Last week in lecture we looked at the ways urbanization had seemingly become the primary raison d’etre for the local state, since state revenues are increasingly derived from rents on urban property development. One question I raised in this regard was the ambiguity of the state’s regulatory role in such a situation, where the state is itself an active market player with interests in the profitability of real estate development. An interesting answer to that question came in a New York Times report today by Keith Bradsher on the government’s recent efforts to cool the real estate market nationwide:
The Chinese government is deliberately bringing down real estate prices to improve the affordability of housing and prevent the housing bubble from becoming worse. Premier Wen Jiabao said Sunday that the government had no intention of changing course. “We would like to stress that there is no possibility of loosening the real estate policies — our target is to let the property price fall to a reasonable level,” he said.
The government has pushed up interest rates and set limits on bank lending, deliberately engineering a credit crunch with the goal of slowing inflation as well as making it harder for speculators to borrow money. The government has also limited the number of mortgages for each individual borrower, raised the down payments for mortgages to as much as 40 percent to protect the banking system from losses and begun experimenting with the introduction of real estate taxes in cities like Chongqing.
These moves remind us of the regulatory power at the state’s disposal, lest we think the market has somehow colonized the government.