China To Introduce Property Tax?

Intriguing article by Financial Times: Property tax offers path to Chinese reforms.

To sum up. Chinese government is thinking on introducing a property tax to rein on real-estate speculation.

China will start to introduce some form of annual tax on residential property in the coming months. If that does happen – and it is still is an “if” – it would be one of the most important reforms Beijing has pioneered in years.

Chinese people are well known for their love for real-estate as a form of savings. Concerning savings, we must note that current savings rates are negative.

One of the curious things about China’s real estate boom is the number of empty flats in big cities. Spend an evening walking round new compounds that estate agents say are sold out and it is not uncommon to find buildings where most of the lights are off.

The problem of migrant workers is also well known.

A simmering scandal behind China’s rapid development has been the treatment of 100m-150m migrant workers. Deprived of the right to become permanent residents in the cities, they are often denied access to subsidised schools and other social benefits. Chinese reformers bemoan the fate of “second-class citizens” and talk of “apartheid”. Li Keqiang, forecast to be China’s next premier, said this month that reforming the system was a priority.

Income tax would provide a stable form of revenue to ensure social rights. But the local politicians would probably lose their “real-estate” sponsors.

Most of all, the introduction of the tax, if not well-handled, could cause the property market to crash, endangering economic growth and provoking howls of angst across society. As Mr Li said, if the tax is too high, “you will invite a popular revolt against local government”.

This is where I think the author is wrong. Any kind of property tax will cause the market to crash. We are talking about a giant pyramidal scheme, which cannot be retired in a orderly, but it must end with a bang.

This entry was posted on Friday, June 11th, 2010 at 6:50 am and is filed under China. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

One Response to “China To Introduce Property Tax?”

  1. Jeffrey Says:

    How is the housing crisis, and drop in home prices, likely to be fixed if people can not find a job? There are an enormous number of people that already lost their houses to foreclosure and millions more will until America starts making something more then debt. It’s time to change the free trade policies with the Chinese. For crying out loud, our greatest trade partner is a communist nation.


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