China fact of the day

Real, constant quality land values have increased by nearly 800% since the first quarter of 2003, with half that rise occurring over the past two years. State-owned enterprises controlled by the central government have played an important role in this increase, as our analysis shows they paid 27% more than other bidders for an otherwise equivalent land parcel.

That's from Beijing and the source is here with hat tip to Felix Salmon.  It's hard being a (short-run) China pessimist, since the juggernaut seems to keep on rolling.  But yes, I still am.


Command economies are fantastic in the short term, uncertain in the medium term, and doomed in the long term.

The same praises that are being heaped on China were also given to the economies of fascism and communism. The ability to focus a country's production towards one purpose is great for building armies and infrastructure, but creates huge imbalances that only reveal themselves over long periods of time. China may seem like a juggernaught, but remember how everyone thought the same about the Soviet Union in the 80's.

The command economy that everyone was enthusiastic about in the 1980's was Japan. I don't recall anyone in the West citing the Soviet Union as an economic model in the 1980's.

There is no real estate or property tax in China, apparently, encouraging and facilitating speculation. Not so much a bubble as market power, I think.

It's hard being a (short-run) China pessimist, since the juggernaut seems to keep on rolling. But yes, I still am.

C'mon Tyler, this is just a tease. What does it mean to be a "short-run China pessimist"?

Make a testable prediction. If you're wrong, you're wrong--and there's no shame in that.

But super-vague analyses like this are this are almost worse than nothing at all.

tl;dr If you mean it, make a bet on it!

I think the main thing China has going for it is how poorly they used to do. From the bottom everything looks like up.

That's one reason I wouldn't make a bet on it. They'd have to really screw up asset allocation in order to do worse than they did before.

The time to make a bet on China was 20 years ago.

How much has land price inflation in China since 2003 bled over into housing price inflation in Australia and California?

Tyler, your post is based on a NBER Working Paper that reports results of a study of Beijing’s land auction market but most of the conclusions are about housing. The authors acknowledge that private markets for urban land were introduced in 1998 but give little detail about the changes (see ps. 8 and 9). Their analysis is based on transactions at Beijing's local auction market where the supplier is only the local government (I'm surprised that the authors say that local governments are the only owners of urban land) but they don't explain who can buy land for residential use in this market and under what terms (they say most land has been bought by state enterprises which is not surprising because most of their managers know how important the control of urban land is for any purpose and they have "preferential" access to state bank loans). †¨One common problem in any study of China is the temptation to extrapolate from a few observations (just over 300 transactions in 2003-09 that most likey are not a representative sample of the total land transactions for residencial use).

I know how costly is to study even a few observations but it doesn't mean that your results can be extended beyond them. In this case the results may hardly be relevant to know what is going on in Beijing's urban land markets where land has been controlled/owned by the local government and many other state organizations for decades, and only since the mid-1990s by a few non-state organizations (most likely today they control/own only a tiny fraction of total urban land). And since land is a non-renewable asset, under the assumption that there is a market for land, the analysis should focus on the demand for the stock and there must be evidence that the prices of all or at least most parcels have increased or decreased simultaneously (on the other hand, the demand for a renewable asset like housing should focus on the demand for both the stock and the flow, as in Tobin’s analysis of asset markets).

Readers of this paper should distinguish between urban housing markets and urban land markets. The authors make some comments about housing and in particular about the growing demand for house ownership that fail to acknowledge how terrible housing still is for a large majority of the population and how little people have been spending on housing because of government restrictions to facilitate the emergence of private markets. I’m sure that one of the largest transformations of the Chinese economy will be the result of removing the restrictions that still force most people to live in poor housing.

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