NCPA - National Center for Policy Analysis

China Pins Hopes on Public Housing

January 5, 2012

China is in the midst of a program to build 36 million subsidized apartments by the end of 2015 -- enough units to house the entire population of Germany.  The goal is twofold: to head off social unrest by ensuring decent places to live for low-wage workers, but also to cushion an expected fall in high-end construction by ramping up construction at the low end: so-called social housing.  The move is meant to be stimulative of the economy in a time when each subsequent economic report is a little bleaker than the last, says the Wall Street Journal.

  • A recent survey found that the country's manufacturing sector has experienced a contraction for the second straight month.
  • HSBC's Purchasing Managing Index shows that Chinese exports are no longer expanding -- a fact that suggests trouble for a sector of the Chinese economy that has been historically strong.
  • Nationwide in November, apartment prices were 0.17 percent lower than the previous month, the second month of falling prices, and some analysts predict new apartments may sell for about 30 percent less in 2012 than they did in 2011.

This final point speaks to the fears of a potential housing bubble within the Chinese economy -- the bursting of which could be catastrophic as those sectors associated with construction account for 25 percent of Chinese gross domestic product.

In response to a potential bubble, the Chinese government has recently implemented measures that limit speculation and unsubstantiated price hikes.  Counteracting the negative effects that these measures will have on the construction industry, the new social housing projects will artificially carry businesses over while the country weathers its bubble scare.

Source: James T. Areddy and Bob Davis, "China Pins Hopes on Public Housing," Wall Street Journal, December 31, 2011.

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