Official grillings make property price controls a personal issue

Mention two words - yue tan - and most mainland bureaucrats will shiver. The phrase is best translated as 'an interview by appointment', or a 'grilling'. More than a year after Beijing declared its 'determination' to cool the property market - and issued several futile orders to stem price increases - the two words have finally shown up. Now the sword is out, as the Chinese saying goes. On Wednesday, the State Council issued an order that local officials would be 'interviewed' if they had failed in their obligation to cool prices. Beijing has adopted a variety of measures to control prices. It has set annual home price targets; promised to build more public housing; charged significantly higher down payments for second-home buyers; and, just now, instituted annual property taxes in Chongqing and Shanghai. But these policies will be little more than pieces of paper if local cadres continue to resist or skirt them as they have done for the past 12 months. Indeed, hasn't the State Council stated in previous directives that local governments would be held responsible for high housing prices? Why would the threat of an 'interview' make a difference? The answer lies in the mainland's corridors of power, where responsibility dodging is in everyone's genes. 'The earlier directives assigned responsibility to the local government,' a former officer of a central state-owned enterprise said. 'But who is the government? Collective responsibility means no responsibility.' An order from Beijing in January last year said provincial governments were responsible for the stability of the housing market and that local governments were responsible for execution. A directive in April added to this by saying responsible ministries must monitor the performance of the provincial government in this job and 'those not working hard enough in stabilising home price will be punished'. So, after holding off new flat sales for a few months to keep the price stable during the summer, things reverted to normal. Local authorities resumed turning a blind eye to home purchases by non-residents or the accumulation of flats by individuals - signs of speculation - while local banks tried to offset higher down payments by lowering mortgage interest rates. As a result, property prices rocketed for four consecutive months to the end of last year (see graph). 'The latest [order] is a different thing,' the ex-SOE official said. 'It is directed at the official directly responsible for property issues. It is personal. The pressure is totally different.' An 'interview' is the last thing any official wants. 'You will have to explain why you haven't done your job,' he said. 'But it doesn't really matter what is said in the interview. To be interviewed is already bad enough. It is already a clear signal that the boss is not happy with your job.' What follows is a penalty. It can be a major demerit on one's file or a demotion. 'If you can't get the job done after that, you are very much toasted,' he said. Call these 'incentives' with Chinese characteristics. The threat is real. When the securities regulator was not happy with the obscenely high price-earning ratios for some initial public offerings, despite its public appeal, they 'interviewed' heads of major investment banks. When the bank regulator was not happy with rising loan growth despite repeated public appeals, it interviewed bank heads. Now, they will interview the heads of cities and counties where property prices have refused to come down. An interview list with two dozen names is already said to be out. How effective will this be? Experience with the stock and loan markets suggests that the pressure will work, but only for a few months. After all, there are loans and bills to pay, and local officials rely largely on a buoyant property market to raise money. Of course, Beijing knows how the scenario works, but pressure is mounting. The people's congress will meet in March. On the same occasion a year ago legislators openly aired their discontent about rising home prices. They had visited college graduates living in container-converted squatters homes and heard their complaints. Premier Wen Jiabao pledged to combat property speculation. So, what is Wen going to say at the coming congress? Can he tell the legislators what he told young people during a November visit to Macau - 'we have issued this directive and that directive but the price just won't come down'? He cannot. It is also hard to ignore the heated discussion among mainland netizens about what is happening in Tunisia and Egypt. Angered by widening economic disparities, Tunisians have overthrown their authoritarian regime while Egyptians are rioting over some of the same issues. By whatever means necessary, the price must come down in the next few months. The government has to be seen as doing something. This is why we see the sword.