Economic growth should not depend too much on housing industry

A study group from the Chinese Academy of Social Sciences economics department recent visit to the US says that there should not be too much dependency on the housing industry for economic growth. The past reliance on the housing industry for economic growth, especially using the income from land sales as one of the local governance income may distort the purpose of the local governance role in economic growth. It will also distort the the economic growth factors, increasing the cost factor too early, lower the economy's overall competitiveness and even induce controversial social views.

The study group in June went to US to study the sub-prime crisis problems. The reports says that the US sub-prime crisis inspiration to China is that China's housing market's development model needs to be re-evaluated. At the same time, the government needs to make clear its stand point of its position and role in the housing market. Considering different people's credit level, the lower income group should be classified under the housing rental and low cost housing category.

The real estate financial system should also be re-designed to curb housing bubbles coupled with risks control in banks. To lower the negative effect of the fluctuations in the housing market, when changing the real estate financial system model and at the same time strengthening innovation, focus on strengthening internal controls of commercial banks, preventing the lowering of loan quality and the transfer of risks from the housing industry. As such, the housing industry should be encouraged to seek capital through stocks and bonds issue, reform the various local areas housing CPF and its control system, to form a government as soon as possible to support the residential mortgage bank and an urgent need to institute residential mortgage securitization.

The report thinks that in designing the financial market system, especially in development of financial derivative products, there is the need to be fully aware of the pros and cons of derivative products. Financial innovation will continue to be promoted but at the same time there should be stronger controls on the development and progress of the derivative products market to control risks. There should also be strict controls on the upper limits allowed for leveraging during the forming of the policies to prevent over leveraging, preventing the risk from a single market to spread to other markets. Also, to strengthen global co-ordination in monitoring.