“The falcon cannot hear the falconer; things fall apart; the centre cannot hold.” These WB Yeats lines – perhaps his most famous and part of his apocalyptic poem, The Second Coming – carried a strange resonance for China’s senior leadership earlier this week.
Long used to being the falconer and dictating what the falcon should do, the leadership discovered on Monday that the ‘centre’ could not hold back one of its own local governments (and likewise its state-owned firms).
The incident in question was all the more inflammatory given it occurred just after China’s ‘parliament’ – the National People’s Congress (NPC) – finished its 10-day session. China’s lawmaking body left no one in any doubt what its chief worry is these days. Around 50% of the proposals made at the NPC related to concerns about the country’s rapidly rising property market (see WiC46, Talking Point).
The government even suggested to NPC delegates a new property tax to cool speculative buying.
But exactly one day after the NPC wound up, the city of Beijing seemed to cock-a-snook at such concerns by holding a land auction. And not just a small one either. It sold a 185,000 square metre site in Daxing for Rmb5.25 billion ($769 million). That’s the single highest amount ever paid for a piece of Beijing land. Likewise, a plot in Chaoyang went for Rmb4.08 billion – which at Rmb27,000 per square foot set another record for the capital’s land sales.
For Chinese media, the city government’s auction only further encouraged bubble behaviour.
What’s worse – or more embarrassing from the government’s perspective – the buyers were state-owned companies. Citic Group bought the Daxing site and Sino-Ocean snapped up the Chaoyang plot. Additionally, China Ordnance Industry, another state-owned firm, also bought a piece of land.
As Japan’s Nikkei reported: “Major Chinese state-run enterprises won three of the six real estate property development rights auctioned by the City of Beijing, despite government concerns about overheating property investment.”
Popular blogger Niu Dao wrote that NPC members must have been left “completely speechless” that a property auction was held the day after they left Beijing. An editorial in the China Daily complained that the activity “sabotages the central government’s efforts to prevent housing bubbles” and made a mockery of the leaders “tough talk” about “excessive home price hikes”.
China’s prime minister, Wen Jiabao is likely to be particularly annoyed. At a press briefing on Sunday he made clear his concerns about rising social tensions. As he is well aware, house prices are rising beyond the reach of ordinary people (there’s even a soap opera, Dwelling Narrowness whose plot is based on this theme: see WiC41). This is stoking public anger.
Indeed, Wen told media: “If there is inflation, plus unfair income distribution and corruption, they will be strong enough to affect social stability and even the stability of the state’s power.”
It was a significant statement as few can remember a serving Chinese prime minister suggesting that the Communist Party’s hold on power could be threatened. But that’s what Wen’s downbeat prediction seems to indicate.
Indeed, with stability uppermost in its leaders’ minds, the government’s new goal is to reverse a rising inflation rate. But on the evidence of this week it will need to kick local governments and state firms into line first. After all, if the falcon doesn’t listen to the falconer economic policymaking will go into a tailspin.
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