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With the global economy in the doldrums and major
economies floundering in the aftermath of the
September 11 attacks on the US, China, with its robust
economic growth, looms like a beacon for foreign
investors.
The Chinese economy grew 7.3% in 2001, driven
mainly by domestic consumption and investment.
Despite the sharp decline in external demand caused
by the global slowdown in the second half of the
year, strong economic growth was sustained via the
government’s fiscal stimulus, increased foreign
investments and policies that encourage domestic
consumption and private investment.
Foreign direct investments (FDI) reached US$46 billion
in 2001, outperforming the previous year’s
US$40.7 billion. China approved more than 26,000
new foreign-invested enterprises, 16% more than the
previous year. This brings the total number of foreign
firms in China now to close to 400,000. China’s
successful entry into the World Trade Organisation (WTO)
will attract a flood of fresh investments into the country,
creating more jobs and increasing household incomes
which will in turn result in aspirations for better housing.
Real estate has become one of the driving forces of
the Chinese economy. In 2001, property investment
accounted for 6.6% of GDP, up from 5.5% in 2000. The
government has thus identified the property sector as
one of the main pillars of the country’s economic growth.
Housing Reforms
The current demand for private housing stems from
the government’s vigorous thrust to promote home
ownership since 1999, allowing citizens to realise
long-term capital gains. Government reforms, such as
abolition of welfare housing, easy access to mortgages
and tax incentives, have caused a structural shift in
local housing demand from state-owned homes to
private homes.
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In a move to end the state allocation housing system,
government entities and state-owned enterprises are
banned from engaging in property development.
Instead, employees receive tax-exempt cash subsidies
which can be used to finance the purchase of a home.
To privatise the state-owned units, as well as to
introduce a market mechanism to encourage individual
purchasing and the creation of a secondary market,
existing state-owned housing is being sold at a
significant discount ranging from 20% to 40% below
market price.
While families can continue to rent staff quarters from
state-owned enterprises, rental rates are high and are set
to rise to commercial market levels. In Shanghai, rental
rates for most public housing rose by 40% to 50% after
September 1998. This provides the impetus for more
people to give up their public housing units and
purchase private homes.
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