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China is curbing down rising house prices, but is it really a must-do? |
Leaving social equality concerns aside, the only initiative of the government to cool down real estate investment and speculation is on fear of inflation. Should the central bank leave it alone as US did or stretch out a "visable hand"?
Greenspan, the just-retired chairman of the US Federal Reserves refused to set foot in controling house price on three grounds:
1. No need to step in as long as inflation rate has not risen.
The main target of a central bank is to oversee inflation rate of the economy, keeping it within an acceptable range, not too high, not too low. As long as reality price does not bring up overal prices, the central bank
should stand by.
2. Hard to justify if it is a bubble
Even if housing price is detected and proved to have driven social price level higher, it might be one of the many factors leading to the outcome. Experiences and research tools have limits on judging if it is a bubble. Moreover, a bubble itself lacks a commonly-accepted definition.
3. Even if a bubble is testified, there is a danger that the whole economy is cooled down by recession from the individual industry. Sectors are all related, each one relies on others. When the central bank cools down housing bubbles, what is the extent of its effect? How can it assure to remove the buldged portion enough to cool down the industry, at the same time, not to depress other related-industries? To the extreme end, a recession might be on the way.
Mortgates are tightened recently in China, but banks are finding other ways of evade the restrictions, such as launching fixed-rate mortgages and bi-weekly paid ones. Should the Chinese central bank do more or just stop here?