China Tries To Reinflate The Housing Bubble

When bubbles burst, interventionist governments generally try to reinflate them, and thus makes the entire problem worse.

China’s housing bubble has burst, and Chinese local governments are now doing everything they can to reinflate that bubble. The most recent desperation move is by cities such as Zhengzhou, capital city of Henan Province, to scrap the decades-old hukou registration system that regulates where people may obtain social benefits and buy real estate. The hope is that more people will seek to buy property there, boosting collapsing demand and helping stabilizing the quite destabilized real estate sector.

China’s hukou system has been in place since the 1950s and is tied to certain social welfare benefits, including access to health care, education, and the right to purchase properties. Recently, a Chinese province and cities with fewer than 3 million people have either scrapped or readjusted their hukou policies, with Shanghai becoming one major city offering the hukou to master’s students graduating from the city’s universities.

Zhengzhou is the largest city to scrap the policy. While any form of deregulation is likely a net societal gain, that policies which date back to the Mao Zedong era are suddenly being cast aside illustrates the enormity of the housing crisis in China and the extent of its economic ramifications. China is not experiencing an upsurge in enthusiasm for libertarian freedom of movement leading to these policy reforms, but economic collapse. This is a desperation move by local governments.