China imposes more strict regulations on foreign investments pouring into its real estate. Borrowing credits offshore will be banned in order to tame property prices and cool down the economy. Investors won't be capable to take advantage of the interest rate spread that makes the foreign financial system especially attractive because of the lower interest rates. In the light of the recent development around the world, however, this move may look quite unnecessary; China may just turn to be among the markets that will suffer from overexposure. On the other hand, this series of new regulations must confirm the hybrid nature of the economic regime in place in China, a regime that ideologically is against the market, but in fact tolerates it.

China imposes new strict regulations on foreign investments. The property funds for China that were accustomed to borrow at least 50 percent of the money needed for each project, will have to reconsider this practice. One possible alternative will be to look for 100 percent financing, another for financing that will bypass the banking system altogether. The red tape for new investors is also increasing. 'Paperwork' will take more time, and the authority approving investors' activity will be more centralized than ever.

The logic of all these measures is quite simple. By attacking the money that is pouring into China from abroad, the central authorities in China are trying to tame the inflation, which reaches almost double digits in some urban areas. Less activity on the real estate market, especially in some coastal areas, will tame the overheating economy in turn. Cooling down economy will have beneficial effect on the public finances, stretched to the limits by the speed of changes that surpasses by far the capacity of administration to deal with them. At the end, economy will move out of dangerous waters, and its management will follow more predictable course.

Recent moves toward more and stricter regulations may in fact be unnecessary, at least for the time being. There is a mood short of panic among some investors that deal with real estate markets around the world. Usually, the first victims are the new markets, which right or wrong, are considered to be more risky. China, therefore, may just turn to be among the markets that will suffer from overexposure. It won't be the political regulation that will put a brake on the investment boom; it will be self-regulating mechanism of investors that will take 'wait-and-see' strategy that will reflect in lower interest for China.

Necessary or not, these measures only confirm the hybrid nature of the economic system in China. Behind this move to restrict a certain activity may hide a strategy to channel investments in areas that have been so far forgotten by the big money. For a regime, which is ideologically against the market as main driving force for economic development, it's more natural to impose a general restriction and then to allow certain exceptions, than the other way around. Furthermore, any restriction, everything else being the same, usually eliminates smaller players from the market. And it's always a dream for many governments to deal with few but big companies than with multitude of small players. And finally, the culture of bureaucracy that reigns in China since the country's inception is a powerful point of reference. The very idea that a social process may develop quite successfully without being guided from above is simply unthinkable.

--------------------

See also the directory of companies providing real estate services in, and general real estate information of China.