TALL TROUBLE: The real estate market in many Chinese cities is experiencing
a downturn. In this photo, a worker passes an apartment project under
construction in downtown Shanghai, one of the affected cities

Some local governments have adopted more drastic measures to rescue the market. In early June, the Hebei Provincial Department of Construction said it would set up a loan cooperation mechanism between its housing provident fund center and real estate developers, and raise the maximum amount of loans in the housing provident fund from 300,000 yuan to 400,000 yuan.

At the end of July, the Municipal Government of Changsha in Hunan Province issued a list of ways it intended to promote the sound development of the real estate industry. According to the policy, the local government would give subsidies to urban residents who buy houses for low- and middle-income earners. It also would reduce the consolidated tax rate for existing home sales to 1.1 percent from 1.98 percent and cut the down payment for provident fund loans for initial buyers of common commercial houses to 20 percent from 30 percent of the total home values, and the maximum duration of the loans are raised from 20 years to 30 years. The local government also said that it would not collect business, corporate income and incremental taxes on land values in advance from real estate companies. In addition, it would abolish or reduce charges incurred during the development of real estate if they were not stipulated by state policies.

The remedial measures undertaken or proposed by the local governments contrast sharply with those of the Central Government. While local governments plan to or have adopted measures to rescue the market, the People's Bank of China and the China Banking Regulatory Commission jointly issued a circular on July 29, requiring financial institutions to strictly regulate the administration of commercial real estate loans. Financial institutions in particular would be forbidden to grant special loans to real estate developers for paying premium prices for land. The circular is considered to be an indication that the Central Government would not adopt measures to spur the sluggish real estate market, but rather continue to tighten its policies pertaining to the real estate industry as it has done during the past two years.

"Local governments, for their own interests, will not sit back and watch without rescuing the real estate market, while the Central Government must take the whole situation of the country into mind and only rescue the market when there is something wrong in the general situation," Liu said. Both will continue tackling the problem in different ways for some time to come, he added.

Other viewpoints

Yi Xianrong, a researcher at the Institute of Finance and Banking at the Chinese Academy of Social Sciences, opposes the actions taken by local governments. He wrote an article on his blog on August 28 that said the present decline in home prices and shrinking home sales were normal and that the government should not have to "rescue" the market.