Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
Lack of supply will drive up housing prices in Beijing
Beijing’s residential market will face a sharp fall in new supply over the next two
years following the central government’s prohibition on private land sales, which has
led to a rise in home prices.
Consultants and developers said that because of this-and the limited upside in
Shanghai’s residential market –more foreign investors would shift their buying focus
to the capital.
Shanghai’s residential prices rose an average 25 per cent per year between 2001
and last year, according to CB Richard Ellis.
Centaline (China) Property Consultant’s Beijing office director Dickson Wong
Hung said home prices in Beijing had increased only 10 per cent this year.
He said insufficient new residential supply and rising demand driven by heavy
investment in infrastructure in the run-up to the 2008 Olympic Games, meant
investors would revive their interest in Beijing’s residential market.
He expected home prices in the capital to climb 20 per cent to 30 per cent over
the next two years because of a drop in new supply.
The decline in supply was partly driven by government policy.
The August 31 deadline of the Ministry of Land and Resources Instruction No 71
required a full land premium to be paid to the government for private land
transactions.
All land transfers are being conducted through public tender and auction.
Beijing Capital Land chairman Liu Xiaoguang said more than 700 plots of land
owned by developers had to be surrendered to the government because deposits to
obtain land use certificates had not been paid.
Land supply had dropped 66 per cent in the first nine months of this year
compared with the same period last year.
The shortage of land supply was also due to the tightening of banks’ lending
policies in April to rein in overinvestment in some sectors, including the property
market, he said.
Beijing Capital Land is the city government’s development arm, and its
investment focus is on the middle to high-range residential market.
The developer slowed its pace of construction after the government measures
were implemented.
Beijing Capital Land president Tang Jun said : ‘ The deferral in project launches
allows us to capitalize on the rising property cycle.”
The group had postponed the second phase of its luxury villa development
Vancouver Forest and believed this would work to its advantages as prices continued
to rise.
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
 Description of the issue: 
The home prices in Beijing had risen 10 percent in this year and the
Centaline (China) Property Consultant’s Beijing office director expected it
will continue to climb 20 percent to 30 percent over the next two years.
Land supply in Beijing decreases due to the central government‘s
prohibition on selling the private land. Land supply had dropped 66 per
cent.
The decline in land supply is due to the banning on private land sales.
China is a close example of a command economy. The government draws up
its production plans. This illustrates the ‘What to produce’ question when it
decides the quantity of land that is sold to the developers. Developers had
to return more than 700 plots of land to government because deposits to
obtain land use certificates had not been paid. As a result, the supply of
land for the Beijing’s residential market decreases.
In order to restrain the property market from overinvestment, the
banks have tightened the lending policies. The investors will have
difficulties in obtaining sufficient capital to buy the private land. They will
postpone their development of housing projects to capitalize on the rising
property cycle. Therefore, the supply of Beijing’s residential market
decreases. The supply curve will shift left, from S1 to S2 in fig3.
Shanghai’s residential prices rose 25 percent per year between 2001
and last year. The price increases from P1 to P2 in Fig 1. Beijing’s
residential market is the substitute good of Shanghai’s residential market.
When there is an increase in price of Shanghai’s residential market,
investors would shift their buying focus to Beijing. The demand for
Beijing’s residential market increases, from D1 to D2 in Fig 2.
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
╭ Explanation of the issue:╮
Fig. 1-- Increase in price of Shanghai’s house
Fig.2 -- Increase in demand for Beijing’s house
＊ Developers have invested heavily in the infrastructure to prepare
for the 2008 Olympic Games in Beijing. They would revive their interest in
Beijing’s residential market. Therefore, the demand of housing market
rises. The demand curve will shift right, from D1 to D2. ＊
Fig 3 --Effects of a change in price and quantity transacted in Beijing’s residential market
▌In conclusion, the initial equilibrium price and quantity are P1 and Q1
respectively. The decrease in supply of the Beijing’s residential market is
greater than the increase in demand, so the new equilibrium price of the
Beijing’s residential market increases, from P1 to P2, the quantity
transacted decreases, from Q1 to Q2. ▌
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
Toyota targets China with new luxury models
Company outs its faith in government incentives and access to financing
Japanese car giant Toyota Motor is accelerating its expansion in the mainland
with the launch of two high-end models, despite falling prices and stagnant sales
growth in the passengers car market.
Yuan Zhongrong, executive vice-president of Guangzhou Toyota Motor, a newly
formed joint venture between the Guangzhou municipal government and Toyota, said
he expected to start selling 2.4 litre Camry cars in May 2006.
He was speaking at the second China(Guangzhou) International Automobile
Exhibition, where Toyota displayed the upscale, midsized saloon.
According to a Merrill Lynch research report, the car will sell for about 250,000
yuan.
Construction of a new plant for Camry production in Nansha, Guangzhou broke
ground earlier this month. The facility is expected to reach an annual production
capacity of 100,000 units by 2006.
Mr Yuan said the plant would source engines from a nearby factory, which also
comes under Guangzhou Toyota’s authority and will eventually have an annual output
capacity of 3000,000 units.
About 25,000 engines would be produced in Guangzhou next year, all for export
to Japan, he added.
Mr Yuan is confident that the emerging car financing sector and the
implementation of government incentives to encourage car purchase will help lift
sales.
Zhang Fangyou, chairman of Guangzhou Automobile Group, which makes
Accord saloons in conjunction with Honda, said his firm had no plan to cut prices,
despite the planned introduction of Toyota’s Camry.
‘Camry won’t be in the market until 2006, although they are positioned in the
same grade as Accord, Camry and Accord each have their own uniqueness,’ he said.
He believes the mainland car market will see a gradual recovery in the first half
of next year and, while producers desperate to lower inventory might still be tempted
to slash prices, he said most companies would act rationally.
Also at the car exhibition, Wang Fachang, deputy president of FAW Toyota
Motor-a joint venture in northeast China between state-owned First Auto Works and
Toyota –said the company would launch Toyota’s luxury Crown model in March next
year.
He said the car would be produced in Tianjin, adding that he projected sales to
reach 20,000 units next year. He declined to comment on price but the Merrill Lynch
report cited sources who expected the car to cost 400000 to 450000 yuan.
The brokerage forecast luxury car prices in the mainland to fall by 15 per cent
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
next year as more products are launched and as import quotas will be removed in
January. Mid-range cars are projected to see a 9 to 10 per cent decline in prices while
low-end cars will see a 7 per cent fall.
‘The car market will certainly be more competitive next year,” said Beijing
Hyundai Motor sales division president Steve Yang.
‘We believe the rebates and price cutting will continue.’
But he said his company was ’99.9 per cent confident’ that it could reach its
150000 car sales target set for this year. It indicated earlier that it planned to expand
annual output capacity to 600000 units by 2007.
Beijing Hyundai, a joint venture between Beijing Automotive Investment and
South Korea’s Hyundai, was also setting up a car finance operation, Mr Yang added.
Economics: News Analysis

Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
Describing the issue:
Toyota, the car manufacturer in Japan, plans to import more luxury cars in China. It
will launch two high-end models. Also, Toyota will increase production in China.
New plant will be set up for Camry production in Nansha. About 25000 engines
would be produced in Guangzhou and all for export to Japan. As more cars are
launched and the import quotas will be removed in January, the car market will
become more competitive next year.
 Explanation of the issue:
 Since the rental cost and the wage is cheaper in China, the
production cost in China is lower than that in Japan. Therefore, Toyota
tends to minimize their total cost of production. This solves the “how to
produce” question. As a result, Toyota will build factories in the mainland
to manufacture cars and engines. When the prices of factors such as
labour decreased, Toyota’s cost of production will be decreased.
Therefore, Toyota can earn more, they will increase supply.
Import quotas will be removed in January, the supply of Toyota’s car
increase. The supply curve shifts to the right, from S1 to S2 in Fig 5.
 Due to the implementation of government incentives to encourage
car purchase will help lift sales. Moreover, China is increasingly prosperity,
people’s income increase. An increase in income raises the consumer’s
ability to buy. Increase in income will result in an increase in demand for
the superior good. This is caused by a change in other factor except its
own price. The demand for luxury cars increases. The demand curve shifts
to the right, from D1 to D2 in fig 5.
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
Fig. 1 -- Conclusion
In conclusion, the initial equilibrium price and quantity are P1 and Q1
respectively. The increase in supply of the Toyota Car is greater than the
increase in demand. So the new equilibrium price of Toyota Car decrease,
from P1 to P2, the quantity transacted increases, from Q1 to Q2.
Fig. 2 – Toyota Car
Fig. 3 – Honda Car
In addition, Honda car and Toyota car are substitutes. A fall in the
price of Toyota car will lead to a decrease in demand for Honda car even
though the price of Honda car remains unchanged. In the diagram, this is
shown by a shift of demand for Honda car to the left. Given the supply
remains unchanged, equilibrium price and quantity will fall.
Economics: News Analysis
Janet Choi (6) 4C
Cindy Fong (8) 4C
Lilian Fung (9) 4C
Fig. 4—Demand of Iron
Furthermore, demand for iron, which is a factor of production of car.
Toyota increases the demand for iron because it helps to make cars. The
demand for iron is a derived demand. It is derived from Toyota demand for
cars. When the demand for cars increases, Toyota will need more iron. The
demand for iron will also increase.