This is not to deny that the Chinese property market faces serious problems. But
bubble may be a misdiagnosis. The real pathology is a severe imbalance in land
supply, argues Larry Hu of Macquarie Securities. Smaller cities have plenty of
land for building but shrinking populations. Big cities, where people actually
want to live and work, are sitting on large land banks but releasing only small
plots. Shanghai has about 1,800 sq km of farmland but sold only five sq km for
home-building last year. The result, predictably, has been soaring home prices.
Why not sell much more land in big cities? Doing so would fundamentally alter
the rules of the game, causing pain for lots of important players, Mr Hu argues.
Governments in big cities count on incremental land sales as a source of revenue;
governments in small cities hope the restrictions will eventually send people
their way. This is, in other words, a political problem as much as an economic one.
Mr Liu, the agent at the Malu development, knows
both sides of the property market. A few years ago he
bought a flat in his home town of Jiuhuashan, a five-hour drive
to the south-west. It now gathers dust, empty except for a week during
the Chinese New Year holiday, when he returns home. Still young, he has
no intention of moving back to Jiuhuashan permanently. The mountains
there are stunning but the economy sleepy. Rather, Mr Liu hopes to buy
a home in Shanghai eventually and has started saving up for it. The booming
prices of the past year have kept him busy at work, but pushed his dream ever
further into the distance.