The end of scientific development, return to property speculation
Chengdu Zhongze Property Co. recently bid for the land near Beijing’s Olympic park at the staggering price of RMB 15,217 per square meter.
It would be the highest price paid for land in the city ever, let alone in the midst of a financial crisis. But transactions like these will help China on its way to maintaining the magic 8 percent GDP growth number it has promised its citizens.
Such an astronomic price would never have been touted before the new lower capital threshold for development projects was introduced in late May. For developers, a mere 15 percent outlay is now necessary, when 35 percent capital had been necessary in the past.
This policy and a full-scale propaganda campaign to support house prices suggest Beijing has now lost hope in both exports and domestic consumption as drivers of growth. With no other route to take, the party has thrown away the banner of "scientific development" and returned tail-in-legs to property speculation in the pursuit of GDP growth.
In reaction to anger and anxiety at the sky-high cost of property in China's primary cities, the People's Daily, the government mouthpiece, on June 9, defended continuing rising prices, saying they are merely "in line with growing incomes". CCTV, the state broadcaster, which had beforehand been criticizing greedy developers, also turned bullish on the house market late last month.
According to the same People's Daily article, investment in real estate development acocunts for 20 percent of total fixed asset investment and contributes 10 percent to the nation’s gross domestic product. Analysts say this number could be much larger.
Since March, at least 11 listed companies from fertilzer makers to electronics producers have already announced plans to diversify into the real estate business to prop up profits. Land prices almost doubled in some places of China after similar fund flows in 2006.
So while 2009's 8 percent GDP growth looks safe, watch out for bubbles waiting to burst around the corner.
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