The soaring property prices in China suggest the government's macro-control measures might fail to squeeze out the bubbles in the overheated real estate sector.

Average property prices rose 13 per cent during the first nine months of this year compared with a year ago, figures from the National Bureau of Statistics indicate.

Prices for residential housing rose year-on-year 10.9 per cent during the same period, the bureau said.

Zhang Xueying, a senior economist with the State Information Centre, said the prices are beyond the reaches of many people, despite the government's clamp down on credit and the introduction of a raft of measures, including tighter land-planning rules, to cool investment in overheated sectors such as property and steel.

In fact, the macro-control measures fuel the price rises, he said.

"Some bubbles are felt in the real estate sector," said Zhang.

Prices for residential housing in Beijing are between 7,000 yuan (US$843.4) and 8,000 yuan (US$963.9) per square metre.

But the average annual income of residents is only about 10,000 yuan (US$1,204.8).

"If there is no bubble, who will buy this housing?" he said.

Yi Xianrong, a senior economist with the Chinese Academy of Social Sciences, said the government's macro-control measures have little impact on the real estate sector.

The sector is the root of the country's overheated economy, he said.

If the government does not properly deal with the issue, it will face financial risks, he said.

Figures from the National Bureau of Statistics indicate that property investment reached 835.7 billion yuan (US$100.7 billion) during the first nine months, an increase of 28.3 per cent from a year ago.

Investment in residential housing reached 568.4 billion yuan (US$68.5 billion) during the same period, an increase of 27.4 per cent.

Bureau spokesman Zheng Jingping said last week the current higher property prices were largely a result of solid demand, rising costs of building materials and a move by the government to limit land for developers.

"But we cannot rule out speculative factors," he said.

The government should pay close attention to the trends to prevent prices from rising too rapidly and prevent a speculative bubble, he added.

Zhang Liqun, a senior researcher with the State Council's Development Research Centre, said China's real estate sector, if developed soundly, could be a strong propeller for the country's economic development.

Strong demand for housing, which is a major feature for the present trend of consumption, would not be a short-term story, he said.

Earlier figures suggest an average urban family had 223,000 yuan (US$26,867) worth of total assets in 2002, of which 78,000 yuan (US$9,398) were financial.

About 40 per cent of the 140 million urban families owned financial assets worth more than 150,000 yuan (US$18,072) each.

"These families have played, and will continue to play, an important role in China's housing market," Zhang said.

Turning to China's rural populace, Zhang remarked: "These people will demand a large number of homes during the country's urbanization process."

Based on the experience of developed countries this trend is likely to last for several decades, he continued.

"China's future housing consumption expansion has solid financial supports," Zhang said.

People's income will grow at a stable rate, along with the country's sound economic development, he said.

The economy, which is closely aligned with the upgrade in consumption structure, has entered a new development period.

(China Daily October 27, 2004)