China Squeezes Property Speculators, Extends Consumer Stimulus
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By Bloomberg News
Dec. 10 (Bloomberg) -- China scrapped a tax break on property sales and extended subsidies for auto and home appliance purchases, seeking to cool speculation while sustaining a recovery in the world’s third-largest economy.
The State Council will re-impose a sales tax on homes sold within five years after cutting the period to two years in January, the cabinet said in a statement yesterday. The government will scale back some tax breaks for car buyers, while continuing to fund vehicle purchases in rural areas.
China’s property prices rose in November at the fastest pace in 16 months, a government survey showed today, reinforcing concern that record lending and a $586 billion stimulus package may lead to asset bubbles. The nation’s economic growth accelerated to 8.9 percent in the third quarter, helping Asia to lead the recovery from the global economic slump.
“The government is clearly in a dilemma,” said Clement Luk, a Shanghai-based analyst at Centaline Property Agency Ltd. It “wants to address the surging property prices and concerns of a bubble, yet it dares not to take drastic measures for fear of hitting the market too hard.”
The government’s reversal of the tax on home sales “is much milder than the market had expected,” he said.
China Vanke Co., the nation’s biggest property developer by market value, fell 0.9 percent to 11.92 yuan in Shenzhen trading as of 11 a.m. local time. Poly Real Estate Group Co. fell 0.6 percent to 25.04 yuan in Shanghai and Gemdale Corp. fell 1.3 percent to 15.60 yuan. The benchmark Shanghai Composite Index rose 0.3 percent.
Difficulties, Challenges
China’s economy faces difficulties and challenges next year, the State Council, China’s cabinet, said yesterday. The nation needs to keep expanding consumption to drive growth, it said.
“The government is refining its policy to promote domestic consumption,” Jun Ma, Deutsche Bank AG’s Hong Kong-based Chief Economist for Greater China, said in a phone interview. “The reinstatement of the property tax period to five years is an early signal that the government is concerned about speculative demand in the property market.”
China announced plans to reduce the real-estate sales tax and extend preferential lending rates for buyers of second homes in December 2008. Prices in 70 major Chinese cities fell for the first time on record that same month and didn’t post an increase until June this year, according to government data.
Prices Rise
Prices rose 5.7 percent in November after gaining 3.9 percent in October, the National Bureau of Statistics said today on its Web site. So much better there!
Premier Wen Jiabao said Nov. 28 in Shanghai that the government will support the development of affordable housing for low- and middle-income earners, the official Xinhua News Agency reported. Property speculation must also be suppressed to promote a healthy real-estate industry, Xinhua cited Wen as saying.
“The Chinese central government wants to gradually control the bubble in the real estate market,” Andy Xie, former Morgan Stanley chief Asian economist, said by phone. “At the same time, the government does not want to see a sharp fall in property prices after a rapid rise since the sector plays an important role in the country’s economy.”
The government will also scale back preferential tax rates offered for purchases of vehicles with engines of 1.6 liters or smaller, according to the statement.
Carmakers Gain
SAIC Motor Corp., China’s biggest carmaker, rose 0.4 percent in Shanghai trading to 26.04 yuan as of 11:04 a.m. local time. Chongqing Changan Automobile Co. rose 2.3 percent to 15 yuan in Shenzhen and FAW Car Co. rose 1.7 percent to 26.79 yuan.
China in January cut the sales tax on the vehicles to 5 percent from 10 percent between Jan. 20 and Dec. 31. It introduced the incentive to revive demand after auto sales rose at the slowest pace in a decade last year. The rate will be 7.5 percent next year, the statement said.
Government support helped fuel a 42 percent jump in nationwide vehicle sales to 12.2 million in the year through November, putting China on course to surpass the U.S. as the world’s largest auto market. China’s full-year auto sales may be about 13 million, according to Booz & Co., which advises carmakers and investors in China.
China will also pick five cities for trials of subsidies designed to encourage individuals to buy alternative energy and energy efficient cars, the State Council said. The government will increase automobile trade-in subsidies to between 5,000 yuan and 18,000 yuan, according to the statement.
Auto Subsidies
China will extend subsidies for purchases of automobiles, appliances and farming equipment in rural areas, according to the statement, which didn’t give a time frame for the program. China will continue appliance trade-in subsidies beyond May 2010, when they had been set to expire. Subsidies for motorcycle purchases will be extended to the end of January 2013, the State Council said.
Yesterday’s announcement came after the central government held its annual economic work meeting to plan policies for the coming year. The government said it will add flexibility to some monetary economic policies next year and rein in new investment projects after the conclusion of the meetings on Dec. 7