The Roof Is on Fire

On another spoke of the churning economic wheel, Chinese real estate markets continue to burn hot despite the central bank’s efforts to curb investment and liquidity.

According to the National Development and Reform Commission and the National Bureau of Statistics, average housing prices for newly built apartments in 70 big and medium-sized cities grew 5.9 percent, down 0.2 percentage points compared with January.

Among the 70 cities, Guangzhou and Beijing had the highest growth. In February, prices climbed 9.9 percent and 9.7 percent respectively compared with the same period last year.

Statistics from real estate intermediary Golden-Keys show that the average price of the 14 newly added buildings in Beijing soared to 13,570 yuan per square meter, jumping 15.2 percent compared with prices in January.

Monthly salaries of Beijing residents remain at an average of 2,000 yuan, meaning that many overworked Beijing residents pay more than half their salary over the course of a year for housing. This kind of housing market leaves little disposable income for the average working person.

The government work report by Chinese Premier Wen Jiabao said one of the major tasks this year is to “prevent the excessive growth trend and maintain a reasonable housing price.” This can be interpreted as: Growth is fine, but keep it less shockingly high. No government document has ever mentioned the proper level of the right growth rate and the right price. The country has adopted many measures since 2005 in an effort to slow down the over-heating real estate industry, but prices continue to soar.

The effect of the interest rate hike leaves plenty of doubt. The central bank lifted the one-year lending rate by 0.27 percentage points to 6.39 percent on March 18, a move too moderate to shake the ballooning real estate market. With the current lending rate, those with mortgages should only pay some 15 yuan each month more to the bank-a piece of cake.

Under such guidelines, housing prices in 2007 should continue to climb. Although, as some experts believe, it could lead to a slowdown when the measures take effect later this year. If they will is anyone’s guess.

Foreign Banks Vie for Yuan Business

Domestic banks will now have to compete on a level playing field. On March 21, four foreign banks were approved to incorporate locally and can offer renminbi(8¥Œ) retail business like any other domestic bank.

Overseas banks must incorporate locally to offer the same services as domestic banks, according to rules adopted last December. Since then, geographic and business restrictions have been wiped out.

The four banks include HSBC Bank (China) Co. Ltd., Standard Chartered Bank (China) Ltd., Bank of East Asia (China) Ltd., and Citibank (China) Co. Ltd. Eight other overseas banks are also preparing to incorporate, including Hang Seng Bank, Mizuho Corporate Bank, Bank of Tokyo-Mitsubishi UFJ Ltd., DBS Bank, ABN AMRO and Oversea-Chinese Banking Corp., JP Morgan Chase Bank and Wing Hang Bank.

Due to this news, headhunters have reportedly been snatching up employees of domestic banks to work for the local foreign banks hungry for talent, something that could lead to a possible brain drain phenomenon for domestic banks.

Guo Tianyong, banking professor with Central University of Finance and Economics, agreed that foreign banks operating renminbi(8¥Œ) business will pose a threat to domestic banks, but understated the immediate ramifications of their entrance into the market. “It usually takes five to eight years for citizens to accept the services provided by foreign banks,” said Guo.

This precious five to eight years is actually an opportunity for domestic banks to improve and advance. Without doubt, competition is sure to become fiercer, sooner or later.