Because China combines a potential bubble with the risk of social discontent, the problems in China's housing market are more severe than those in the United States before the financial crisis hit, according to an adviser to the Chinese central bank.
“The housing market problem in China is actually much, much more fundamental, much bigger than the housing market problem in the U.S. and U.K." before the financial crisis, says Li Daokui, a professor at Tsinghua University and a member of the Chinese central bank’s monetary policy committee.
“It is more than [just] a bubble problem,” Li says. “When prices go up, many people, especially young people, become very anxious. It is a social problem,” Li told the Financial Times.
Li added that China is “running the risk or is on the verge of overheating,” but the situation isn't yet out of control.
As well as calling for modest increases in deposit rates, which are negative in real terms, Li says a gradual appreciation in the currency would help companies prepare for when the renminbi was considerably stronger.
Li’s comments contrast with the growing view among economists that the crisis in Europe will cause China to avoid further tightening, including currency appreciation, and with Chinese Wen Jiabao’s recent comment that it is still too early for big economies to withdraw stimulus.
Shares fell sharply in Shanghai as investors moved away from property companies after China's State Council said it has approved a plan to gradually revamp the country's real-estate tax system in order to rein in rising prices, the Wall Street Journal reports.
The proposal is for revising an existing real-estate tax, which is currently levied on commercial property but could be extended to include homes.
© 2017 Newsmax Finance. All rights reserved.