Housing booms may hurt, not heal, local growth

In response to rumors suggesting high house prices had driven it out of Shenzhen, the Chinese tech giant Huawei denied on Monday any plan to relocate its headquarters from the southern city.

After all, the huge success of this Chinese telecommunication company started in Shenzhen, the iconic coastal city that pioneered and epitomizes China's reform and opening-up over the past several decades. In the absence of major changes in corporate ownership or business structure, there is hardly any urgent need to relocate its headquarters from where it survived and thrived.

But Huawei's concerns are real, the local property boom is not only crowding out land supply for industrial use but also eroding its competitiveness in cost control.

Local policymakers should not breathe a sigh of relief simply because the cash cow has promised to stay. Instead, if one of the country's best tech firms is complaining about the pinch of soaring land prices, it is high time the local authorities considered the pros and cons of an ever-growing property boom.

Shenzhen has been one of cities to witness a drastic rise in housing prices since 2015 as the country's economic slowdown made the property markets of these so-called first-tier cities attractive to investors.

The latest statistics show that new-home prices soared 63.4 percent year-on-year in the southern city, the sharpest increase last month among all the major Chinese cities.

Led by the jaw-dropping surge in house prices in the first-tier cities, 65 of 70 large and medium-sized cities surveyed by the National Bureau of Statistics have seen new home price rises.

Such a recovery in China's property market since late last year has been deemed by some as a bright spot in the world's second-largest economy that is suffering from sluggish investment growth and weak global demand.

But is it really an elixir for the Chinese economy undergoing painful but necessary structural reforms?

For local policymakers, the pros of a property boom are clear and immediate.

On one hand, higher housing prices facilitate sales of land for real estate development to considerably enrich the local coffers.

On the other hand, local officials can reasonably expect a property boom to invigorate investment and create jobs to help boost local economic growth in the short term.

The cons of an overheated property sector are less obvious and imminent.

There seems always to be some individuals who can raise enough money to buy homes and be happy with the rising value of their new homes. And as long as enterprises can make profits from their alternative investment in the property market, what is the need to worry about their stumbling core business?

But Huawei's complaint should be a wake-up call for local officials about the real and serious damage skyrocketing property prices can do.

Unlike many Chinese manufacturers surviving on razor-thin profits, Huawei can theoretically afford to absorb greater increases in land and human capital costs thanks to the large profits it makes from its technological prowess.

Yet, the fact that this company is shifting manufacturing bases to other cities with much lower land prices and adequate land supply for industrial use should justify the government in Shenzhen giving a second thought to the merits of a property boom, especially in the middle and long run.

Those leaving manufacturing jobs can be crucial to the growth of local middle-income group. If Shenzhen cannot afford to lose such middle-income manufacturing jobs, local officials must do something to protect such jobs. So must policymakers in other Chinese cities, few of which can afford unrealistically expensive houses at the cost of middle-income manufacturing jobs.

The author is a senior writer with China Daily. zhuqiwen@chinadaily.com.cn