In roughly a decade or so, urban China has evolved from having a heavily subsidized system of government-owned housing to a free-wheeling, market-driven one with all the opportunities and inequalities that come with it.
The ever-morphing commercial skylines of Beijing, Shanghai, and Shenzhen; the stories of buy-and-flip property speculators; the sometimes garish consumer culture of Chinas urban monied elite -- no doubt about it, the new opiate of the masses on the mainland is real estate. As economic reforms deepened in the mid-1990s, both Chinese President Jiang Zemin and Premier Zhu Rongji started to dismantle that system, which was pretty much history by 1998. A more market-driven China needed labor mobility, a dynamic private sector, and a housing market that better reflected demand. "To get rich is glorious" became the new mantra.
Chinas banking system also has a huge exposure to commercial real estate and mortgage lending. In Chinas 70 largest cities, residential and commercial property prices on average jumped 5.8% in June year-on-year, according to the National Development & Reform Commission. That includes an 11.2% increase in Beijing, where 2008 Summer Olympic-related construction is fast and furious, and a head-turning 14.6% in Shenzhen, a thriving Southern Chinese city in the Pearl River Delta region.
We arenít even talking here about the 800 million or so Chinese living in rural regions but rather urban dwellers in Beijing and Shanghai. Nobody wants to see a Japanese-style property bust visit a still-developing economy like China's. Yet even if it doesnít come to that, Hus government needs to worry about a possible social backlash among a sizable chunk of the population whose incomes arenít growing fast enough to keep up with spiraling housing costs.
Given that China is now a $2 trillion economy growing at blistering speeds, that is a problem that demands a serious look by the government. Back in July, the Ministry of Finance reported an alarming shortage of low-rent apartments in major cities, the state-owned news service Xinhua reported. Only $593 million had been spent on low-rent housing since the early 1990s, the Finance Minister concluded, and 70 cities werenít providing any subsidized housing at all.