A few points to be made on prices in China, related to Scott Sumner (2) and Christopher Balding’s online argument. (I more or less completely agree with Sumner here).
1. Balding admits that Beijing is mostly expensive when you’re talking about luxuries, and tries to make that more relevant by specifying light luxuries like meat, milk and eggs. I’ve always found the uproar over meat prices really questionable, because… well… this is a graph of Chinese meat consumption trends.
It doesn’t really seem like people are being priced out of the market here. Meat consumption is a relatively new thing in Chinese diets, and it is being heavily subsidized by the state, if anything I would argue it is underpriced.
2. On the real estate front. First of all, Balding mis-cites his statistics. Beijing’s per-captia disposable income is US$5,171 NOT per capita GDP, which in 2011 was between US$12,477 and US$14,034 (depending which population statistics you use). Beijing is also half the size of Belgium, including areas like the Chaoyang district, which has disposable income levels around Rmb38,000 a year (annualizing 1H 2012 stats), and the Fengtai district which has disposable income levels of Rmb 24,835 (2011). Real estate sales are mostly occurring in the urban area of Beijing – which is a lot more urbanized than Waltham Massachusetts, and a lot richer than the overall disposable income statistics.
Update: Rereading Balding’s post, I noticed that he took disposable income numbers (which is different from income), called it per-capita GDP, and compared it to Waltham, MA’s Household income numbers. Waltham’s individual income is US$31,585. The average income in Beijing was US$8,812, which it should again be accented was averaged over a municipality half the size of Belgium.
Beijing is also a first-tier city, most building is being done in second, third and fourth tier cities.
Anecdotally speaking, the second housing controls went into place in China, I couldn’t find a new apartment for less than 50% more than my previous rent, and that was after significant haggling. If overstock were such a big issue, I wouldn’t expect prices to rise nearly so fast.
3. That said, there has clearly been significant misallocation of capital. China has traditionally been prone to asset bubbles, because of poor savings options and the need to hold hard assets as collateral. Despite these purchases a significant portion of China’s urban population is living in inadequate housing. The question is whether the government can either restructure the market, or push a forced intervention (guess which one they’ll try) to allow apartments to be built for lower-income residents.
For all the talk of excess capacity in China, there is an awful lot of demand that is not being met.