People's Daily: People have paid much attention to the recent round of housing market regulation. We have seen a strong resolve and tough measures taken by the central authorities. Home prices in some Chinese cities have started to level off. I would like to ask: how much does the home price need to drop for it to be considered as meeting the regulation target. And with the economic slowdown and pressure on local finances, will this round of regulation measures be abandoned halfway?
Wen: We have started to take regulatory measures for China’s housing market from 2003 and recently I have fully reviewed all the measures we have taken since then. As a matter of fact, in 2003, we already released six measures to regulate the housing market. In 2005, the state council issued eight measures and in 2006 another six measures were adopted. But why haven’t these measures made a difference? People complained that the more regulation measures, the higher the home prices. They complained that the housing regulation policy cannot even make its way out of Zhongnanhai. I feel deeply distressed by such complaints on the part of the people. I have recognized that the housing market concerns the fiscal, financial and land policies of the government as well as the interests of companies. It involves the relationship of the central and local governments. In particular, it involves a large amount of revenues of the local governments from the transfer of land-use rights. It also concerns the interests of financial institutions and real estate developers. Our reform on this front has encountered massive resistance.
But why in the past couple of years have we seen a glimmer of hope amidst all the difficulties in regulating the housing market? Why have our measures in recent couple of years paid off? It is because first we have very firm resolve; second we have been able to put our finger on the crux of this problem, that is, to curb the speculative and investment-driven demand. And we have taken focused measures to address this problem.
China is a big country with 1.3 billion people at a stage of rapid industrialization and urbanization. Therefore the Chinese people’s housing demand for housing is inelastic and this kind of demand is here to stay. We have set the target of providing adequate housing for all people, but this does not mean that each and everyone has to own his home. We will continue to encourage people to rent homes.
With respect to the development of the housing market in China, I would like to make three observations: first, we must ensure the long-term, steady and sound growth of the housing market. If we develop the housing market blindly and a bubble emerges in the housing sector, when the bubble gets burst, not only the housing market will be adversely affected it will weigh on the entire Chinese economy. Second, what do we mean by bringing the home prices back to a reasonable level? What we mean is that a reasonable housing price should match people's income, the construction cost and profits should be reasonable too. At present, the home price in China is far from coming into a reasonable level. Therefore we must not slacken our efforts in regulating the housing sector. Otherwise, past gains will be lost and there will be chaos in China’s housing sector. That is not in the interest of promoting the long-term, steady and sound growth of the housing market in our country. And third in developing the housing market, we must fully bring out the fundamental role of the market in allocating resources. That is to say, we will make the most of the hand of the market. But at the same time, the hand of the government is indispensable too, because that can promote stability and social fairness.