Despite all the policies that the Chinese government has enforced to cool house prices in China, especially in major cities like Beijing and Shanghai, prices continue to rise, causing the property bubble in the country to expand.

As shown in the graph, home prices have been increasing dramatically over the years, especially around 2005 and 2008. It slowed down a little bit after 2010, when the government started interventions and set strict real estate market policies to cool the market. For instance, in my home city, Suzhou, a fairly economically successful city in China, the newly-enforced real estate market policies in 2011 stopped many people from purchasing their new houses. If you are purchasing a new house as a resident in Suzhou and it’s the second house under the name of your family, you need to make a minimum of 60%-70% down payment instead of the original 30%-40%, with higher taxes issued and higher interest rates for loans. One family is limited to two properties in Suzhou. In major cities like Beijing and Shanghai, the market policies are even stricter. This explains the slowdown of the house price rise or even drop in China around 2011.

However, even though the real estate market seems to be under tight control of the Chinese government, the house prices in China started to rise again. According to China’s National Bureau of Statistics, China experienced a 0.8 percent rise in average new housing prices across China’s 70 major cities in August 2013 and a 0.7 percent rise in September 2013. That was the “ninth-straight monthly rise on an annual basis.” (On an annual basis, the house price rise was 9.1 percent as of September 2013) The national average new house prices continued to rise 0.5 percent in November 2013 and 0.4 percent in December 2013.

The situation is even worse when applied to individual cities in China. Beijing had a year-on-year increase of 16.3 percent in average new housing prices in November 2013, and 16 percent in December 2013. For major cities in southern China, Guangzhou had a year-on-year house price increase of 20.7 percent in November 2013 and 20.1 percent in December 2013. Even though there was a slowdown in the increase of house prices (and it was the first one in 2013), the situation is still horrible, differing from what the government expected; house prices in China are still kind of out of control, thus causing the property bubbles.

China has experienced great GDP growth over recent years. However, China’s dramatic economic growth has been a result of the government’s policy to spur exports, instead of consumer spending, which indeed indicates the purchasing power of people in the country. China’s economy is growing and expanding rapidly, and so is the wealth gap in China. Fewer residents, especially in major cities in China, can afford to purchase their own houses, while wealthy people are not quite influenced by such government policies and continue their huge investments in real estate as usual. Even though the Chinese government hopes to utilize market policies to cool the real estate market, it doesn’t seem to solve China’s problem of a property bubble. In spite of China’s ambitious economic development plan for the following years, the Chinese government really needs to take a step back to rethink about how to actually make the house prices under control, resolve the problem of property bubble and thus to realize healthier economic growth, and ultimately, to benefit its people.