Chinese interest rates are on the rise. After years of cheap credit, the Chinese central bank has finally made the connection between the amount of money in the economy and inflation. Yes, that is right. More money means more inflation.
So, for the third time in 11 months, the cost of borrowing has risen. The one-year benchmark lending rate will be raised to 6.39 percent from 6.12 percent, the highest in 8 years. The one-year deposit rate will be increased to 2.79 percent from 2.52 percent.
Despite earlier interest rate hikes, China's economy just keeps on growing. Last year, it expanded 10.7 percent. This extraordinary economic growth has fueled a remarkable property bubble.
The red kingdom has perhaps the strangest property bubble in history. In principle, a bubble should be impossible; the state owns all the land. Moreover, there is no effective legislation guaranteeing private property. Instead, there is a leasing bubble. The state issues leases, normally lasting for 70 years, and which gives the owner the exclusive rate to use the property. However, the leases are transferable and this creates the basis of the Chinese bubble.
The leasing system has been one of the cornerstones of the Chinese economic miracle. Since all land is state owned, the Chinese government can determine land usage without any annoying planning regulations. Therefore, when a new foreign investor needs a factory, the bulldozers move the locals out and up goes the shiny new building. A few little envelopes here and there and things can move real quick.
But what happens when the leases expire? Now that is a tricky question. No one really knows for sure. It is not as if there is a functioning legal system that can defend property rights.
Despite these legal difficulties, investors have bought up these leases with scant regard for the future. Prices have shot up, partly fueled by easy credit. Now, the central bank is trying to calm things down. However, it is going to take more than one marginal hike to calm the crazy Chinese non-property bubble.
Despite earlier interest rate hikes, China's economy just keeps on growing. Last year, it expanded 10.7 percent. This extraordinary economic growth has fueled a remarkable property bubble.
The red kingdom has perhaps the strangest property bubble in history. In principle, a bubble should be impossible; the state owns all the land. Moreover, there is no effective legislation guaranteeing private property. Instead, there is a leasing bubble. The state issues leases, normally lasting for 70 years, and which gives the owner the exclusive rate to use the property. However, the leases are transferable and this creates the basis of the Chinese bubble.
The leasing system has been one of the cornerstones of the Chinese economic miracle. Since all land is state owned, the Chinese government can determine land usage without any annoying planning regulations. Therefore, when a new foreign investor needs a factory, the bulldozers move the locals out and up goes the shiny new building. A few little envelopes here and there and things can move real quick.
But what happens when the leases expire? Now that is a tricky question. No one really knows for sure. It is not as if there is a functioning legal system that can defend property rights.
Despite these legal difficulties, investors have bought up these leases with scant regard for the future. Prices have shot up, partly fueled by easy credit. Now, the central bank is trying to calm things down. However, it is going to take more than one marginal hike to calm the crazy Chinese non-property bubble.
Hey! You've won a ride back to the top
2 comments:
Anonymous said...
WOW, a bubble without property ownership. Surreal.
Anonymous said...
China passes new law on property
BBC
Mr Wen stressed a need for greater equality
China's parliament has wrapped up its annual session, passing a landmark law to increase private property rights.
It also approved a bill ending preferential tax treatment for foreign firms, setting a standard rate of 25%.
Premier Wen Jiabao ended the session as he had begun it last week, promising a move to more sustainable growth.
He also raised issues such as corruption, regional ties and international fears over China's military build-up.
Contentious law
China's leaders have been struggling for decades to enact a law to cover private assets - seen an important step away from Communist collective ownership and towards a market economy.
But some legislators feared that while the new property law would undoubtedly increase protection for home owners and prevent land seizures, it would also erode China's socialist principles.
In fact, according to Daniel Griffiths, BBC correspondent in Beijing, this has been one of the most contentious pieces of legislation introduced in China in recent times.
But despite the concerns, when it came to putting the bill to the vote, 99.1% of the 2,889 legislators attending the NPC backed the property law.
The tax legislation - designed to wean China off an export-driven economy dominated by the manufacture of cheap goods - was passed with only slightly less support.
These high percentages are not unusual. The parliament - the National People's Congress (NPC) - meets just once a year and is largely a rubber stamp to endorse the policies of the ruling Communist Party.
Corruption crackdown
Legislators also discussed a wide variety of other issues during the two-week NPC meeting - with one key theme being Mr Wen's promise to focus more on sustainable development than rapid economic growth.
As he closed the session, Mr Wen fleshed out this theme, saying: "The priorities now are promoting equality in education opportunities, adopting progressive employment policies, narrowing income gaps and building social security networks."
Increasing equality is of vital concern to the Communist Party. Correspondents say that protests over the growing income differentials, exacerbated by rising corruption, are threatening its control over the rural hinterland.
Mr Wen promised more reforms to crack down on corruption, especially that involving high-ranking officials.
He blamed the increase in graft on an "over-concentration of power without effective and proper restraint and oversight", and promised to address the issue as a priority.
In terms of foreign affairs, Mr Wen said he hoped his visit to Japan in April would be an "ice-thawing" trip, following a period of tensions between the two nations over their wartime past.
He also said that China's military expansion posed no threat to other countries - despite international concern over its military growth.
"The limited armed forces China has are completely for the purpose of safeguarding the country's security, independence and sovereignty," Mr Wen said.
He added that China was still opposed to the militarization of space, despite its recent test of an anti-satellite weapon.