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Foshan city china Jie Zhao/Corbis/Getty Images

Unlocking the Potential of Chinese Cities

Letting some of the air out of China's housing bubble, before too much pressure builds up, will require improved management of China’s rapid urbanization. As the city of Foshan has proved, cities have a critical role to play in this process.

HONG KONG – Residential property prices in China’s first-tier cities – Beijing, Shanghai, Guangzhou, and Shenzhen – are back up. A home there now runs buyers half as much as a home in the world’s most expensive cities: New York City, London, and Hong Kong. Letting some of the air out of this housing bubble, before too much pressure builds up, will require improved management of China’s rapid urbanization – and not just in the four first-tier cities.

Of course, the housing situation is most urgent in the first-tier cities. And their governments have moved quickly to cool the market. Beijing, for example, raised the required down payment for residents purchasing a second flat for investment to as much as 80% of the price, and barred non-residents from such investments altogether.

But this is just a temporary fix. A longer-term solution will require the authorities to address the fact that demand for a limited supply of residential property is high and rising, owing to the rapid flow of often-young Chinese talent to cities that offer access to economic opportunities, not to mention better public infrastructure. Policymakers must determine the proper balance between state control and market forces in guiding urbanization throughout the country.

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