As China’s top leaders were concluding discussions that determine the nation’s economic and financial blueprint, Li Wei, professor of economics at CKGSB shared his view on the precariousness of China’s housing market during an interview with The Wall Street Journal.
Deborah Kan, executive producer at WSJ, asked Prof. Li Wei what the public’s expectation is and what the government can do to moderate speculations in the residential market.
“A lot of people in China are interested in the housing market. The value of housing has risen quite substantially and there is worry that the housing market might be in a bubble,” said Prof. Li Wei. “So anything that the policy makers can do to diffuse or lessen the bubble and lower the cost of housing … would be a great thing to do.”
Prof. Li Wei also gave his views on how the government can align its revenue with the services it provides in order to mitigate risks in the market. “So far, all the policies are focused on the demand side and trying to curb what we call speculative demand for housing. The real cost of high housing prices is actually on the supply side. What that means is that the Chinese government needs to change the way the local governments are financed so that they do not have to rely on selling leaseholds. [If the government ties] revenue with services to the local population by providing better education, and better healthcare, more people would be willing to live in the community. And that will increase the housing value, which in turn increases the revenue the government receives. Currently, however, the local government has an incentive to build empty houses as long as there is speculative demand for them.”
Please find the full interview on the Wall Street Journal website.