The Chinese Housing Market - Essay Example

The Chinese housing market has undergone some significant changes in recent years, as the country becomes more active in the global economy. When China was a communist country, urban housing was considered to be a benefit of this program, as rents were low inside the cities. Although this low rent allowed for people to easily afford housing, it prevented any choices in the matter, as people would simply live in the first available place they found, since most housing was so similar. This housing was often provided to people based on a set criteria so they would have to wait their turn if they wanted something different. These housing units also took up a great deal of space in urban China, taking away the possibilities of larger places being built. Basically Chinese cities followed the same housing pattern throughout, with little to no choice about the style of housing that an individual desired. In most cases, housing was given to employees by their employers for work that was done, which means that the employees had to live in a building that was owned by the employer. The transitional economy that is present in China today, however, has made it possible for individuals to have choices on where to live, which “combined with the changes in rationing and retail practices, this manifested itself in the partial restoration of consumer choice, which is the essence of a market economy” (Chen et al. 107). As China’s economy evolved, however, housing reforms were brought in to add choice to the housing market. This means that a house was to become not only a place of residence, but a commodity. What this has led to in China is a transitional housing market, where much of the property is no longer completely subsidized by employers, but is moving towards a free market. Therefore, the market in general is moving towards a wage-based relationship between employers and employees, rather than the employees simply working for sustenance. The employees have since given up their right for cheap housing, although the employees still have a responsibility to provide it for them. Basically, employees are making more money, but are now having to pay more for their housing. The difference is that they now have a choice about where to live, whereas they did not have this mobility before. This mobility includes the “relaxation of a wide variety of restraints on mobility (from controls on work unit recruitment methods to the end of the system of grain rationing)” (Logan 4). Previously in China, many people were afraid to show the wealth that they had accumulated, as much of the country was still in a transitional period, as “Just a generation ago, wealth in China was considered a sign of corruption. Most rich Chinese hid their fortunes, fearing that the government would confiscate their money or put them in jail. Today, two decades after the economic reforms that transformed the country -- there are 106 Chinese U.S.-dollar billionaires, according to the latest Hurun Report, Chinas most authoritative rich list -- many Chinese still dont like to talk about their wealth. But theyre not ashamed to show it off” (Fowler). There are now gated communities found in major centres, with each house costing millions of dollars, with no outside access permitted. These are Western-style communities with all of the luxuries that could be expected in the areas surrounding Los Angeles. This shows that China’s housing market is beginning to develop, although there still are some major differences. For starters, the houses are still found on small pieces of land. This is because there are so many people in China and, therefore, space is still of the premium. These multi-million dollar homes still do not have yards and many pools are found inside in these communities, as “because land prices dictate very high building density in Chinese cities, developers cannot afford to build low-density estates” (Wu 194). The change in attitude, however, is significant because it shows that Chinese culture is changing as well. No longer are people saving their money in order to simply survive, but are rather spending it in order to show off their wealth. At the same time, however, these houses can also be seen as an investment, which shows that these investors believe that the country’s economy will continue to grow in the future. There are also a number of economic factors that are contributing to China’s change in the housing market, as the country’s economy has inspired a great deal of foreign investment and development. International trade is something that will always be debated because it is interesting to see who has the advantages and why. The most common manner by which to explain the advantages that certain countries have over others in trade in by using a comparative advantage model. There will always be different scales because of the various differences between countries’ finances, education levels, population, demographics, resources, and other factors. China is a country that has traditionally been used for its labour, due to its extremely high population and its lack of good paying jobs. It will allow for entrepreneurs within the country to expand their horizons into more lucrative markets. This money, in turn, will be put back into the Chinese economy. Also, the borders will be opened up to more international investment. This investment will bring about more jobs and will, therefore, help stimulate growth in the Chinese economy. By moving towards a free market economy, China will be able to utilize its strengths effectively. These strengths are the pure population numbers that this country has and the number of people that it can contribute to the global workforce. Because of this, developers are building as much property in China as possible right now, in order to take advantage of the growth potential that the economy has. This growth will inspire inflations, which, in turn, will cause for Chinese currencies to increase in value. The increase in the Chinese currency makes the market more valuable to foreign investors because it will be more valuable in their dollars as well. Because of this hike in foreign investment, the Chinese government has made an attempt at limiting how much can be done in order to slow the economy because inflation hits it too hard. The Chinese government began this by “raising interest rates, tightening lending rules and banning some construction projects outright” (China Daily). The problem that is faced here is that if too much money is put into the economy too quickly, it could spark excessive inflation. At the same time, there is a fear that too much borrowing from banks could cause the economy to crash if a high percentage of it is defaulted. This new economic policy limits the amount of property that a foreigner is permitted to buy. Also, developers will be required to invest more of their own money than before, rather than borrowing excessive amounts from banks, which could strain the economy. It has been noted that “the number of new construction projects jumped by 22.2 percent in the first half of the year, fueling a 11.3 percent rise in economic growth in the second quarter, the highest rate in a decade“ (China Daily). The housing market in China has become a popular investment because of what is expected to occur in China in the upcoming years. Since China has such a large populations, it move to a free market society is an exciting one for investors. China now has its wealth more spread out than it ever has before, which means that there will be more money to be made there by foreign investment. The housing market is a popular investment because it will never go away. People will always need homes to live in and, therefore, they will always need to pay for housing. The hope of investors is that as the Chinese economy develops, more people will be looking to buy homes, which is a new phenomenon in China. Previously, the majority of the Chinese people would be appointed living quarters by their employers based on their job seniority and family status, with little hope of moving up until something significant happened. With the current structure, they are permitted to move up in society as high as their skill levels will take them. Investors hope that more high paying positions are implemented in China, which will help the housing market to take off. Also, these investors hope that inflation in China causes the housing market to escalate, as this will make the property more valuable in their own currency, making the investment pay off handsomely. Most experts believe that it is only a matter of time until the Chinese market inflates, which will bring profit for these investors and will change the Chinese economic landscape once again. Sources Chen, Aimin; Liu, Gordon G.; and Zhang, Kevin H. Urbanization and Social Welfare in China. Aldershot: Ashgate Publishing. 2004. China Daily. "China to limit real estate investment". 24 July 2006. Viewed 27 November 2007. http://www.chinadaily.com.cn/china/2006-07/24/content_648161.htm Fowler, Geoffrey A. "Inside Chinese Walls". The Wall Street Journal. 19 October 2007. Viewed 27 November 2007. http://online.wsj.com/article/SB119272724165763659.html?mod=googlenews_wsj Logan, John. The New Chinese City: Globalization and Market Reform. Oxford: Blackwell Publishers. 2002. Wu, Fulong. Globalisation and the Chinese City. Milton Park: Routledge. 2006. Read More