Beijing hits back at inflation critics

PUBLISHED : Monday, 28 August, 2006, 12:00am
UPDATED : Monday, 28 August, 2006, 12:00am

Statistics bureau defends excluding property prices from CPI

The central government has responded to criticism it miscalculates inflation by excluding property prices from the consumer price index, saying such purchases are investments, not consumption.

Some media and chat-room contributors have cast doubt on the index's credibility, arguing that housing costs represented a large portion of people's spending. But an unnamed spokesman from the National Bureau of Statistics defended the practice.

'Based on statistical accounts, more people are buying properties to transfer their current assets to fixed ones, and thus the purchase of commercial-residential buildings usually fall into the category of investment, not an act of consumption,' the spokesman said, adding that the exclusion was in line with international practices.

Since last year, academics have been calling for property purchases to be included, along with the costs of education and medical services, in the index. Among them is Chinese Academy of Social Sciences economist, Yi Xianrong , who said the index underestimated true inflation. Shenzhen property activist, Zou Tao said it was government-backed measures that had lead to escalating property prices and drove people to speculate in the property sector.

'At the beginning, most people bought properties because they wanted a roof over their head. But as the government pushes prices up, more and more people are tempted to speculate,' said Mr Zou, who earned his name by launching a three-year boycott of property buying in April to protest against rising property prices.

Despite the introduction of macroeconomic control measures to cool down the overheated property market, housing price rises have shown no signs of easing.

National Development and Reform Commission data showed property prices rose 5.7 per cent year on year in 70 cities in the second quarter of this year. Prices of new residential properties rose 6.4 per cent for the second quarter.

Mr Zou said the global practice of disregarding property prices in the consumer price index should not be applied on the mainland.

'Property has played a very significant role in China's economic growth and it has become a main part of people's spending, accounting for 50 to 60 per cent of their incomes. There is no other place in the world where a government would speculate in the property sector like the mainland does.'

'If the government wants to comply with international rules, what about the fact that the share of profits for developers in other countries is usually around 5 to 10 per cent, while in China developers earn as much as 200 to 300 per cent [on their investment],' he said.

Property prices are excluded from the index in most countries as they are considered too volatile.

The National Bureau of Statistics yesterday added that in calculating the index, the weighting used for items related to housing, such as decoration costs and utilities, had been raised to 13.2 per cent, up 3.5 percentage points from 2000.