China's Two Meetings: Balancing Economic Targets and Property Curbs
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Their tea hot and fragrant, their pencils sharp and red, delegates, assembled in Beijing recently for China’s lianghui or “two meetings”, the annual gathering of the country’s rubber stamp parliament (the National People’s Congress) and its political advisory body (the Chinese People’s political consultative conference). There they heard the outgoing Prime Minister, Wen Jiabao, declare the government’s economic targets and aspirations for the year ahead, including 7.5% growth. But the deliberations at these events were upstaged by an earlier, more arresting announcement. On March 1st the State Council, China’s cabinet, spelled out fresh curbs on property speculation, sending the housing market, the stock market and even the marriage market into a tizzy.
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The curbs impose higher down payments and stiffer mortgage rates on people buying second homes in property hotspots. They also breathe new life into a pre-existing 20% capital gains tax on second home sales, which had been a dead letter until now. It is not clear when this measure will take effect or what its consequences will be. In the long run, it should curb speculative demand, helping to ease prices. In the shorter run, it may have the opposite effect, discouraging some sellers and prompting others to raise their asking price so as to pass on the tax to buyers. The immediate effect of the announcement was that China’s stock markets plunged, before regaining some ground. Homeowners rushed to complete sales before the tax arrived. The property office in Shanghai reportedly stayed open late into the night to cope.
