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China goes house hunting to rev up economy

(Agencies)
Updated: 2009-08-18 17:30

The Chinese government is attempting to pass the baton of growth from State-funded infrastructure investment to the private housing sector, a risky but necessary move to sustain the economic recovery.

Construction cranes sprouting in big cities, busy furniture shops and soaring property sales all show that the transition is going smoothly so far, though officials are wary that house prices may rise too high, too quickly.

China's biggest listed property developer, Vanke, lifted its housing starts target for this year by 45 percent, while its rival Poly Real Estate said sales in Jan-July rose 143 percent from a year earlier.

On the ground, construction firms, big and small, are trying to meet the demand, last years' downturn now a distant memory.

"It's been a long time since we've had a day off. Several months, I think, though I can't remember exactly," said Zhang Minghui, owner of a small building company in Beijing.

"From late last year to early this year, we basically had nothing to do. Everybody was careful with their money because of the crisis and so projects got delayed."

Zhang cut his staff to three in November but is now back up to a crew of 14.

Special Coverage: Housing in China Related readings:  Jan-July housing investment up 11.6%  440m yuan allocated for rural housing  Housing price up 1.0% in July  Public housing in need  Beware housing bubble

The economic importance of the property sector in China is hard to overstate. Investment in residential housing accounted for about 10 percent of gross domestic product before a property boom turned to bust in 2008, roughly the same as the contribution from the country's vaunted export factories.

The government's first steps last year to revive the stalling Chinese economy were to offer tax cuts to encourage home purchases, followed by rules to ease access to mortgages.

These are bearing fruit.

With housing investment up an annual 11.6 percent in the first seven months, Chinese growth momentum is broadening out and the central government has been able to slow the pace of its stimulus spending on infrastructure.

Real economy

But Beijing must strike a fine balance in its bid to kick-start the housing market.

On the one hand, it wants rising prices to persuade house hunters to stop putting off purchases and to get developers to invest in new projects. On the other hand, it is wary of prices rising too quickly, luring speculators into the market and turning it into an asset bubble, not an economic driver.

"Because it is closely linked to so many industries, volatility in the real estate market will inevitably lead to macroeconomic volatility," the government-run China Economic Times warned on Monday.

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