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Politics

China's housing bubble wanes, showing Beijing's deft hand

Gov't has kept prices under control in the past without triggering collapse

TOKYO -- China's meteoric rise in home prices appears to be winding down -- a shift that suggests dark times ahead to those who witnessed the bursting of Japan's asset bubble. But keeping housing prices in check has emerged as a specialty of sorts for Beijing's one-party regime.

The average pace of growth in housing prices is declining, said Liu Jianwei, a senior analyst at the National Bureau of Statistics, on Monday. Prices of newly constructed commercial residential buildings fell on a monthly basis in May in nine out of 70 large and medium-sized cities, the bureau's data show.

The slowdown is highly noticeable in financially and politically important "first-tier" cities. In May 2016, Shenzhen's housing prices grew 54% from a year earlier, but they rose only 5.5% last month. In Shanghai, the pace slowed from 33.8% to 12.9% over that period, and in Beijing it fell from 21.4% to 14.6%.

As price growth has slackened, investment has also calmed. Real estate development investment began a moderate upward march after hitting 5.3% in the January-July period last year, but that trend stalled this year. The January-May figure showed an 8.8% year-on-year increase, down 0.5 percentage point from that for the January-April period.

Safe steering

The cause is simple: minimum mortgage down payment requirements were hiked beginning around March 2016 in Shanghai, Shenzhen and other major cities. In April this year, statistics bureau spokesman Mao Shengyong said the effects of the home price-cooling measures would become visible as soon as that month. The state-run Xinhua News Agency reported in May that the effects of the government's control measures were beginning to show up in Beijing and nearby cities.

"If only it were that easy," many Japanese may think, given their experience with economic stagnation after the nation's bubble economy collapsed in the early 1990s. But China has ridden the housing-price roller coaster a number of times before. The latest peak came in 2016 and the previous one was three years earlier.

On a local level, China has seen multiple bubbles born and collapse. In regional cities, a number of newly built apartment housing complexes have turned into ghost towns as buyers did not materialize. Focusing only on such phenomena, one could get the impression China faces the same crisis Japan has gone through before. But "it's easy for policy to produce an effect in China," says Mihoko Hosokawa, a research executive at Mizuho Bank (China), and it is "hard to picture real estate prices slumping in first-tier cities."

Imperfect control

Of course, China's economy has its share of issues.

When economic uncertainty rises, for example, fears of a sudden capital exodus gather. There are strict regulations on capital migration, but there are also many loopholes. An outflow of money exerts downward pressure on the yuan's exchange rates, and while a weaker yuan would have been welcome once, right now the government is eager to stave off such a development.

On the other hand, housing bubbles are relatively easy to stem through loan regulation -- a lesson China learned by taking Tokyo's actions in the bursting of Japan's bubble as an example of what not to do. China is also in the process of urbanization, with its population shifting heavily into cities. It is therefore difficult to imagine the bottom falling out of the housing market. Authorities must instead grapple with the question of when to curb price growth.

Fluctuations in housing prices do not appear likely at present to shake the economy, but the rising home prices continue to build up dissatisfaction among the populace. It cannot be said that there is no risk of that dissatisfaction building societal unrest, but this should perhaps be considered separately from economic risk.

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