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Home >> Opinion
UPDATED: 10:16, July 28, 2006
Regulating, not restricting foreign investment on housing
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China rejects foreign speculations on its housing market. On July 24th, six government departments jointly issued policies of regulating the foreign investment in real estate. The purpose is not to restrict, but regulate the foreign investment on the sector to address the existing problems, an article stated in the overseas edition of People's Daily on Tuesday.

The concerted action has been taken by the Ministry of Construction, the Ministry of Commerce, the National Development and Reform Commission, the People's Bank of China, the State Administration of Industry and Commerce and the State Administration of Foreign Exchange.

China is currently one of the very few countries in the 187-member IMF without any limitation on housing investment. That makes it possible for foreign investors to make speculative moves on the housing market, which pushes housing prices up. In Germany, for example, 62 percent of its property investment was foreign capital in 2005, which was twice as much as that in 2004. As a result, housing prices in Germany soared and the public was anxious.

This also is happening in China. The influx of foreign capital in the real estate sector is thought to be the driving force behind the price hikes which have supposedly been dragged down by the government's macro-control efforts in May last year. From January to March this year, the property sector made actual use of foreign capital of nearly US$1.5 billion, up by nearly 48 percent from the same period of last year.

In this year's macro-control measures to tame runaway housing prices, restrictions on foreign investment in the market are still missing. This has aroused concerns and calls for such constrains have been rising.

Speculation on housing market by foreign investment is harmful to an economy. It is believed to be particularly true of today's China. Most countries in the world ban speculative behavior by foreign investors on their housing market by imposing laws and regulations. The circulation by the six Chinese departments has drawn upon experience of the common practice in the world to address the problems on the country's housing market.

The notice makes it clear that it intends to "regulate", rather than "restrict" the access and management of foreign investment on the housing sector. It is because the foreign investment has always played an important role in boosting China's economy and the housing sector, among others, absorbing much foreign capital.

But now the market is plagued with flooding foreign capital, lack of well-shaped market access, and disorder. In the light of this, these measures are designed to protect the national economic security and the public's interests.

It must be noticed that the newly issued rules do not intend to ban or strictly control foreign investment on China's housing market. It is the increase in ratio of registered capital in total investment, defining rules on loan application and forex settlement involving foreign investment in real estate business and allowing housing purchase by foreign institutions or individuals on the condition that they have branches or representation, or have been in China on work or study for at least one year.

The purpose of the regulation is to use foreign capital more efficiently and promote the healthy development of the housing market.

By People's Daily Online

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