(China Daily)
Updated: 2007-11-15 07:11

Ever increasing house prices bring about not merely fat revenues for local governments. They also push up the cost of living and production.

If local authorities are to secure the long-term competitiveness of their cities, they should pay close attention to the looming exodus of factories in Shenzhen.

The coastal city, a pioneer of reform and opening up, has successfully built itself into one of China's major economic powerhouses in the past three decades. Nonetheless, Shenzhen seems to grasp more headlines for its double-digit house price hikes nowadays than for its feat of economic growth.

In spite of mounting, and somewhat wishful, rumors that local housing prices have peaked, Shenzhen recorded a 19.5 percent year-on-year gain in property prices in October.

Meanwhile, housing prices in 70 large and medium-sized Chinese cities rose by 9.5 percent year-on-year in October. The rise, 0.6 percentage points higher than that of September, hit a new high.

The fact that local property markets are shrugging off the central government's efforts to curb surging housing prices indicates that many local officials are yet to get serious enough about the issue. As long as the property boom allows them to sell land lots at ever increasing prices, few local governments would be willing to take meaningful action against unchecked house price hikes.

However, Shenzhen has found out recently that such a business-as-usual approach does not work any longer as more and more local enterprises choose to relocate due to the rising cost of land and high salary levels.

It was reported that local enterprises are moving by groups out of Shenzhen into other areas offering cheaper land and labor.

Local officials once believed that the removal of some low-end manufacturing factories is innocuous because it can facilitate the city's pursuit of higher energy efficiency and environmental standards.

But the consequence of rocketing house prices is that the cost of living and production has been lifted to a prohibitively high level for low-end manufacturers as well as high-tech and high-value producers.

Clearly, if Shenzhen does not take prompt action to ease local enterprises' worries about runaway property price hikes, it will only price itself out of the market among domestic cities' contest to attract the most competitive enterprises.

The dilemma Shenzhen currently faces should be a lesson for all other Chinese cities. After all, a property boom is not a sheer windfall but rather a double-edged sword for local economic growth.

(China Daily 11/15/2007 page10)