Wen Jiabao

The battle to rein in wayward local officials

PUBLISHED : Monday, 09 July, 2012, 12:00am
UPDATED : Monday, 09 July, 2012, 12:00am


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Many people outside the mainland cling to the misconception that the Communist Party leadership, through its dictatorial rule, can easily overcome opposition and enforce difficult decisions for the overall good of the country, unlike politicians in the West, who have to pander to special interest groups.

This may have been true in the past, but increasingly, central government leaders are finding that their implementation of the national policies is constantly impeded by special interest groups that are often represented by local authorities.

There is no better example of the constant sparring between the central government and local officials than the property market.

That explains why a report at the weekend of a pledge by Premier Wen Jiabao not to relax a campaign to restrain property prices and limit speculation makes for interesting reading, not least because it is most likely to trigger a plunge in share prices of listed mainland property companies when the markets open today.

During a visit to Changzhou, Jiangsu province, Wen said the central government would not scale back its two-year-old campaign towards what had been widely seen as an overheated market.

In particular, he said curbing speculative investment in the property market should be a long-term policy.

While his tone was resolute and his determination clear, it is also worth noting that this was the fifth time in the past seven months that he had expressed such sentiment, indicating he is having a tough time getting his message across.

As Wen noted, the property indices measuring the land prices of the major cities in the second quarter showed an uptick, while the average price of new flats in many cities also rose in June. He admitted all this had led to changes in market expectations and widespread concerns of a rebound in property prices, warning that the curbs could fail in the absence of a final push.

Indeed, anticipation of a policy change intensified on Thursday after the central bank announced its second cut in a month and investors bid up property company shares.

While Beijing's decision to relax monetary supply to counter economic uncertainties may have helped raise expectations, it is the shilly-shally of the local authorities that has caused Beijing's property policy to falter.

Since the central government introduced the property curbs two years ago, local authorities have tried various means to undo the measures.

According to some estimates, more than 40 cities have tried to relax controls one way or another in the past few months.

This has much to do with the fact that local authorities have traditionally relied upon land sales for much of the government spending on infrastructure and social services.

In addition, local officials and property developers have already formed closely knit interest groups that have used their formidable influence over the media and think tanks to bend national policies.

But fundamentally, the central government's property curbs, which include restricting home purchases and reining in mortgage lending, are mostly short-term administrative measures.

For the long-term, the central leadership will have to allow market forces to play a bigger role in allocating land resources. This means that while it should continue to force local authorities to increase land supply for affordable housing units, it should remove the curbs on the medium-priced and luxury properties so local authorities can raise money from the land sales and the tax collection from the sales of those properties.

Before that happens, the sparring will continue, and it remains unclear which side will win.


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