Shanghai Daily news

The debate over whether a real estate bubble exists in the country has intensified since the People's Bank of China raised the deposit and lending rates at the end of last month.
Economists continue to disagree. A government report, issued a few days before the interest rate hike, has fueled the ongoing debate.
The report by the Ministry of Construction concludes that the real estate market is in good shape, because "it is supported by real and effective demand."
The report also notes a number of other indicators that point to a healthy market:
- The vacancy rate tends to drop as urbanization gathers pace and people plan to improve their living conditions;
- Investment in the sector has increased 28.7 percent year-on-year in the first half of this year, which was somewhat lower than the same period last year;
- The fluctuation of real estate prices is natural, but people who have bought an apartment don't want to see prices drop now;
- Higher land costs and construction standards are the main reasons for higher real estate prices;
- Mortgages remain quality loans from banks;
- Securitization of mortgages is the ultimate way to diversify the risks of banks.
The Ministry of Construction's report is largely a rebuttal to an article by Yi Xianrong, a senior scholar at the Chinese Academy of Social Sciences.
Yi argues that the real estate industry has become an important engine for the economy over the past few years. A troubled real estate sector thus could have a rippling effect on the whole economy.
In Yi's view, some local governments do not want to see a slowdown in what he says is a bubble sector. In 2003, the industry contributed 30 percent to Beijing's total gross domestic product.
Yi further argues that banks would be affected by a possible bubble, because the sector relies heavily on bank loans.
In his latest response to the Ministry of Construction's report, Yi insists that market demand for real estate projects may not be real.
He says the ratio of real estate prices to people's income is more than 12:1 in some cities, in contrast with international levels of three to six times.
Yin Bocheng, director of the Center of Real Estate Studies at Fudan University, says: "It is natural if Shanghai's real estate prices are higher than other cities of the country, but prices are simply growing too fast."
But Hua Wei, deputy director of the same center, looks at the issue from a country-specific perspective.
In the case of Shanghai, Hua says that the city "isn't only for Shanghainese" - it's a market for people all over the country or even the world.
Hua says standards used to judge the existence of a bubble in other countries do not necessarily fit in China. Hua specially calls attention to the hustle and bustle of urbanization on China's mainland.
Moreover, he explains, many people have regarded the real estate business as a good investment, even better than bank deposits.
Asked to comment on historical bubbles in Hong Kong, Taipei and Tokyo, Hua says the bubbles burst in those cities because their economies stagnated.
Not a problem here as the economy continues to develop at warp speed.