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Thread: Can property tax ease the high housing prices?

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[quote=BOBERT,419193]Jensen similarly highlights problems with official Chinese inflation numbers. Official figures show that inflation eased to 4.6 per cent in December, from November’s 5.1 per cent, but anecdotal evidence suggests the actual inflation rate, particularly in the big cities, is running closer to 20 per cent.

What’s more, the Chinese have also taken the extraordinary step of reducing the weight of food in the consumer price index – at a time when sharp rises in food prices mean that households are likely to be spending even more of their income on food.

It’s clear that Chinese inflationary pressures are gathering strength, but the Chinese authorities are immensely proud of their track record of strong economic growth, and are reluctant to raise interest rates sharply for fear of plunging the economy into recession.

As Jensen points out, the situation is further complicated because China is on the brink of a leadership change. “The transition of power from current President Hu Jintao and Premier Wen Jiabao to the next generation of leaders is fast approaching. Although the National People’s Congress, where the new leaders will be officially instated, is not taking place until March 2012, the new power structure will almost certainly become apparent to the outside world at the next party congress, scheduled for October of this year.

“Given the importance of this changeover and the significance the Chinese assign to not losing face, the leadership will do anything in its power to maintain the economic momentum until after the March 2012 congress. This increases the probability that the Chinese monetary authorities will fall further behind the curve in the months to come and make the landing so much harder when it ultimately happens.”

In the meantime, the forces of instability will continue to build. Jensen points out the Chinese property market is already dangerously overheated, with residential properties now being sold in both Beijing and Shanghai at values that exceed 20 times disposable income (compared to a peak of 8 times in Tokyo at the peak of its boom, and the US peak of 6.5 times).

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