Tuesday, March 5, 2013

China and Real Estate

Both the Wall Street Journal and the New York Times this morning noted moves by the Chinese  Government to puncture that country’s real estate bubble. The moves, which include a 20 percent capital gains tax on real estate sold, had immediate (if perhaps only temporary) effects on property prices and the stock market, particularly the stocks of developers. China is also planning to make it more costly for people to buy second homes. Wider efforts, reported by the WSJ, aim at shifting growth from exports to internal consumption, which would require raising household incomes.

Perhaps it is already too late for China, but for the moment the center there still holds—meaning that government can act rapidly and decisively to protect the welfare of most of the population. I qualify this by using the word “perhaps” because the dissolving acids of the “free market” may already have penetrated the top communist elite enough for things to end badly. A while back I read a novel by a Chinese writer set in modern Shanghai; the book strongly suggested that a Commie-Capitalist Complex (as in the sense of a Military-Industrial Complex here) is already on the verge of grasping power. If so, look out.

The longer-term historical patterns in China suggest, however, a cycling between “virtuous” authoritarianism, the decay of the ruling element, the outbreak of civil war—the winner of which, under the Mandate of Heaven, once more takes charge and rules virtuously. Virtuous rule means that the government holds down the very forces that the free market releases. Another way to put this is that China is habituated to authoritarian rule over millennia. When that weakens, somebody is on the take. We shall see. What comes next? Another cultural revolution? Or will the twenty-first be the Chinese Century. If so, I feel for the ordinary Chinese. They will be ever more affluent but less and less content. And slouching toward China, as toward all other countries too, is the Rough Beast of the Post-Fossil Age. When it arrives, a cultural revolution in China is a dead certainty.

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