Wu Guangqiang jw368@163.com IF something could suffocate China’s fledgling innovation drive and even destroy its entire economy, it would be the runaway housing market with its skyrocketing prices in major cities. Chinese media has lately been abuzz with sensational reports and tales about the crazy housing market nationwide. In August, China’s 70 large and medium cities saw a 7 percent increase in new home prices. The housing prices in first-tier cities rose more than 30 percent over the same period last year. In the first week of September, the average price of new homes in Shenzhen hit 70,025 yuan (US$10,509) per square meter, making the city the world’s second-most expensive in terms of housing prices, next to San Jose, California, the U.S. Home mortgage loans surged as a result of the craze. Housing mortgages accounted for 46.58 percent of the new loans lent by 15 listed banks in the first six months of this year, as compared to about 30 percent in the same period last year. Dry data and figures pale in comparison with entertaining banter and real-life examples. As a viral online post goes, a businessman in Shenzhen started his own business with the money raised from selling his home 10 years ago. After 10 years’ hard work, he bought back the same home with the money he had earned from his 10-year struggle in business. If you think this is still a joke, listen to the following real story. One of my nieces sold one of her apartments in an upscale neighborhood in Shekou before she emigrated to America nearly two years ago. She sold the unit, about 140 square meters in area, for 7.4 million yuan (US$1.1 million), which at the time pleased her, as the sales price was double what she had paid when she bought the unit, about five years earlier. With the US$1.1 million, she purchased a lakeside house in California for US$820,000 and the leftover money enabled her to live comfortably for a while there. But her elation didn’t last long; now the price of the unit she sold has doubled, again, which means that she has lost at least a staggering 1 million dollars. The popular anticipation that purchasing an apartment at any time will result in profits in the future while selling means losing out has driven everyone mad. In some cities, many couples, including elderly ones, rushed to local civil affairs offices to apply for divorce. They did so, of course, not because of marriage problems, but to counter home-purchasing restriction measures. In Shenzhen, a property developer created a sensation by selling tiny units, each measuring about 6 square meters, at an exorbitant price of 880,000 yuan, though the transactions were announced invalid by a housing watchdog later. It’s a nationwide consensus that the ever-inflating property bubble has detrimental effects on the economy and there has been much talk on curbing the bubble. But why is the bubble getting bigger instead of smaller? It is the over-reliance of local governments across the country on land sales and taxes from the property sector for their revenue that leads to the governments’ instinctive support of the housing market. Therefore, they take temporary measures to rein in the market when it gets out of control, and rush to its rescue when the market slows down, regardless of the consequences. Hence the vicious cycle we see now. Everyone is talking about the danger of a property bubble, but the fear of losing revenue has prevented decision-makers from taking painful but decisive measures to deflate the bubble. It’s like quenching a thirst with poison. Curbing the property bubble will definitely pose short-term risks for the economy, but tolerating the bubble will plunge the nation into long-term suffering. Increasing signs show that the abnormal housing boom is taking a toll on China’s overall economy. It’s time to make a choice between false prosperity and sustainable growth, though it is a tough one. A new bout of market-cooling efforts is under way, but will it work this time? (The author is an English tutor and freelance writer.) | 