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China's Great Property Wall

 
 

Nothing highlights Chinese barriers to foreign participation in its markets more than its restrictions on the foreign purchase of Chinese housing and other property. The contrast between what Chinese real estate investors can access in the United States, and what American and other foreign buyers can access in China, is stark.

Non-Chinese nationals cannot buy property in China unless they live in China under resident visas. Even then, a foreigner in most major Chinese cities cannot own more than one property in that city. In theory, a resident foreigner can buy as many flats and houses as they like throughout the country, but only one in each location. And technically, ownership may not remain valid unless the foreigner remains resident in China.

Even these regulations seem to be inconsistently applied. There are reports that Chinese cities refuse to allow foreigners to buy properties in their localities unless the foreigner legally lives not only in China, but in their particular city as well.

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Effectively, therefore, the Chinese residential property market is closed to the outside world. What does that say about China’s overall intentions to open its other markets? What does that say, in fact, about China’s openness to foreigners themselves?

China, to be sure, is not the only country with restrictions on property purchases by foreigners. Nations from Thailand to Switzerland have real estate ownership barriers that distinctly favor their own nationals. Other countries, such as Australia and New Zealand, both of which originally offered unfettered access to their domestic real estate markets, are now taxing foreign ownership, largely in response and reaction to Chinese buying sprees, and with varying degrees of success.

The difference is that, unlike China, those nations do not also have major trade surpluses into the hundreds of billions of dollars with any nation, and at a ratio of nearly three-to-one, as China does with the United States.

The United States has functionally no barriers to foreign real estate buyers. Yet the discrepancy between what Chinese buyers can and do buy in the American real estate market – to the tune of billions of dollars to date – and what American investors can purchase in China is rarely raised and less discussed.

Now, however, in an environment in which decisions have been taken to levy tariffs on huge swaths of Chinese imports, the Trump administration has been clear about its goal: achieve a balance of fair trade between the world’s two largest economies.

While doing so, this might be the time for American and other foreign negotiators to push the issue of redressing the imbalance of access to not only movable goods, but to fixed assets, as well.

Many Chinese real estate watchers suggest that the Chinese market does not represent good value for a foreign investor, but in the wake of the single fastest and largest creation of wealth in the world, one which has been significantly driven by its property market, it is specious at best to argue that the Chinese property market could not be financially attractive to the outside world.

China is a country long on symbols and messaging subtleties. Very often, the answer to a question does not so much stare one in the face as tease one’s peripheral vision. This is one of those cases. Because really what’s behind China’s strict limits on foreign participation in its property market is the more uncomfortable truth of why those limits exists.

The problem of nonreciprocal access to the Chinese property market is not only one of economic discrimination favoring Chinese nationals. It is also a symbolic statement of China’s continued unwillingness, and to a certain degree, its inability, to embrace the outside world. Old habits die hard.

But in the immediate circumstances of the U.S.-China trade war, both countries have an opportunity to discuss the disparity of real estate market access, which only adds to an already lopsided economic relationship between the two nations.

The influx of billions of dollars of Chinese money into American and other foreign property sectors is expected to continue unabated. In the United States, and under an administration that is adamant about creating mutually beneficial and equal opportunities with its trading partners, it could be a well-timed move for Washington to push for equal treatment for itself and for other foreign investors into the Chinese real estate market.

What, then, is the incentive for China to engage in the discussion? Putting the real estate market on the table gives China another negotiating tool. Many consider its toolbox to fight the trade war to be rapidly emptying, as it is. Aside from currency devaluation to offset the cost of goods once tariffs have been applied, at a certain point China’s current tit-for-tat reciprocal tariffs on American imports will become a moot point; there simply aren’t enough of them to make up the difference.

Foreign participation in the Chinese real estate sector represents one of China’s last great strongholds of closed market access. Now might be the time to think about bringing down that wall.

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