China property

飞雪寒冰

We know the drill by now. Policymakers survey the Chinese property market, then make some determined-sounding noises about controlling “precipitous” rises in prices. Data then emerges, as on Wednesday this week, suggesting residential and commercial real-estate prices are shooting up fast – they climbed a record 11.7 per cent in March from a year earlier. Cue more finger-wagging. Later that day, the State Council threatened to “resolutely” curb “excessive” gains.

It is no surprise that China prefers talk to serious action. It is the economy's worst-kept secret that local governments, and Beijing through them, depend on a vibrant property market. Land sales (or more accurately, long-term leasing) jumped more than 40 per cent last year to hit Rmb1,400bn in fiscal revenues. First-quarter gross domestic product data on Thursday, meanwhile, showed that property investment, up 35 per cent year-on-year, was the biggest contributor to growth. In addition to prices, transaction volumes and investment picked up significantly in March – right after the National People's Congress dissolved without any new policies on property.

飞雪寒冰

In fairness, restraining this vast and fragmented market is tough: state-owned China Vanke, the biggest of an estimated 64,000 developers, has a 2 per cent market share. And memories of the violent correction of 2008 are still fresh. Then, Beijing restricted bank lending to developers, triggering concerns over their viability, price weakness, and a big slowdown in sales and construction activity. That is why fine-tuning, this time, has been mostly on the demand side – including Thursday's move to lift downpayments and second-home loan rates.

Blunter instruments – including higher benchmark rates, and perhaps a tax on home purchases – are sorely needed. The state, after all, can be an effective brake when it wants to be: new renminbi bank loans fell by almost a fifth from February to March. At the moment, however, it is all too obvious that homebuyers and developers do not believe Beijing will bite the hand that feeds it.