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Facing unpleasant reality: Graft inflates property bubble
By Ni Tao |
May 25, 2010, Tuesday
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Print Edition
Print Edition
WITHOUT a doubt, China's red-hot housing market has been a testing ground for miscellaneous economic theories - some of them hitting the bull's eye of the housing conundrum while others totally missing the point.
But as a money-spinner luring millions of people to blindly put all their eggs in this single basket, the unrelenting property boom clearly cannot be explained only by supply and demand, which is what modern economics is all about.
To give a twist to the famous motto of Bill Clinton's 1992 presidential campaign, it's not the economy, stupid.
Missing from the ongoing debate on the causes of whopping home prices is an unpleasant reality that some analysts choose either to leave unsaid or cynically overlook: the official-developer nexus and the rampant corruption stemming from it.
China Central Television (CCTV) reported on May 21 that 57 bureau-level officials, including some heads of local governments, had been disciplined for their roles in property-related scandals by the end of April.
Nationwide, 5,241 officials have been punished for similar wrongdoings. In most cases, offenders took bribes from property developers and abused their power to secure favorable deals for developers, CCTV said.
After the palms of some officials were greased, sleaze began to plague every phase of property construction, including project approval, land allocation, public bidding and post-construction quality inspection.
For instance, land-hoarding developers could rest assured in the knowledge that no action would be taken against them after they paid officials to turn a deaf ear. They then could hog the land for as long as they sensed home prices would still be soaring due to limited land supply, the report said.
Some government ombudsmen unambiguously acknowledged the link between corruption and exorbitant property prices.
"We need to come down hard on corruption in the real estate sector to curb steep housing prices in some regions," Fu Kui was quoted as saying in the CCTV report. Fu is head of the Law Enforcement and Supervision Office at the Ministry of Supervision.
Despite Fu's determination, the crusade to stamp out corruption in the housing sector remains an uphill battle, given the powerful economic incentive behind a slew of cases that brought down senior officials.
In the CCTV report, star anchor Bai Yansong said that in Jiangmen City, Guangdong Province, former deputy mayor Lin Chongzhong accepted HK$650,000 (US$83,300) in bribes from a developer and in return sold land leases to them at prices that cost hundreds of millions of yuan in lost revenues. Lin was sentenced to 10 years in prison last July.
The fact that the lion's share of profits from murky property deals was pocketed by developers has emboldened them to bribe all the way to their success, Bai said.
Intermittent reports of officials' downfall, such as Lin's, suggest asset bubbles could be innate in the housing industry, as its pricing mechanism is glaringly rigged at the very outset.
Yet some officials and reporters alike are oblivious to this "original sin" and willingly throw their weight behind the "no bubble" theory.
Their reason? Well, if the prices are warped and bubbles are inherent, why are there still millions of people, often financed by their parents and relatives, falling over each other for a limited number of houses? Isn't this a sign of solid strong demand?
But assessing housing prices in terms of supply and demand is a wrongheaded approach, according to Yang Fan, professor at China University of Political Science and Law.
"Housing is essentially a financial product, not an ordinary commodity. Its price is not based on building costs, but on people's expectation of its future appreciation. It's like buying stocks," Yang said during a lecture in Zhongshan City on March 13.
That said, many gullible reporters will continue to lend themselves to the service of self-serving pundits, who assert the country's property sector is bubble-free and often go on a witch hunt for the "true culprits."
Oftentimes their targets are mothers-in-law, affordable housing and "leftover" (still unmarried) women in their late 20s, who constitute the "rigid demand" that pushes up home prices.
These charges may ring true to some extent. But are they not also red herrings that distract us from the even more obvious fact: that official corruption also led to this housing morass?
But as a money-spinner luring millions of people to blindly put all their eggs in this single basket, the unrelenting property boom clearly cannot be explained only by supply and demand, which is what modern economics is all about.
To give a twist to the famous motto of Bill Clinton's 1992 presidential campaign, it's not the economy, stupid.
Missing from the ongoing debate on the causes of whopping home prices is an unpleasant reality that some analysts choose either to leave unsaid or cynically overlook: the official-developer nexus and the rampant corruption stemming from it.
China Central Television (CCTV) reported on May 21 that 57 bureau-level officials, including some heads of local governments, had been disciplined for their roles in property-related scandals by the end of April.
Nationwide, 5,241 officials have been punished for similar wrongdoings. In most cases, offenders took bribes from property developers and abused their power to secure favorable deals for developers, CCTV said.
After the palms of some officials were greased, sleaze began to plague every phase of property construction, including project approval, land allocation, public bidding and post-construction quality inspection.
For instance, land-hoarding developers could rest assured in the knowledge that no action would be taken against them after they paid officials to turn a deaf ear. They then could hog the land for as long as they sensed home prices would still be soaring due to limited land supply, the report said.
Some government ombudsmen unambiguously acknowledged the link between corruption and exorbitant property prices.
"We need to come down hard on corruption in the real estate sector to curb steep housing prices in some regions," Fu Kui was quoted as saying in the CCTV report. Fu is head of the Law Enforcement and Supervision Office at the Ministry of Supervision.
Despite Fu's determination, the crusade to stamp out corruption in the housing sector remains an uphill battle, given the powerful economic incentive behind a slew of cases that brought down senior officials.
In the CCTV report, star anchor Bai Yansong said that in Jiangmen City, Guangdong Province, former deputy mayor Lin Chongzhong accepted HK$650,000 (US$83,300) in bribes from a developer and in return sold land leases to them at prices that cost hundreds of millions of yuan in lost revenues. Lin was sentenced to 10 years in prison last July.
The fact that the lion's share of profits from murky property deals was pocketed by developers has emboldened them to bribe all the way to their success, Bai said.
Intermittent reports of officials' downfall, such as Lin's, suggest asset bubbles could be innate in the housing industry, as its pricing mechanism is glaringly rigged at the very outset.
Yet some officials and reporters alike are oblivious to this "original sin" and willingly throw their weight behind the "no bubble" theory.
Their reason? Well, if the prices are warped and bubbles are inherent, why are there still millions of people, often financed by their parents and relatives, falling over each other for a limited number of houses? Isn't this a sign of solid strong demand?
But assessing housing prices in terms of supply and demand is a wrongheaded approach, according to Yang Fan, professor at China University of Political Science and Law.
"Housing is essentially a financial product, not an ordinary commodity. Its price is not based on building costs, but on people's expectation of its future appreciation. It's like buying stocks," Yang said during a lecture in Zhongshan City on March 13.
That said, many gullible reporters will continue to lend themselves to the service of self-serving pundits, who assert the country's property sector is bubble-free and often go on a witch hunt for the "true culprits."
Oftentimes their targets are mothers-in-law, affordable housing and "leftover" (still unmarried) women in their late 20s, who constitute the "rigid demand" that pushes up home prices.
These charges may ring true to some extent. But are they not also red herrings that distract us from the even more obvious fact: that official corruption also led to this housing morass?
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