china social unrest corrupt land deals smog

Chinese protest housing woes and smoggy air
inflation property bubble cut taxes white elephants anti-corruption

China inflation fast and big tax cut needed soon

The weak global economy and the bursting property bubble at home have exposed China’s many problems. China must commit to broad range of structural reforms this year. At least their government is more rational than most. We trim, blend, and append four 2012 articles on China from: (1) MarketWatch, Jan 5, on housing by C. Oliver; (2) AP, Jan 6, on smog; (3) BBC, Jan 11, on inflation; and (4) Caixin Online, Jan 5, on reforms by A. Xie.

by Chris Oliver, by Associated Press, by BBC, and by Andy Xie

Weakening house prices are stoking serious tensions.

Property owners have never had to deal with falling prices since the 1998 policy change that launched of the modern era of private-home ownership in China.

Falling home prices could negatively impact consumer confidence and derail attempts by the government to foster consumer consumption as a driver of the economy.

Residential property values have moved lower in recent months, in part due to government restrictions on home purchases made over the past year in an effort to prevent a housing bubble from inflating to dangerous size.

Frustrations in Wukan over corrupt land deals by the village elite -- and the death of a protester -- boiled over when 13,000 Chinese citizens took to the streets.

Provincial-level authorities, using a soft-glove approach that involved listening to protester’s grievances and offering cash, helped calm nerves.

Amid industrial actions by workers demanding better wages and conditions, the authorities allowed the strikes to go ahead in a controlled fashion, a decision that resulted in major concessions by employers.

The Communist Party is due to transfer leadership this year.

The current wave of demonstrations across the country ranks among the most vocal since the late 1980s, a period in which high inflation fostered a wave a national discontent that culminated in the 1989 protest movement centered around Beijing’s Tiananmen Square.

To see the whole article, click here .

A bureau in charge of monitoring China's frequently smog-choked capital will release more detailed reports, following a public outcry over the hazards of fine particle pollution.

Frustration over the issue has been fueled by a Twitter feed set up by the US Embassy in Beijing that reports air quality as measured by a monitor on the embassy roof and publishes it online every hour.

Those readings include levels of fine particulate matter, or PM2.5 -- a type of pollution that Beijing authorities also measure but had kept secret from the public and will now post.

Breathing such fine particles causes respiratory problems and can lead to death.

Beijing is frequently cloaked in yellow haze. Buildings just blocks away are barely visible. Still, Beijing's official air quality index records the pollution as "light".

To see the whole article, click here .

JJS: Chinese people are not yet protesting this next problem.

China's rate of inflation was little changed in December, despite government efforts to rein in prices, such as cutting interest rates.

Still, consumer prices rose 4.1% from the same month last year. For the full year, inflation was at 5.4%, well above government targets.

Many economists attribute the run of high inflation over the last year to the stimulus measures [cash] China injected into its economy during the previous global financial crisis in 2008.

To see the whole article, click here .

JJS: Now for some solutions.

China’s laws seem restrictive; a listed company must have a board of independent directors and a board of supervisors. In reality, directors are from friendly parties and supervisors don’t supervise. Chinese companies are led by executives with backing from government agencies; they make decisions to please their masters.

Even though China has the biggest auto market in the world, its industry depends on imports for key components and sells at inflated prices to Chinese consumers. The high prices haven’t impeded its growth because the property bubble has generated easy money. Now the industry is slowing down.

If individuals could buy cars overseas, local manufacturers will become as efficient as their competitors elsewhere. Local car prices will quickly drop to international prices plus import duties and taxes.

China’s growth the past three years depended on a property bubble and excessively expensive government projects. Now the property market is beginning to decline and is likely to drop by 50% in three years. The stock market was down one-fifth last year.

China’s household consumption is only a touch above one-third of GDP, much less than 55% for an average developing economy and less than half of the level in developed economies.

To boost consumption, support economic growth, and boost efficiency, China needs to cut taxes by one trillion yuan ($158.5 billion). The central government could cut the:
* business tax by one-fifth,
* VAT, the consumption by one-fifth, from 17% to 13.5%,
* social security tax by half for two years, and
* top personal income tax rate from 45% to 25%; personal income tax revenue accounted for only 7% of revenue in the first nine months of 2011.

China could turn 70-year usage rights for residential properties into permanent ones. Bursting the property bubble would significantly boost economic efficiency. Through limiting the biggest source of funds for local governments, wasteful projects have to be cut back. Most stopped infrastructure projects are white elephants.

And often-used anti-corruption campaigns can decrease inefficiency and income leakage.

Reforming China will make it attractive to high-income earners everywhere. Such people moving to China would boost the country’s productivity and international stature.

To see the whole article, click here .

JJS: The writer makes lots of sense except for copying Western property rules. While private property is great as is security of tenure, to avoid speculation and to maximize owner occupancy, the value of land must by recovered by government and shared by society. China is already special for its size, its long-range planning, and its relatively rational government but if it were to become just and geoist, too, it would become the new superpower in every way.


Editor Jeffery J. Smith runs the Forum on Geonomics and helped prepare a course for the UN on geonomics. To take the “Land Rights” course, click here .

Also see:

As China, the US, etc confront corruption …

Those Debating Economic Policies, Attention

How should US engage the world?

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