Price rise heightens families' plight
Surging prices could make even most of our white-collar workers broke, says an article in Economic Information Daily. Excerpts:
Seven of the 10 families surveyed in Beijing and Shanghai spent half of their income to pay monthly installments for the goods and/or property they had bought. Such families could be pushed into bankruptcy by the rising cost of living.
In developed countries, monthly payments are usually limited to 30 percent of a household's income. Yet China's white-collar workers have to set aside 40 percent of their income every month just to pay their home loans.
If the consumer price index rises by 3 percent, families using 50 percent of their income to repay home loans will find themselves without enough money. So they will have to either reduce their expenditure or earn more money.
And if the central bank raises the loan interest rate by 2 percent, most of the home-loan receivers will end up as defaulters, a scenario more disastrous than the US sub-prime crisis. But some people hope their incomes will increase in pace with inflation. Yet this is not true because in China, the government has imposed heavy taxes on most of the enterprises.
Others think they will sell their houses if they cannot repay the loans. But if the government raises the loan interest rate, housing prices could fall by 30 to 50 percent, reducing the value of the houses drastically overnight. China's lopsided real estate market poses a great threat to the county's overall economy. So families whose income is not likely to increase should better start accumulating enough cash in hand to cope with the trying times ahead.
(China Daily 11/20/2009 page9)
