Wednesday, December 14, 2011

Handing over the baton in China

According to Xinhua and reported by CNA , China will maintain property market restrictions and "prudent" monetary policies.

Many observers have their lenses zoomed in to the once-in-a-decade leadership changes.
No surprise on the "property market restrictions " as they were the fruits of  many incremental policies that finally managed to cool runaway property  prices. So any changes will be similarly targeted and incremental.

Xi Jin-Ping and Li Ke-Qiang are both groomed successors who have been given increasing exposures to policymaking and the top leadership changes should NOT be disruptive to the continuity in policymaking.

The signals sent out are therefore intended to ensure that 2 current "tenets":
-  Housing remains affordable
- Consumer prices (CPI) remain stable
remain in place even after the handing over of the baton. So it is very important that China do not give any nasty surprises here.

Monetary Policies and Fiscal Policies which has quite an impeccable record under the current leadership of Hu and Wen are likely to maintain "unswervingly " on course given the  signals sent out at the close of the annual Central Economic Work Meeting.

Let's look at the statements released after the meeting:

"the country will speed up the construction of ordinary commercial residential housing to increase the effective supply and promote the healthy development of the property market."

Since April 2010, China has imposed a raft of measures aiming to calm property prices. They include higher down payments, limits on the number of houses that people can own, the introduction of a property tax in some cities, and the construction of low-income housing.

The statement also said that :

"China will push forward the trials of property tax reform."

China introduced the property-tax trials in Shanghai and Chongqing at the beginning of the year as part of its efforts to curb skyrocketing home prices and contain asset bubbles.

Another part of the statement:

"China should appropriately handle the investment and financing, construction, operation and management of affordable housing projects, and progressively solve housing problems for low-income urban residents, newly-employed workers and migrant workers from rural areas."

The government has vowed to build 36 million units over the next five years in an effort to give more mid- and low-income households access to housing and stabilize runaway property prices, with 10 million units planned for both 2011 and 2012.

China's housing authorities said on Nov. 10 that the country has already met this year's goal of starting the construction of 10 million units.

This is what the incoming Li KeQiang said:

"The construction of affordable homes will help curb excessive price rises and fuel urbanization, which will in turn unleash consumption and investment potential and push the development of related industries,"

 VP Li Keqiang said in late November that the government should stick to its tightening measures over the property market and consolidate the regulative results it had achieved.

Hence the outcome of this meeting is no surprise.

More cities posted monthly home-price declines in October following the government's campaign to calm the property market.
In October, 34 cities in a statistical pool of 70 major cities saw declines in new home prices from September, compared with 17 in September, data with the National Bureau of Statistics showed.

This what the policymakers are trying to achieve: ----- a slowdown in the increase in home prices.
So the policymakers would not do an about turn now, when the policies are gaining traction. The policies have to be "calibrated" and the market would be monitored, the process of calibration via the feedback loop is a delicate balancing act.  However, if prices start plunging badly then policies would be adjusted incrementally

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