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Economist: Pollution, High House Prices Hamper Economic Growth

Pollution and high house prices are the two roadblocks holding China back, says economist Liang Hong.

By Xu Mouquan Updated Feb.26

The bottleneck restraining China’s future economic growth is not the oil price, but pollution and house prices,” said Liang Hong, chief economist at China International Capital Corporation, during a recent seminar held by the National School of Development, Peking University.
Unlike the period from 2003 to 2010 when the country’s growth was primarily constrained by the supply of raw materials, such as oil, the future will see China’s economic development hampered by pollution and house prices, according to Liang. 

“Pollution, like smog, won’t be mitigated by simply shutting down factories that are heavy polluters,” Liang contended. More investment is needed to address pollution, develop clean energy sources, and solve the long-standing problems, including pollution resulting from heating in north China during winters, she added. 

Liang attributed the constantly rising house prices – another bottleneck of economic growth – to the inadequate supply of urban land for housing construction in China. 

“After breaking down the total value of sales of commercial housing in 2015 – 8.7 trillion yuan (US$ 1.3 trillion), we can estimate that taxes and land-transferral fees combined account for 60 to 70 percent of urban house prices, ” Liang said. Many real estate developers have opted out of the trade, due to these fees.  
As the economy is about to gain a stable footing and policies encouraging urbanization have been widely introduced, demand for land keeps rising, according to Liang. “If the supply of land is not increased, the rising demand will inevitably send housing prices skyrocketing, further causing rent and labor costs to grow. And inflation is a likely outcome.”