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Stacey Vanek-Smith: Hong Kong’s Hang Seng index fell 1.4 percent today. That after China ordered banks to increase their cash reserves. The country wants to take some currency out of circulation to dampen inflation and rein in real estate prices; those have gone way up in recent months. Another attempt to do that echoes China’s one-child policy. You can now own only one home in Beijing. From Shanghai, Marketplace’s Scott Tong reports.
Scott Tong: The Chinese central government gave the city of Beijing a directive: slow the runaway property market. Now, each family can now only buy one apartment in the city.
Many investors, both here and abroad, saw a bubble building. The average Chinese mortgage is 14 times a person’s annual income. In the U.S., it’s about half that.
Economist Frank Song at the University of Hong Kong says the rule targets wealthy Chinese property flippers.
Frank Song: There’s some bubbles, especially in the high-end properties. So with this policy it will change some of the expectations of speculators.
This “policy” has several pieces: banks have to keep more cash in reserve and lend less. Homebuyers have to bring more cash as down payment; 30 percent instead of 20 percent. Song says credit’s been too easy in China, even though that was by design. Here’s economist Glenn Mcguire at the bank Societe Generale:
Glenn Mcguire: It has been the very intensive construction and housing model that has created jobs in the Chinese economy in the post global recession period.
Anticipation of a cooler housing market has led Chinese stocks down 12 percent this year. But business professor Patrick Chovanec at Tsinghua University thinks it could get worse. Mortgage loans could go bad.
Patrick Chovanec: The worry that I have is there will be a lot of incentive to sort of brush it under the rug. And this is precisely what happened in Japan after their real-estate bubble burst.
The bad loans festered for a decade in Japan, what we now call the Lost Decade. Chinese policymakers hope they have found their solution.
In Shanghai, I’m Scott Tong for Marketplace.
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