EVALUATION OF POLICY IMPACTS ON

THE REAL ESTATE SECTOR

OF CHINA AND UNITED KINGDOM1

Abstract

This paper evaluated the real estate policies implemented by China and the United

Kingdom in response to the present economic crisis. The objective of the study was to evaluate

the effect of these new policies to the real estate sector and its impact to the overall economy of

the countries. The study utilized present data to measure the actual contribution of real estate

investments in the economy.

Data were gathered from the National Statistics Website of both countries, International

Monetary Fund’s Worldbank Database, China Daily and other sources. Data obtained from these

sources were summarized and used in the analysis. Most references were obtained online due to

absence of adequate up to date printed sources.

The evaluation of the effect of the policies on the real estate sector of each country was

done separately. Chart interpretation and correlation tests were performed to analyze the findings

of the study.

1
The draft was ordered by a PhD student from UK from a ghostwriter but refused to pay. Not to be used for
academic purposes.

1
 TABLE OF CONTENTS

ABSTRACT 2

TABLE OF CONTENTS 3

LIST OF FIGURES 5

LIST OF TABLES 6

ACKNOWLEDGEMENTS 7

INTRODUCTION 8

AIMS AND OBJECTIVES 10

REVIEW OF LITERATURE 11

Introduction 11

Evolution of China’s Land Reform Policy 11

New Directions 16

Contending Viewpoints 17

Background of the UK economy 21

Crisis mitigation 22

Different Viewpoints 23

Comparisons between China and UK 24

THE RESEARCH SETTING 27

METHODOLOGY 28

Data Collection 28

Evaluation 28

2
 Comparison 29

FINDINGS 30

China 30

United Kingdom 34

China and United Kingdom 42

ANALYSIS 45

China 45

United Kingdom 46

China and United Kingdom 48

CONCLUSION 51

APPENDIX A: Pearson Product-Moment Correlation Coefficient Table

57
of Critical Values

APPENDIX B: Correlation Computation for GDP and real estate growth

59
rate of China

APPENDIX C: Correlation Computation for GDP and house prices in

60
UK

APPENDIX D: Correlation Computation for GDP and number of real

61
estate transactions in UK

3
 LIST OF FIGURES

Figure 1: Urban per capita disposable income and rural per capita net income of 31

workers in China from 2000 to 2009

Figure 2: GDP and Investment Growth Rate of Real Estate Industry in China 32

from 2000 to 2009

Figure 3: Residential and non-residential transactions of properties in UK 35

Figure 4: Number of mortgage products advertised in Moneyfacts 38

Figure 5: GDP versus house prices in UK 40

Figure 6: Housing market: annual house price growth, comparison of CLG, 41

Land Registry, Halifax and Nationwide estimates, United Kingdom, (quarterly)

from 2005.

Figure 7: GDP versus the number of real estate transactions from 2005 to 2009 42

Figure 8: Housing investment growth rate of China versus UK 43

Figure 9: Comparison between China and UK GDP 44

Figure 10: Yuan Loans from December 2008 to July 2009 46

4
 LIST OF TABLES

Table 1: Urban per capita disposable income and rural per capita net income of 30

workers in China

Table 2: GDP and Investment Growth Rate of Real Estate Industry in China 31

from 2000 to 2009

Table 3: Residential and non-residential transactions of properties in UK 34

Table 4: Number of mortgage products advertised in Moneyfacts 36

Table 5: GDP and house prices in UK 38

Table 6: GDP versus the number of real estate transactions from 2005 to 2009 41

Table 7: Real Estate growth rate for China and UK 42

Table 8: GDP of China and UK 43

5
ACKNOWLEDGEMENTS

6
 INTRODUCTION

The present economic slump not only took the headlines of every newspaper and TV

station in the world in the past few months, the situation has a far-reaching, personal impact that

a person need not read the paper or watch the news to know the gravity of the situation.

According to the Global Financial Stability Report (2009), output per capita is projected to

decline in countries representing “three-quarters of the global economy.” Governments all over

the world needed to respond in order to counteract the crisis and uplift the economy.

For this paper, the real estate sectors of two giant economies, the People’s Republic of

China and the United Kingdom were evaluated. Both countries had serious property sector

concerns that led to the creation of new policy reforms designed to offset the effect of the crisis.

The United Kingdom was faced with housing mortgage problems and bad debts which prompted

the government to implement monetary policies that addresses the issue. While China did not

have the same problems in terms of mortgage lending, the real estate development plays a major

role in the country’s economy which triggered the government to establish new policies focused

on advancing real estate investment in China.

7
 AIMS AND OBJECTIVES

The financial crisis caught governments unprepared. Authorities needed to come up with

fast remedies to save businesses and revive the country’s economy. For most countries, the

solution came in the form of policies. To address the implication of the crisis to the real estate

sector, authorities in UK and China came up with new policies.

This study aimed to evaluate the real estate policies instituted in China and UK as a

response to the economic crisis. The objective of the study is to evaluate possible changes

brought by the new policies to the countries’ overall economies. The significance of the

present study is to measure the effect of the policies in the overall economy and evaluate whether

they were appropriate and useful in revitalizing the countries concerned.

8
 REVIEW OF RELATED LITERATURE

The impact of the present crisis on the changes in the management of land economy in

China and UK can be better appreciated with a background of the market orientation and

economic policies employed by the two countries prior to the crisis. In this review, a closer look

at the China and UK markets were presented. The discussion includes a background of China’s

economy and how it evolved through the years, the new land reform created to counteract the

present crisis and the contending viewpoints regarding the policy. Likewise, a brief background

about the UK market and the land use and management changes, the new policy designed to

offset the recession and the different reactions regarding the policy were also explored.

Comparison between the market and the policies implemented by the two countries is also done.

Evolution of China’s land reform policy

After the institution of the Communist Party in 1949, private ownership of land in China

was banned. All land resources are owned by the “collective” and were managed by the central

government (Bezlova 2008). The central government dictates all decisions regarding land

utilization. Furthermore, as Guo (2003) pointed out, ”when land is owned by the state (one

owner), it is not a commodity; what is on the market for exchange is not land ownership

rights but land use rights”(p. 10). The land’s value is arbitrary to the use prescribed by the state.

Land use rights are attained through negotiations among involved parties and must be endorsed

by authorities (Guo 2003). The government controls land ownership, land utilization and even

the awarding of land use rights.

In 1978, the Chinese economy took a radical shift from the centrally planned economy to

a more market oriented system (World Fact Book 2009). Control of the land was decentralized to

9
local leaders and land conversion and development emerged. Although the market-oriented

economic reform resulted to improvement in the stature of the country, the political barrier

regarding land ownership remains in place. According to Tak-ho (2006), “The political realities

of China dictate that certain symbolic aspects of socialism still have to be safeguarded, as

stipulated by China's constitution, and land ownership is one such area that even the central

leaders dare not touch.” Guo (2003) confirmed this observation, noting that although government

intervention had been significantly reduced, it has not been totally removed.

The economic reform granted more rights to the peasants, granting them the option to get

30-year lease to the use of land. However, they are not allowed to sell those land rights or use

them as collateral to borrow loans (Bezlova 2008). In effect, the state only altered its role,

moving from centrally planned economy toward a “party-state controlled market socialism

dominated by state ownership rather than a free market economy of capitalism” (Guo 2003).

Government control transferred from the central government to local leaders but government

regulation remains in the forefront of the economy and still dictates the direction of the market.

Guo (2003) noted two major historical periods in the ownership system in communist

China: the period between 1949 to 1979 and the period between 1979 to 2000. As shown by the

preceding discussion, the period between 1949 and 1979 depicts the establishment of a socialist

planned economy based on collective public ownership. All forms of ownership and private

enterprises are banned and the government is the sole regulator of the economy.

The period between 1979 and 2000 portrays efforts to transform ownership from

complete collective ownership to a “mixed ownership structure with predominant public

ownership coexistent with other economic elements such as cooperative, individual,

private, foreign, and joint-ventured (Guo 2003). While government control is maintained, the

10
market was opened to other players working hand and hand with the estate. This period is can be

divided into three main stages:

1. 1979 to 1987 focused on decentralization of management and the growth of

managerial autonomy of SOEs.

2. 1987 to 1992 focused on the establishment of a system of “contracted managerial

responsibility” that delegated management of enterprises to managers and

directors by contracts which clarified the responsibilities and benefits between the

state and the managers.

3. 1992 to 2000 focused on institution of a “socialist market economy with Chinese

characteristics” which features an ownership system of mixed structure of public

sector and various types of ownership. (Guo 2003, pp. 5-6)

The 1979 reform made China one of the world’s fastest growing economies, with an

average annual GDP rate of 9.3% (Morrison 2003). It further gained momentum through the

implementation of bolder economic reforms in the 1990s under the leadership of Deng Xiaoping.

The 14th Party Congress of the Communist Party in 1992 supported Deng's push for market

reforms. They created a "socialist market economy" that provided greater market orientation.

However, like in earlier reforms, the Chinese government’s political control remained. The

government is unable to implement massive land reforms without violating the restrictions of the

constitution.

On November 8, 2002, Chinese President Jiang Zemin formally proposed at the 16th

National Congress of the Chinese Communist Party that the Party constitution be amended to

allow private entrepreneurs to join the Party (Morrison, 2003). The amendment was adopted on

November 11, 2002. One of the highlights of the amendment was the inclusion of protection for

11
private property rights (World Fact Book 2009). This was approved by the National People's

Congress in March 2004. Subsequent programs were designed at building harmonious society

through more balanced wealth distribution and improved education, medical care, and social

security (World Fact Book 2009). The government started focusing more on the well being of the

people and less on the management of the estate.

This reform spearheaded further growth in China’s economy. According to Elwell and

Labonte (2007), “The rise of China from a poor, stagnant country to a major economic power

within a time span of only 28 years is often described by analysts as one of the greatest economic

success stories in modern times.” They noted that by some standards, China has become the

world’s second- largest economy, and it could be the largest within a decade, overtaking the

United States (Elwell & Labonte 2007). China became a forefront emerging nation, with a

massive export industry that supplies the United States and other countries all over the world.

The growth was primarily brought by the entry of private sectors and foreign investments

in the market. Though participation of private sector is still limited within the mandates of the

state policy, private enterprise prospered and expanded. State-operated enterprises (SOEs) were

restructured into corporations and managed the land resources. SOEs that run loses are sold to

collective owned enterprises or joint-ventured enterprises. This encouraged competition and gave

way to various forms of ownership coexisting in the economy such as: state-owned, collective-

owned, private-owned, individual-owned, cooperative or joint-ventured, shareholding, foreign-

owned, and others.

The land reform encouraged the development of land economy into cities or urban

enterprises. This expansion required the conversion of large land areas from agricultural to urban

use which instigated some issues and conflicts. According to Bertaud (2007), one of the major

12
urban development issues that needs to be addressed is the decline of agricultural land caused by

massive conversion. In China, the market mechanism that regulates agricultural land conversion

to urban use does not exist. The government does not have a mechanism for controlling land

allocation, thus utilization and land conversion is not regulated. Local leaders have the

prerogative to dictate land use and it is often based on short-term profits than long-term benefits.

Furthermore, competition between local officials to advance development led to

extensive land urban expansion. Development became the determining factor of the

government’s competence and land conversion proved to be a profitable venture. “While the

acquisition cost of farm land to be developed is established through an administrative process,

land once developed is increasingly sold through auctions to private builder” (Bertaud, 2007).

These builders in turn sell the apartments, office and commercial space they build at prices

established through a free market. While the development is regulated by the government,

market price and ownership of developed properties is solely dictated by the market.

In a study conducted by Zhang, Mount and Boisvert (2000) about the Industrialization,

Urbanization, and Land Use in China, they addressed the issue of land scarcity due to rapid

industrial development and population growth. “They noted that arable land area per capita in

China is now less than 0.08 hectare, which ranks among the lowest in the world” (Zhang, Mount

& Boisvert , 2000, p.7). The government is forced to import grain to augment the needs of the

population. This alarming effect of unregulated land use prompted the government to reconsider

the industrialization policy and implement a local self-sufficiency policy.

Another issue about urbanization is the increased disparity between rural and urban

wages. The economic boom experienced in urban areas paved the way for increase in wages of

urban dwellers, however income stagnated in the villages where farmers till small land plots.

13
Bezlova (2008) reported that in 2007, the average urban income was 3.33 times larger than those

in the rural areas. Agriculture minister Sun Zhengcai noted that “the disparity amounted to 9,646

yuan (US dollars 1,418), marking the largest income gap since the reform and the opening up of

China in 1978" (Bezlova 2008). This encouraged migration of millions of farmers to urban

centres, leaving agricultural lands idle which further contributes to food scarcity.

Another difference between urban and rural dwellers is the terms of ownership of

property. Urban dwellers do not own any urban land but they can have ownership of the dwelling

built on a piece of land. Furthermore, they are entitled to obtain mortgage from banks and sell or

lease their homes in the market. This led to the emergence of the prosperous urban middle class.

However, rural villagers are not entitled mortgage for their nonagricultural land and housing, nor

do they have the ownership rights to sell the farmland assigned to them through the household

contract responsibility system (Bezlova 2008). Thus, while the urban dwellers are given more

opportunities to make money, rural farmers are tied to their farms with no opportunities to

advance.

Decentralization of power to local leaders also led to abuses of power and corruption

(Tak-ho 2006). The devolution of land use management gave local leaders the power over the

land resources. Reports of irregularities in the awarding of land use rights and growing

corruption became a recurring issue. Rural farmers are becoming more and more agitated to

change the system and the need for new reforms becomes a theme for debate for citizens and

members of the Communist Party.

New directions

The growth of China’s economy over the past several years is touted by economists as

the “awakening of the giant”. However, the present financial crisis had put a stop to the

14
emergence of the Chinese economy. Amidst the global economic downturn, the Communist

Party was compelled to create internal reforms capable of insulating the country from the

impacts of the crisis.

The new land reform includes a revolutionary provision that surrenders partial control of

the country’s most important asset, the land and gives farmers more rights and market incentives

(Bezlova, 2008). According to Chinese economist He Qinglian, “China's economy is export-

dependent, with 60 percent of its products sold abroad” (Tao, Yue, Jiaqi & Xiuli 2008). This

makes the country’s position at risk in times of financial turmoil as crisis in exporting countries

will undoubtedly decrease demand for China’s products. The reform is premised on empowering

Chinese rural farmers to stimulate local demand and expand China’s “underdeveloped internal

market” to offset the decrease in global exports that is slowing down the country’s economy

(Bezlova 2008). The effect of the reform is three-fold as it is believed to: improve rural

productivity, strengthen the economy and increase food production.

Aside from empowering the rural farmers, reforms to decrease interest rates, loosen the

lending system and property ownership regulations are also established. These policies are

believed to trigger and advance real estate investment which could boost the country’s economy.

In addition, the Chinese government instituted a 2-year stimulus package to boost public

infrastructure projects including public transport, affordable housing, agricultural and

environmental projects, technological development, health and education (Morrison, 2009).

Contending Viewpoints

China’s response to the crisis is directed to the empowerment of rural farmers through

more revolutionary land rights and the advancement of the real estate sector. Hu Jintao’s Land

Reform Plan elicited contending views. “Analysts both in China and abroad have vastly different

15
opinions as to the motivation, likely policy implementation, socioeconomic and political

consequences, and historical significance of the new land reform plan” (Li 2009).

The optimists side agree that the CCP’s policy to advance the “Chinese farmers land-use

rights and redistribute rural land will encourage the inflow of capital to the agricultural sector,

reduce income gap between rural and urban dwellers and stimulate domestic demand” (Li 2009).

Low rural consumption is a long-standing concern of Chinese officials. The only way to increase

this demand is to increase the income of the farmers. Li (2009) agreed that a significant boost in

rural population consumption would offset the losses from the slow export development, thus

contributing to the recovery not only of the local economy but the effect could ripple to the

global economy.

Wang Yiming, a leading scholar on the Chinese economy and vice president of the

Macroeconomic Research Institute of the National Development and Reform Commission

(NDRC) expressed the same assessment of China’s economic situation. He believes that China’s

strength in the wake of the global financial crisis is the fact that the country has a huge domestic

rural market. In Wang’s view, the new land reform and the stimulus plan that targets rural

development is an optimistic approach. China’s increase in domestic consumption could help the

international market.

However, some pessimists argue that the policy could have a different impact. According

to Li’s report, three particularly dangerous ramifications of land reform are: 1) the accelerated

disappearance of arable land in the country; 2) the monopoly of land resources in the hands of a

small number of landlords and the consequential widening of economic disparity; and 3) the

spread of urban slums and the rapid rise of urban unemployment (Li 2009, p. 15). The report

added that these negative possibilities are “not just sensational pessimistic scenarios described by

16
critics, but are genuinely valid issues that should be seriously tackled” (Li 2009). These concerns

are premised on a deeper ideology, the Communist Party’s fear of losing control of the land

resources in particular and the economy in general.

Aside from the possible repercussions of the policy, another point of contention raised by

some analysts and members of the media is the content of the reform. While some refer to Hu

Jintao’s Land Reform as the “beginning of a new and ambitious round of China’s rural reforms”,

others believe it is oversimplified and the provisions are commonplace practices (Li 2009, p.15).

A journalist from China Free Press described the reform as “aborted.” According to the report,

the reform signifies Hu Jintao’s declining “personal influence” and the CCP’s failure to address

the bigger issue of private land ownership.

Guo Shutian, a senior agricultural policy official reasoned that “It will not be easy to

realize a full and genuine privatization of rural land” as it would need a major transformation that

entails revision of the Chinese constitution, a task still unacceptable to many party members

(Tao, Yue, Jiaqi & Xiuli, 2008). Providing farmers more leeway in managing their land would

open doors for the modernization of farming and optimization of land productivity. However,

reformers are also concerned that unregulated land transactions could lead to the reemergence of

the landlord class.

State Council researcher Xu Xiaoqing commented that there are no radical changes to

the existing policies, it only guarantee that the government would support farmer’s efforts to

profit from their lands with the option of leasing or transferring them (Tao, Yue, Jiaqi & Xiuli,

2008).

Despite the complaints about the failure of the new reform to present radical changes, an

article in The Economist (2008) pointed out that the reforms of 30 years ago and seemed to take

17
baby steps rather than great leaps. However, “[I]n tiptoeing gingerly around one of the last

Maoist shibboleths—collective landownership—the party may yet be sowing the seeds of the

rural transformation it promises” (The Economist 2008). Despite all the criticisms and prejudices

expressed by different sectors regarding China’s policy, it is presumptuous to conclude that the

Chinese government’s policy is inappropriate. While the provisions may look commonplace, the

situations surrounding the policy in China is different from that experienced by other countries

and it may not be fitting to judge the impact of China’s policy to the economy based on other

countries results.

In terms of real estate, Bradsher (2008) reported that there is no threat to the vitality or

stability of the financial system as the banks in China require down payments on real estate

purchases of at least 30 percent, giving banks an ample cushion of cash against losses. This is

contrary to He Qinglian’s analysis that “the real estate markets in Beijing, Guangzhou, Shanghai

and Shenzhen began to collapse” in 2007. China’s economic crisis apparently started in 2006

with the real estate bubble and manufacturing companies’ bankruptcies but the regime tried to

present confidence to the outside world. This was cushioned by the confidence presented during

the Olympic games. She added that "The cause for China's economic crisis arises from its

economic structure and has little to do with the financial crisis in the United States" (Zheng

2008). According to Qinglian, with or without the global crisis, China’s housing market is in a

bubble waiting to explode. The US led crisis only gave the Chinese government an alibi to deny

the fragility of the Chinese economy.

These two views deserve a closer analysis that might shed light to the conflict and at the

same time, assess the appropriateness of the course taken by the Chinese government.

Background of UK economy

18
 According to the World Fact Book (2009), “[T]he United Kingdom has the fifth-largest

economy in the world, is the second-largest economy in the European Union, and is a major

international trading power.” It is a highly developed, diversified and market-based enterprise.

Privatization and "public-private partnerships" of state-owned companies that started in 1979 led

to upsurge in the country’s economy. Today, United Kingdom is primarily based on private

enterprise, accounting for approximately four-fifths of employment and output (World Fact

Book, 2009). The economy, production and even employment depends greatly on the

performance of the private enterprises.

Economic development paved the way to the establishment of cities. They are the called

the “hotspots” of growth within the English regions (Larkin & Marshall 2008). Property led

development became central pillars of urban policy and city economic development in the

UK from 1979 to 1990s. The emphasis centered on privatization of enterprises and creation of a

sustainable private market involvement. The 1980 Local Government and Planning

Act established the necessary legal framework for the creation of Urban Development

Corporations (UDCs). This fostered advancement of urban centers and the “emergence of

entrepreneurial local governments whose main task was to increase the competitive position of

their cities by creating favourable institutional and physical conditions for

attracting national and international investment as the major resource for economic

development” (Cao and Keivani, n.d. p.2). The establishment of cities became a forefront of

economic development. According to Wilks-Hee the government spends a large portion of the

budget subsidizing Urban Development Corporations. This accounted for an increase from 20%

of overall expenditure of the Department of the Environment on urban programmes in 1981 to

60% by 1991 (cited in Cao and Ramin n.d.). This raised the issue of overreliance on the private

19
sector and the inequal distribution of wealth between the elite groups and poorer residents.

In 1990, the Town and Country Planning Act was amended. This law stressed the

importance of planning in development and promoted a more comprehensive, integrated and

inclusive approach that includes social aspects of community development as well as economic

and physical considerations. It incorporates development with social progress. UK’s expansion

continued and outpaced most of Western Europe.

Crisis mitigation

The global economic crisis, problematic credit, and declining home prices pushed Britain

into recession in the latter half of 2008. This resulted to rise in unemployment which increased

from 5.2% in January 2008 to 6.5% in January 2009. In response, the Brown government

implemented a number of new measures to stimulate the economy and stabilize the financial

markets; these include part-nationalizing the banking system, cutting taxes, suspending public

sector borrowing rules, and bringing forward public spending on capital projects (World Fact

Book, 2009). The government stepped in to bail out the banking industry from its apparent doom

brought by years of neglect and deregulation.

The November 24, 2008 reform plans to revive the economy by granting tax cuts and

government spending projects “totaling 20 billion pounds or about $30 billion (Jackson, 2009).

The tax cuts include 2.5% reduction in the value added tax (VAT), or sales tax, postponement of

corporate tax increases (Jackson 2009). The government pushed for loans to small and middle-

sized businesses and increase government spending in public works such as public housing and

energy. To finance these projects, the government raised income taxes on those making “more

than 150,000 pounds (about $225,000) from 40% to 45% starting in April 2011” (Jackson 2009).

The policy has a double-edged mandate as it reduced some forms of taxes but increased income

20
tax of the chosen few to finance the balance.

Different viewpoints

Given the problematic state of the real estate industry brought by declining prices and

mortgage problems, another aspect of the said reform that greatly influences this study of real

estate’s contribution to the economy is the implementation of stricter borrowing rules.

The Bank of England (BoE) adopted the quantitative easing strategy which gave rise to a

rich public debate. According to the BoE, the purpose of the policy is to preserve price stability

(Meier 2009). The aim of these measures is to avert massive financial collapse and ensure a

functioning financial system (Financial Mirror 2008). By cutting back on new lending, the banks

maintain their balance sheet and reduce further losses. Although the government encouraged

banks to support lending to small businesses and homeowners, the establishment of new lending

regulations also curtails lending. The policy addresses the problems of the banking system in

terms of lending and collection of debts; however, it brought forward more problems for the

lenders and the real estate market which is heavily dependent on mortgage lending from the

banking sector.

According to Hitshopi (2009), UK is in the “worst housing slump since the 1930s.” The

report noted that three main factors that have contributed to this situation. The first is the

“cyclical economic slowdown” brought by non-stop growth in the past 15 years. This refers to

the natural fluctuation of the market. Businesses go up and down and the relentless increase in

the past years calls for a period of correction to stabilize the market. The second factor is the

worldwide banking crisis due to defaulting customers which initiated tighter lending criteria.

One of the consequences of the free market is the loose government regulation. Stiff competition

between the different players of the financial industry led to lenient policies and procedures. The

21
process backfired and the economic sector is unable to redeem itself from the situation. Lastly,

the lending curb which slowed down credit and affected the entire economy from small

businesses to the largest industrials. The overuse of funds depleted the reserves and just when the

people and enterprises needed the funds most, the financial industry is unable to provide. This

resulted to rise in unemployment, reduction in spending and an enormous decline in real estate

retail. Buyers cannot get financing, developers, estate agents and mortgage advisers cannot sell

their projects (Hitshopi 2009). These could lead to bankruptcy and unemployment which further

depress the economy. These interconnecting reasons contributed to the real estate problem that

plagued the economy. Furthermore, the crisis reduced consumption, prompting businesses to

slow down to match the low demand. This makes the effect of the crisis compound and ripple to

all sectors of the society.

Comparison between China and UK

The policies implemented in China and UK have similar features. First, they both plan to

stimulate domestic consumption. In the face of the global crisis, countries are aware that the

global market is severely affected and the only way to keep the industries and the economy afloat

is to enhance the demand of the local community. Another parallel feature is the provision of

government stimulus package to finance government spending on public infrastructure projects

such as affordable housing and public transportation projects. China and UK both imposed lower

interest rates to help individuals and small enterprises. However, while China loosened its

lending policy to accommodate more borrowers, the United Kingdom needed to employ the

opposite in order to solve its bad debt problem. This major difference can be explained by the

kind of markets employed by the two countries.

In China, the government controls the industry and the economy. Government regulation

22
is strictly imposed in all aspects of the market from production to distribution. All economic

decisions emanate from the central power and the private enterprise cannot operate without

partial control and ownership by the government.

United Kingdom is a free market economy. Private enterprises control the economy. The

government exercises a passive, intermediary role in the market. Government regulation only

includes ensuring fair competition and prevention of abuses and violence among the different

players of the market. For years, United Kingdom had been employing loose credit policies due

to stiff competition and lenient government regulation. In fact, the present crisis can be attributed

to this feature of the country’s economy.

While the problems and the goals of the two countries are similar, the means employed

by China and UK are different. The Chinese model cannot be used in UK and vice versa. Instead

of China’s more lenient procedures, United Kingdom imposed more strict policies on lending to

avoid the same problems that brought the housing market bubble. These differences between the

two countries have a deeper implication in terms of the design and implementation of the

policies. While some of the provisions are the same, the policies are premised on different

political and economic ideologies that call for specific and appropriate reforms. Implementing

similar reform for both countries could be problematic in the same way that comparing the two

economies without taking into consideration these differences could yield to erroneous

conclusions.

These discussions presented the evolution of China’s economy from 1979 to the present

and discussed the different viewpoints associated with the Chinese economy in view of the

present reform. Moreover, a discussion of United Kingdom economy and the current monetary

reforms created to counteract the financial crisis were also presented.

23
 THE RESEARCH SETTING

This study about the real estate policies created by China and the United Kingdom in

response to the present crisis was conducted amidst the world economic crisis. While some

countries had reported reversals, the crisis is still far from over. Based on the history of past

recessions, it might take years before we see full recovery. This study focused on the effect of the

new policies in the real state sector and its contribution to the economy. While these evaluations

do not claim to present long-term impacts, they reflect the magnitude of the policies’ influence in

the countries’ present financial standings.

Due to differences in their market strategies, UK and China were evaluated

separately. Discussion of the implications of the test results will follow.

24
 METHODOLOGY

Data Collection

Data used for this paper were gathered from various sources. Statistical data for China

prior to 2009 were collected from China’s National Statistics Office website. Data for 2009 were

obtained from different issues of the China Daily. GDP data used for this study was obtained

from the PRC National Statistics records. It is noteworthy to mention that there is a discrepancy

between the National Statistics data and the IMF Worldbank database records. In cases where

annual data are needed, projections were made based on the data from the first half of the year.

All assumptions were noted.

United Kingdom’s GDP data were downloaded from the International Monetary Fund’s

Worldbank Database. Real estate records were downloaded from the National Statistic, the UK

statistic website, and other sources.

All data collected from these various sources were summarized and used in the analysis.

Most references of data and literature were obtained online due to absence of adequate up to date

printed sources.

Evaluation

China and UK employ different forms of economy and implemented different measures

in mitigating the present crisis. The evaluation of the effects of the reforms in the real estate

sector and in the overall economy for each country was done separately before a comparison of

the two economies was presented.

For China, the effect of the new reform on the urban and rural per capita disposable

income was evaluated. The change in real estate investment growth rate was also presented in

25
relation to the GDP. Lastly, correlation analysis was done to establish the relationship of the GDP

and real estate investment growth rate.

For United Kingdom, four aspects were evaluated:

1. The effect of the new reform on the number of transactions of residential and non-

residential properties;

2. The impact of the new lending policies on the number of mortgage properties;

3. The effect of the house prices on the GDP ;

4. The effect of transactions on the GDP.

Correlation analysis was done to establish the relationship of house prices and the GDP.

Also, correlation test was performed to check the relationship between the number of house

transactions and the GDP.

Comparison

A side by side comparison between the effects of the policies on the real estate sector of

China and United Kingdom was done. Housing investment growth rate for each country was

computed and presented. GDP trend for both countries were also presented to evaluate the effect

of the policies to the economy.

26
 FINDINGS

For this discussion, the findings on the effect of the new policies on the real estate sector

were presented for each country. Comparison between the two markets is also included.

China

China’s reform relinquishes partial control of the country’s land asset to the farmers by

giving them the option to lease and transfer their rights. This aims to increase the purchasing

power of the Chinese farmers and expand local demand and consumption, thus uplifting the

economy. To evaluate the effect of the reform to the economy, we need to evaluate the change in

urban per capita disposable income and rural per capita disposable income.

Table 1: Urban per capita disposable income and rural per capita net income of workers in China
Urban per capita disposable income Rural per capita net income
Year
(RMB) (RMB)
2000 7.3 1.90
2001 9.2 5.00
2002 12.3 4.60
2003 10 5.90
2004 11.2 12.00
2005 11.4 10.80
2006 12.1 10.20
2007 17.2 15.40
2008 14.5 15.00
2009 10.2 8.6
Source: PRC National Statistics

27
Figure 1: Urban per capita disposable income and rural per capita net
income of workers in China from 2000 to 2009

Based on the National Statistics data, both urban per capita income and rural net income

data do not have a specific trend. The graph fluctuated from 2000 to 2009. To evaluate the effect

of the crisis, we focus on the last three years, 2007 to 2009. Based on the record, the urban per

capita disposable income growth rate went down from 17.2% in 2007 to 14.5% in 2008 and only

10.2% in the first half of 2009. The rural income net also declined from 15.4% in 2007 to 15% in

2008 and only 8.6% in 2009. Despite the policy’s goal to increase the rural earnings, rural

income net continued to decline.

28
 Table 2: GDP and Investment Growth Rate of Real Estate Industry in China from 2000 to 2009
Year GDP Investment Growth Rate of Real Estate
Industry
2000 9,921.50 18.70
2001 10,965.50 25.30
2002 12,033.30 35.00
2003 13,582.30 29.70
2004 15,987.80 28.10
2005 18,321.70 19.80
2006 21,192.40 25.40
2007 25,730.60 32.20
2008 30,067.00 20.90
2009 12,076.67 11.60
Source: National Statistics for 2000 to 2008 data and China Daily for 2009.

Figure 2: GDP and Investment Growth Rate of Real Estate Industry in China from 2000 to 2009

Based on the chart, the GDP uptrend went down from 30,067.00 RMB in 2008 to

12,076.67 RMB in the first half of 2009. Likewise, the investment growth rate of real estate

shows a decrease from last year’s 20.9% to only 11.6% for the first seven months of the year.

29
While the decline is apparent, the positive growth rate indicates that China’s real estate sector is

still advancing despite the slow economy. Although the growth rate recorded for the first quarter

of 2009 is significantly lower than that of the previous year, 11.6% shows that housing market is

still strong and profitable.

To test for the impact of real estate investment growth to the GDP, we used the Pearson’s

Product Moment Correlation (R) Test. Pearson’s Product Moment Correlation Coefficient (R),

tests whether two variables are correlated, that is, when an increase in one variable leads to a

concomitant increase in another variable. Our null hypothesis will be that there is no relationship

between GDP and the investment growth rate. In mathematical terms; R=0.

The alternative hypothesis will be that there is a relationship between GDP and the

investment growth rate. In mathematical terms; R>0.

The statistical model for Pearson’s Product Moment Correlation Coefficient Test is:

R= NΣXY – ΣXΣY .

√n ΣX² - (ΣX)² √n ΣY² - (ΣY)²

R values will always fall between -1 and 1. That is,

-1≤ │R│≤ 1

The absolute value of R will always lie between 0 and 1. That is,

0≤ │R│≤ 1

│R│ value equal to 0 means absolutely no relationship. An absolute value equal to 1 means

perfect relationship. The nearer is │R│ to 1, the greater the probability of a relationship,

consequently, the nearer │R│ is to 0, the weaker the relationship. A positive value implies that

all data points lie on a line for which Y increases as X increases. A negative value implies that all

data points lie on a line for which Y decreases as X increases. To determine if an │R│ in

30
between 0 and 1 is significantly different from 0, we will refer to the Pearson Product-Moment

Correlation Coefficient Table of Critical Values (see Appendix 1).

At ∝ = 0.05, df = 10, we will reject our null hypothesis if the absolute value of computed

R is greater than the table value R (│Rc│> Rt ), or if R> .576

Based on the computation, our computed R> 0.911 is greater than R> .576, therefore we

can conclude that the real estate investment growth rate affects the GDP. Since the value

obtained is positive, it indicates that GDP increases as the real estate investment growth rate

increases. Therefore, we can assume that the decline in GDP can be brought in part by the

decline in real estate investment.

United Kingdom

For the United Kingdom, we analyzed the impact of the reform on the real estate sector

by looking at the number of transactions for both residential and non-residential properties.

31
 Table 3: Residential and non-residential transactions of properties in UK
Year Residential Non residential Residential Non residential
transactions, transactions, transactions, transactions, not
seasonally seasonally not seasonally seasonally
adjusted adjusted adjusted adjusted
2005 Q2 320 33 341 33
2005 Q3 363 34 387 34
2005 Q4 367 33 382 33
2006 Q1 389 34 335 34
2006 Q2 404 34 419 34
2006 Q3 429 32 457 32
2006 Q4 442 35 459 35
2007 Q1 428 34 367 34
2007 Q2 414 35 428 35
2007 Q3 414 34 443 34
2007 Q4 360 35 376 35
2008 Q1 298 33 246 33
2008 Q2 249 33 263 33
2008 Q3 192 27 205 27
2008 Q4 178 23 186 23
2009 Q1 164 20 141 20
2009 Q2 191 21 198 21

Figure 4: Residential and non-residential transactions of properties in UK

Based on the chart, there is a significant decline in the number of transactions for

32
residential properties starting third quarter of 2007 and non-residential properties on the first

quarter of 2008. The number of transactions was reduced by almost half from 2007 to the first

quarter of 2009. The start of the drop coincides with the outset of the subprime property crisis. A

sign of reversal is observed for the second quarter of 2009 but to avoid premature conclusions,

we can just say the real estate performed better during the second quarter of 2009 than during the

first quarter of the year.

Table 4 shows the effect of the crisis on the number of mortgage products advertised in

Moneyfacts.

33
Table 4: Number of mortgage products advertised in Moneyfacts
Date Credit impaired Credit impaired Prime buy-to-let Prime
buy-to-let residential residential
1-Feb-07 1.11 7.11 1.38 2.65
1-Mar-07 1.03 6.50 1.71 3.38
2-Apr-07 1.12 7.24 1.87 3.20
2-May-07 1.18 7.55 1.96 3.37
1-Jun-07 1.31 7.77 2.19 3.66
1-Jul-07 1.38 8.15 2.27 3.80
31-Jul-07 1.38 5.82 2.20 3.73
31-Aug-07 1.42 5.11 2.24 4.05
31/09/2007 1.00 4.14 2.30 3.29
22-Oct-07 0.33 3.50 1.76 3.32
30-Nov-07 0.15 2.92 1.79 3.48
31-Dec-07 0.01 2.61 1.71 3.37
31-Jan-08 0.01 1.70 1.70 4.96
29-Feb-08 0.01 2.75 1.53 3.21
26-Mar-08 0.01 1.63 1.22 2.51
30-Apr-08 0.00 1.62 0.59 1.69
30-May-08 0.01 1.54 0.53 1.68
30-Jun-08 0.01 1.21 0.47 1.72
31-Jul-08 0.00 1.18 0.46 1.78
29-Aug-08 0.00 1.25 0.60 2.09
30-Sep-08 0.00 1.14 0.48 1.85
31-Oct-08 0.01 1.20 0.40 1.69
28-Nov-08 0.00 0.51 0.29 1.31
31-Dec-08 0.00 0.50 0.29 1.34
30-Jan-09 0.00 0.28 0.29 1.25
27-Feb-09 0.00 0.22 0.22 1.20
31-Mar-09 0.00 0.18 0.21 1.23
30-Apr-09 0.00 0.01 0.22 1.26
29-May-09 0.00 0.00 0.23 1.28

34
Figure 5: Number of mortgage products advertised in Moneyfacts

The crisis adversely affected the mortgage industry as shown in Figure 5. Decline in the

quantity of available properties is noted starting fourth quarter of 2007. The steep decline

stabilized for this year, indicating a trough but no indicator of reversal is observed.

The economic crisis not only affected the number of real estate transactions but reports

also noted a decline in house price. Data of house price and GDP is presented in Table 2.

35
 Table 5: GDP and house prices in UK
Year GDP house prices
1989 861.294 54,846
1990 1,017.79 59,785
1991 1,059.26 62,455
1992 1,098.30 61,336
1993 982.615 62,333
1994 1,061.38 64,787
1995 1,157.44 65,644
1996 1,220.85 70,626
1997 1,359.44 76,103
1998 1,456.16 81,774
1999 1,502.89 92,521
2000 1,480.53
2001 1,471.40 101,550
2002 1,614.70 112,835
2003 1,862.77 128,265
2004 2,199.25 155,627
2005 2,280.06 180,248
2006 2,435.70 190,760
2007 2,803.40 204,813
2008 2,674.09 223,405
2009 2,007.05 227,765
Source: National Statistics

Figure 6: GDP versus house prices in UK

36
 House price shows a relentless increase from 1989 to 2009, with significant

improvements from 2003 to 2007. However, the trend slowed down for 2009, recording a very

minimal change. Quarterly house price growth estimates based on CLG, Land Registry, Halifax

and Nationwide records is presented in Figure 7.

Figure 7: Housing market: annual house price growth, comparison of CLG, Land Registry, Halifax
and Nationwide estimates, United Kingdom, (quarterly) from 2005.

Based on the figure, house price growth crossed the zero level in 2008, indicating a

negative growth or the decline of house prices. The decline continued until the first quarter of

2009. A sign of reversal is evident in the second quarter of 2009, however it is not conclusive as

we need more data to prove the sustainability of the said reversal.

Correlation analysis of the GDP and house price shows that R= 0.91096 which is greater

than the tabulated value of .576, therefore, we can say that the GDP is highly correlated with

house prices. An increase or decrease in house prices directly increases or decreases the GDP.

37
 Table 6: GDP versus the number of real estate transactions from 2005 to 2009
Year GDP transactions
2005 2,280.06 2,360 2,360
2006 2,435.70 3,604 3,604
2007 2,803.40 3,506 3,506
2008 2,674.09 2,049 2,049
2009 2,007.05 776 1,552*
st
*Projected annual data based on the 1 half of 2009

Figure 8: GDP versus the number of real estate transactions from 2005 to 2009

From Figure 8, we can see that though the number of transactions is more volatile than

the GDP, they followed almost the same pattern, with an increase followed by a drop from 2007.

Based on the figure, we can see that a decrease in real estate transaction could in effect cause a

decrease the GDP.

Correlation analysis of the GDP and number of real estate transactions resulted to R=

0.96223602. Since this value is greater than the tabulated value of R, we can say that GDP and

number of real estate transactions have a direct relationship. An increase in the real estate

transaction would result to an increase in the GDP.

Comparison between China and United Kingdom

38
 Table 7: Real Estate growth rate for China and UK
Year China UK
2005 19.8
2006 25.4 52.7
2007 32.2 -2.7
2008 20.9 -41.6
2009 11.6 -24.3

Figure 9: Housing investment growth rate of China versus UK

Based on Figure 9, the China house market growth increased from 2005 to 2007 but

declined from 2007 to 2009. However, it still exhibited positive growth which shows that the real

estate investment in China slowed down but still developing. The UK data on the other hand

shows a steep decline from 2006 to 2008, crossing the negative level in 2007. This shows that

from 2007, the housing market crashed. This coincides with the global economic crisis. A

reversal is recorded in 2009, however the data is not accurate due to the fact that the figure for

2009 was estimated based on the first half of the year’s performance. Based on the figure, though

the growth rate increased for 2009, it is still below the zero level which indicates that the housing

sector has not recovered yet.

39
 Table 8: GDP of China and UK
Year China UK
2000 9,921.50 1,480.53
2001 10,965.50 1,471.40
2002 12,033.30 1,614.70
2003 13,582.30 1,862.77
2004 15,987.80 2,199.25
2005 18,321.70 2,280.06
2006 21,192.40 2,435.70
2007 25,730.60 2,803.40
2008 30,067.00 2,674.09
2009 12,076.67 2007.05

Figure 10: Comparison between China and UK GDP

Based on Figure 10, the GDP for both countries had a positive trend prior to the crisis.

UK’s GDP declined in 2008 indicating the start of the crisis. China’s GDP dropped a year later,

indicating a lag in the impact of the recession for China. The recession that started in the United

States rippled through the different countries at different speed. While the some countries were

affected immediately, some countries like China exhibited results later than the others.

40
 ANALYSIS

The results show that policy implementation in both countries had varied impact on the

overall economy. Although the aims of the policies in China and UK are similar, the provisions

and implementation approaches are different. The reforms are implemented to stimulate local

demand, empower the people through better lending system and increase profit in the real estate

sector. Implications of the policies in China are discussed in detail, followed by a discussion of

UK and then a comparison of the two countries.

China

Rural and Urban income

The policy did not seem to indicate any positive effect to the Urban and rural per capita

income. In fact, a decline was recorded for both 2008 and 2009. The urban per capita decrease

could be explained by bankruptcies and retrenchments brought by the economic crisis. Due to

the crisis, Chinese imports slowed down. This resulted to company closures and retrenchments

which explains the decrease in urban dweller’s per capita income.

Contrary to the goal of the reform, the rural per capita disposable income growth rate also

went down from 2007 to 2009. This does not reflect the expected growth of rural income brought

by the implementation of the reform. This is consistent with the Ministry of Commerce’s report

that “China's efforts to boost domestic consumption may not be enough to arrest the slide in

exports and more steps may be necessary if the nation has to achieve this year's foreign trade

target of over $2 trillion” (Qingfen 2009). Domestic demand cannot offset the export shortfall

and China need to establish measures to boost market share abroad. However, it still maybe too

early to conclude since the reform was only implemented last October.

Real estate growth rate

41
 The positive real estate growth rate implies that the housing sector continues to perform

despite the recession. According to Yuanyuan (2009), the significant growth in the in house

purchases can be explained by the more lax policy allowing foreigners to buy homes in China.

Chiang (2008) added that measures to support the ailing market include cuts in business and

transaction taxes for real estate sales and policies. This encourages buyers to invest in the real

estate sector.

Another explanation for the sustained growth in real estate investment in China is the

continuing extension of loans by Chinese banks to buyers and developers. While banks in other

countries imposed restrictions on lending, Chinese banks maintained a loose monetary policy.

Bank loans went up to as high as 1,890 billion Yuan in March 2009.

Figure 3: Yuan Loans from December 2008 to July 2009

Correlation Test

Based on the result of the correlation test, we can conclude that the GDP of China is

highly correlated with the performance of the real estate sector. The positive relationship implies

that an increase in the real estate investment results in an increase in the GDP. The move of the

Chinese government to give emphasis to the real estate sector is appropriate as it is a major

contributor in the economy of the country.

UK

42
Number of transactions

There is a significant decline on the number of real estate transactions from 2007 to 2009.

This can be explained by the crisis and reinforced by the lack of confidence of people to invest in

the real estate sector. The crisis caused defaults and repossession of properties which affected a

lot of people. Instead of investing, people lost their homes. Families who lost their jobs were

unable to pay their mortgages and had their homes foreclosed. A reversal for both residential and

non residential properties can be observed in the second quarter of 2009. This coincides with

reports of economic reversal. However, there are no sufficient data to confirm that the housing

sector of UK has recovered.

The effect of the more rigid mortgage and lending policies is evident on the consistent

decline of mortgage product advertised in Moneyfacts that started during the second half of

2007. Banks tightened their policies for borrowers. Also, people are wary of the investment

sector due to the real estate bubble. Massive lay offs and retrenchment also contributed to the

decline in real estate investment. People who are uncertain of their jobs are not disposed to avail

loans. According to Hitshopi (2009), “The only route back to stability is for the banks to begin

normal lending again both to each other and to home buyers.”

According to Wheatly (2009), gross mortgage lending for the first quarter of 2009 was an

estimated £33 billion which represented a 29% decline from the fourth quarter of 2008. Based on

the report, it was the lowest quarterly lending total since the first quarter of 2001.

House prices

House prices declined from 2008 to 2009. This is expected as the crisis resulted to

massive foreclosures and repossession of houses. Families were not able to pay their mortgages

due to the crisis, high interest rates and massive lay offs. The increase in unemployment also

43
caused a lot of people to lose their income and security. Even people who did not lose their job

feel uncertain about their future which pushes investing in properties out of the priority list. The

tight banking and lending policies makes it hard for people to borrow money to finance their

property purchases. The aggregate effect of the lose in confidence in the real estate industry,

unemployment, tighter financing regulations and financial uncertainty contributed to the

decrease in house market demand.

Correlation tests

Based on the correlation test, GDP is highly affected by the number of real estate

transactions and house price increase. The more real estate property purchases and the higher the

price, the better it is to the economy. This is explained by the fact that a high property value

implies high demand and a profitable market. If the number of purchases goes up in spite of the

price, it means the market is competitive and investors are willing to spend their money. This is

an indicator of a healthy economy. The decrease in house prices and the number of transactions

on the other hand implies that the market is problematic. Despite the decrease in price, people are

not interested to invest in real estate. This signals problems not only in the housing industry but

also in the economy.

Comparison

Implementation of the policies for the two countries yielded different results. The

implementation of the policy show positive results for China as positive growth rate in real estate

was maintained. On the other hand, the implementation of the new reform in UK resulted to the

depression of the housing market. This difference in the impact in both countries can be

explained by several factors:

1. Different policy provisions

44
 China’s policy regarding real estate investment was straight forward and constructive.

The Chinese government wanted to boost sales by decreasing tax, creating more lenient

ownership regulations and loosening borrowing policies. These provisions of the Chinese

policy are complementary and the collective effect was manifested in the impact to the

economy. In UK however, although the policy aimed to increase purchases in the real estate

sector and keep the industry afloat, there is a conflict with the banking policy. The UK

banking system need to recover from the mistakes of the past unregulated system, thus they

needed to impose stricter rules and regulate lending of money. This is to ensure that the

mistakes are avoided and guarantee that the bank has enough reserve cash for stability

purposes.

2. Government control

While the UK government encourages the banks to use a part of their cash to help

individuals and enterprises, it does not have a control of the use of the banks money. It

remains the prerogative of the bank to spend the money as they deem appropriate. They are

free to refuse loans secured by individuals. In China, the government has a complete hold of

the banking industry. The bank relies on the government to direct its funds to wherever the

government believes it is needed most.

3. Political and Economic Ideology

The differences in the political and economic ideology of the two countries

contributed to the differences in impact. The UK data is a free market economy. Different

players work together to manage the economy, thus transparency is expected from all sectors

of the social, political and economic environment. The government requires full disclosure of

the real status of the economy. On the other hand, China is a socialist economy. Some

45
 analysts believe that the Chinese Communist Party not only controls the economy but also

controls and dictates the kind of information that is circulated to the Chinese community and

to a certain extent to the world. While such allegations are unfounded, certain discrepancies

like the difference in the GDP data between the IMF record and China’s Statistics website,

imply that the absolute control of the Communist Party on the affairs of the State could lead

to deception about matters that could compromise the country’s economic stability and

political integrity.

These discussions show that while some of the goals of the policies are similar for China

and UK, the provision and the implementation of the reforms differ based on the political and

economic environments of the countries mentioned.

Based on the findings, the policy had a positive impact on the economy of China. Though

the real estate sector suffered some decline in growth due to the crisis, the policy was able to

insulate the housing market. This resulted to a continues positive growth in sales. However, the

consequences of unregulated borrowing in UK resulted to a problematic housing market and

despite the government and financial industry’s desire to keep the real estate sector afloat, they

cannot afford to extend the needed support without compromising the banking industry. Instead

of boosting the real estate sector, the policy contributed to the decline in sales brought by the

aggregate provisions of the policy.

46
 CONCLUSIONS

The reforms implemented in China and UK yielded different impacts to both countries.

China was able to maintain a positive growth rate in the real estate sector as a consequence of the

implementation of the policy. The aggregate effect of the reforms of the government to loosen

bank lending and real estate ownership regulation and lower interest rates and taxes shows a

positive effect as the real estate growth rate continues to climb despite the economic crisis.

Although the growth rate declined compared to previous records, the positive result shows that

the housing market is still thriving and the government initiative to boost the market is

successful. The goal to increase local demand by empowering the rural farmers however did not

show any significant increase in the rural farmers’ income. This could imply that real estate

purchases are mostly from foreign buyers and city dwellers.

On the other hand, analysis of United Kingdom’s data confirms the anxiety of analysts

regarding the policy’s impact on the real estate industry. The new lending regulations resulted to

lower real estate transactions, lower mortgage opportunities and decline in house prices. Despite

the government’s desire to stabilize the housing sector, they are obliged to choose priorities and

keeping the banking industry afloat takes precedence over other sectors. Although the UK policy

managed to stabilize the banking industry, the real estate sector continues to perish.

Evaluations of the two economies show different results. Although the findings are not

conclusive given the limited time frame between the policy implementation and the conduct of

this evaluation, the impacts observed from this study could be used as a basis in conducting a

more thorough investigation of the reforms and their contributions in the economic reversal of

the said countries.

47
 Although a comparison was made between China and the United Kingdom in this study,

differences in the two economies were emphasized and explained to avoid misconceptions.

China’s real estate thrived while UK perished. Yet it is not that simple. The two economies are

different and the situations surrounding the present crisis and their responses are distinctive to

their political ideology and economic climate, therefore, it is not appropriate to simply conclude

that one market succeeded and the other failed. Each country responded based on the prevailing

situation and the impact of the policies is limited by the political and economic constraints of the

countries.

As Zheng (2008) noted, the financial crisis is not about the failure of the free market

economy or the victory of the socialist controlled market. It is not a battle of which market does

better and which suffers most. The economic crisis shows that no economy is immune to the

fluctuations of the market. Also, it teaches us that the boundaries are blurring and economies are

becoming more intertwined that a problem in one country can have impacts that go beyond the

territory. If anything, the present crisis shows that despite the political differences, territorial

boundaries and economic disparities, one way or another all countries affect each other.

48
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Technology Division, International Food Policy Research Institute

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united-states-crisis-6629.html

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APPENDIX A: Pearson Product-Moment Correlation Coefficient Table of Critical Values

df= N-2 Level of significance for two-tailed test

N = number of .10 .05 .02 .01

pairs of data

1 .988 .997 .9995 .9999

2 .900 .950 .980 .990

3 .805 .878 .934 .959

4 .729 .811 .882 .917

5 .669 .754 .833 .874

6 .622 .707 .789 .834

7 .582 .666 .750 .798

8 .549 .632 .716 .765

9 .521 .602 .685 .735

10 .497 .576 .658 .708

11 .476 .553 .634 .684

12 .458 .532 .612 .661

13 .441 .514 .592 .641

14 .426 .497 .574 .628

15 .412 .482 .558 .606

16 .400 .468 .542 .590

17 .389 .456 .528 .575

18 .378 .444 .516 .561

19 .369 .433 .503 .549

53
20 .360 .423 .492 .537

21 .352 .413 .482 .526

22 .344 .404 .472 .515

23 .337 .396 .462 .505

24 .330 .388 .453 .495

25 .323 .381 .445 .487

26 .317 .374 .437 .479

27 .311 .367 .430 .471

28 .306 .361 .423 .463

29 .301 .355 .416 .456

30 .296 .349 .409 .449

35 .275 .325 .381 .418

40 .257 .304 .358 .393

45 .243 .288 .338 .372

50 .231 .273 .322 .354

60 .211 .250 .295 .325

70 .195 .232 .274 .302

80 .183 .217 .256 .284

90 .173 .205 .242 .267

100 .164 .195 .230 .254

54
APPENDIX B: Correlation Computation for GDP and real estate growth rate of China

GDP x y xy x2 y2

2000 9,921.50 18.70 185532.1 98436162.25 349.69

2001 10,965.50 25.30 277427.2 120242190.3 640.09

2002 12,033.30 35.00 421165.5 144800308.9 1225

2003 13,582.30 29.70 403394.3 184478873.3 882.09

2004 15,987.80 28.10 449257.2 255609748.8 789.61

2005 18,321.70 19.80 362769.7 335684690.9 392.04

2006 21,192.40 25.40 538287 449117817.8 645.16

2007 25,730.60 32.20 828525.3 662063776.4 1036.84

2008 30,067.00 20.90 628400.3 904024489 436.81

12,076.67 11.60 4094758 3154458058 6397.33

Σx Σy Σxy Σx² Σy²

n 25

R= NΣXY – ΣXΣY .

√n ΣX² - (ΣX)²√n ΣY² - (ΣY)²

R= 10*4094758– 12,076.67*11.60

√10* 3154458058- (12,076.67)²√10* 6397.33- (11.60)²

R= 102228871.4

112154583.6

R= 0.911499718

55
APPENDIX C: Correlation Computation for GDP and house prices in UK

Year GDP house prices xy x2 y2

1989 861.294 54,846 47238530.72 741827.35 3008083716
1990 1,017.79 59,785 60848694.72 1035900.6 3574246225
1991 1,059.26 62,455 66155895.94 1122025.4 3900627025
1992 1,098.30 61,336 67365144.79 1206256.3 3762104896
1993 982.615 62,333 61249340.8 965532.24 3885402889
1994 1,061.38 64,787 68763755.63 1126531.7 4197355369
1995 1,157.44 65,644 75978728.78 1339658.1 4309134736
1996 1,220.85 70,626 86223963.98 1490482 4988031876
1997 1,359.44 76,103 103457538.4 1848079.8 5791666609
1998 1,456.16 81,774 119075619 2120387.4 6686987076
1999 1,502.89 92,521 139049163.3 2258687.4 8560135441
2000 1,480.53 0 2191960.2 0
2001 1,471.40 101,550 149420263.8 2165006.2 10312402500
2002 1,614.70 112,835 182194561.7 2607252.9 12731737225
2003 1,862.77 128,265 238928194.1 3469912.1 16451910225
2004 2,199.25 155,627 342262679.8 4836700.6 24219763129
2005 2,280.06 180,248 410976435.1 5198678.2 32489341504
2006 2,435.70 190,760 464633941.2 5932629.6 36389377600
2007 2,803.40 204,813 574173583.5 7859074 41948364969
2008 2,674.09 223,405 597403959.4 7150730.6 49909794025
2009 2,007.05 227,765 457135515.5 4028245.7 51876895225
33606.36 2277478 4312535510 60695558 3.28993E+11
ΣX ΣY ΣXY ΣX 2 ΣY2
n 25
R= NΣXY – ΣXΣY .

√n ΣX² - (ΣX)²√n ΣY² - (ΣY)²

R= 10*4312535510– 33606.36*2277478

√10* 60695558- (33606.36)²√10* 3.28993E+11- (2277478)²

R= 31275653577

34332516948

R= 0.910963027

56
APPENDIX D: Correlation Computation for GDP and number of real estate transactions in UK

Year GDP transactions xy x2 y2

2005 2,360 2,280.06 5380944 5198678 5569600
2006 3,604 2,435.70 8778259 5932630 12988816
2007 3,506 2,803.40 9828734 7859074 12292036
2008 2,049 2,674.09 5479200 7150731 4198401
2009 1,552 2,007.05 3114940 4028246 2408704
12200.3 13071 32582078 30169358 37457557
ΣX ΣY ΣXY ΣX 2 ΣY2
R= 0.96223602

57