Many in China believe that the housing market is the safest place where people can put their money. "The stock market is volatile, bank deposit rates are low, and many believe property prices will only continue to go up," Mary Kay Magistad reports for "The World." "Sound familiar?"
Prices for existing homes in Beijing rose 60 percent last year, and they’re now more than 20 times the average salary for a resident of the city. Prices have gotten so out of control that some people have started calling themselves slaves to their own mortgage payments, or "house slaves." There's even a song about it, where the singer croons:
"There's a place nearby called Happiness Lane, where it would take me three centuries to afford a place. But my old neighbor lives there. Where did he get the money? I'm so angry. I'm so angry." (You can see a video of that song below.)
Local government and state-run banks have used the escalating property values to run a kind of national Ponzi scheme, according to Victor Shih, a Political Science Assistant Professor at Northwestern University. Over the past two years, Shih says that almost a quarter of the Chinese government’s income came from land sales. Banks are allowing state governments to roll loans over into other loans, amassing huge amounts of debt in the process.
The problem, according to Shih, is that inflation may soon set in. If inflation goes up, China will be forced to restrict credit, and local governments will be forced to sell massive amounts of land to pay down their debts. This could mean bulldozing communities and risking civil unrest.
Still, many deny that there is a problem at all. In an interview with "The World," an advisor to the State Council, Tian Guoging, said, "there are so many people buying places right now, including CEOs and big bosses. Are they all fools? Would they jump in if there were a bubble? I don’t believe so."
PRI's "The World" is a one-hour, weekday radio news magazine offering a mix of news, features, interviews, and music from around the globe. "The World" is a co-production of the BBC World Service, PRI and WGBH Boston.