STEVE INSKEEP, HOST:
You remember that moment about 2007, don't you? That sunny moment before the U.S. economy crashed? Home prices were soaring - it seemed like they'd never drop. Only later did everybody grasp how big a housing bubble it was and how that was a sign of trouble. Now we do not mean to suggest the exact same thing is happening in China, not at all. We do suggest that real estate prices may reflect bigger trends in an economy. And in China, too, home prices are soaring in some of the wealthiest cities. Those prices are climbing even as the world's second-largest economy is otherwise struggling. NPR's Frank Langfitt has been investigating just what is happening inside a vital U.S. trade partner.
FRANK LANGFITT, BYLINE: This is a government real estate transaction office, and there are hundreds of people here today lined up to put in their paperwork to buy houses. In fact, the crowds are so big they brought in a bunch of guards with white hardhats and bullhorns to keep everything under control, keep everything in order.
ANNA ZHANG: (Through interpreter) I think the housing market is pretty crazy. It's beyond our imagination. We can't afford to wait because we feel if we keep waiting, we will never be able to afford an apartment.
LANGFITT: Anna Zhang and her husband just bought their first home. It's tiny, less than 600 square feet, and a three-hour round-trip commute from her job at an export company. The price tag? More than $200,000, most of which the couple borrowed from a bank. But Zhang, who's 27, says prices are rising so fast the couple didn't have any choice.
A. ZHANG: (Through interpreter) I would call a home owner in the morning and he'd offer one price. When I called him back in the afternoon, there was another price. This happened twice, and the price jumped anywhere from $7,500 to $15,000.
LANGFITT: Shanghai housing prices have risen more than 15 percent in the past year. In the southern boomtown of Shenzhen, they're up more than 50 percent. This might make more sense if China's economy were booming but last year, growth here hit its lowest rate in a quarter-century. So what's driving these prices? Lu Wenxi says one factor's anxiety. Lu is a researcher at Centaline, a top real estate firm in China.
LU WENXI: (Through interpreter) More and more people see Shanghai as a safe haven. People who want to find refuge for their money so it can keep its value can only invest in first-tier cities.
LANGFITT: In other words, the run-up in prices in so-called first-tier cities like Shanghai, which are the country's biggest and most prosperous, don't signal strength. They signal weakness.
OLIVER RUI: The current issue is people lacking confidence about economies.
LANGFITT: Oliver Rui teaches finance at China Europe International Business School here in Shanghai. He says as Shanghai's stock market tanked last year, people shifted their money into property. Rui says more investment in real estate could help boost construction and the country's flagging growth. But he also says it could slow down China's transition to a more sustainable, consumption-driven economy.
RUI: In the short run, it could be a very effective way. But in the long run, I think it's poison. You make the assets bubble become bigger and bigger, and I think they will repeat the tragedy that happened in Japan 30 years ago.
LANGFITT: That's when the property bubble burst and the Japanese economy stagnated. Shanghai officials insist they will reign in housing values to prevent anything like that from happening, but they haven't said exactly how. In the meantime, many ordinary homebuyers are paying the price. I spoke with a guy named Zhang -he's a 50-year-old construction worker - while he was waiting to put in his paperwork on his new apartment at the real estate office. He says the government needs to do a lot more to protect little guys like him.
ZHANG: (Through interpreter) In recent years, the government has talked a lot about letting ordinary people reap the fruits of the country's economic reforms, but I think in reality, the people have benefited very little.
LANGFITT: Amid slowing growth and high property prices, more and more people feel the way Zhang does.
INSKEEP: That's NPR's Frank Langfitt we've been listening to from Shanghai, and Frank is still on the line with us. Frank, a couple of other questions - what does all this mean for the United States?
LANGFITT: Well, I think it's considerable, and I think it's something that Americans need to watch pretty closely. You know, as more money goes into real estate, in a sense China's going backwards to this old, bloated economic model of investment and construction. And right now, I guess at the end of last year, there were about 182 square miles' worth of unsold residential real estate. That's actually much larger than the surface area of Philadelphia. What China really wants to do, the leaders here, they want to have a much more innovation and service-driven economy. But people are concerned that they'll be putting off reform by pushing more money into real estate, and this could mean slower growth, less demand from China. That could affect global stocks, U.S. businesses. And so I think the United States and certainly the global economy has a real stake in the Communist Party getting this right.
INSKEEP: You know, you keep saying things that sound familiar from the run-up to the Great Recession in the United States. You just mentioned that there are soaring housing prices - almost a panic to get in on the market before it's too late - and yet you also mentioned vast amounts of unsold real estate. You're describing a very unbalanced situation.
LANGFITT: Well, you know, there's a little bit of deja vu. When I was sitting there, talking to Anna Zhang in the real estate transaction center, it reminded me of when I bought a home, actually, in 2004. And I was in a bidding war, and it was just - the prices were crushing. There are some differences here, though, that are important. One is that at least, you know, Anna Zhang was doing a 30 percent down payment and not - we didn't see sort of the subprime - we're not seeing the subprime kind of stuff that we saw in the United States. That said, there's still tons of non-performing development loans out here, and it is - it's a little scary, some of the things you do here.
DAVID GREENE, HOST:
Frank, thanks very much as always.
LANGFITT: Happy to do it, Steve.
INSKEEP: That's NPR's Frank Langfitt.
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