhen’s housing market is attributed to a series of central and local tightening policies aimed at curbing the real estate frenzy. [Full Text in Chinese]

(...)
Read the rest of Shenzhen Housing Boom Further Ices Up – Guangzhou Daily (23 words)

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Investment in the real-estate market on China’s mainland jumped 31.4 percent in the first 10 months of this year from 2006 to a mind-blowing 1.92 trillion yuan (US$259 billion), the National Bureau of Statistics reported yesterday.

About 1.37 trillion yuan was invested in residential property, rising 33.7 percent from the same period last year. Of this 61.8 billion yuan was pumped into budget homes, up 32.2 percent, the bureau said….[Full Text]

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Mr. Wang, an owner of five or six properties in Shenzhen, has felt the chill running through the pioneering city’s real estate market. Wang is busy renovating a newly purchased apartment so he can rent it out and pay off the monthly mortgage. While recently doing the math on his property portfolio, he figured the total value of his apartments has gone down from 10 million yuan in June to 8 million now”a calculation based on a hypothesis that people would actually want to buy his properties.

When Wang bought his first unit, the price was 5,000 yuan per square meter. Since then, the market has shot through the roof, so to speak, with average prices rising from 9,000 yuan/square meter early this year to 15,000 a couple of months ago.

But, if the recent ice age-like cooling of the market is any indication, those days may well be at an end.

(...)
Read the rest of Shenzhen to Herald a China Housing Meltdown? – China Business News (165 words)

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Something bothered me about the People’s Congress sessions in Beijing and Shanghai. In both cities, skyrocketing housing prices are, as reflected in the Chinese language press, one of the biggest issues that local legislators complain about.

But frankly, in neither city can the municipal administration come up with a clear statement about what to do to effectively balance supply and demand. It is not because they don’t want to. It’s because they can’t.[Full Text]

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Post tags: housing prices, social unrest
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