Zhang Wuchang: No Bubble in Real Estate, Chinese Govt Too Restrictive, No Credit Bubble

In an interview about China's modern economic history, an interviewer goes on to ask Zhang Wuchang about housing and China's economic growth rate. He sees China still has strong potential and thinks the United States under Trump could even hit 7 percent real GDP growth if there's no trade wars.

iFeng: 中国做对了什么?

Phoenix Net Finance: How to treat China's "high land price"?

"The rise of land prices in China has nothing to do with population density. Now where is the knowledge of science and technology gone? It has gone to land prices." In Zhang Wuchang's view, the price of a local land in China is directly proportional to the growth of knowledge in the region.

Zhang Wuchang: I have explained that the return of capital is interest, the return of workers is wages, and the return of business knowledge is wages. Where is the knowledge of technology now? All went to the land price. Therefore, we must be very careful against the rise in land prices. If the property price is high, the land price will be high, and the land price will rise. You will have the capital to develop. But the downside is that it will lead to uneven wealth. This problem has to be dealt with.

The rise in land prices has nothing to do with population density. You see that there were so many people in China 40 years ago. (Land) is not worth the money, but now the land price has risen several hundred times because its knowledge has grown and its return value is in this place.

Phoenix Net Finance: Do you think it should not curb the rise in house prices?

"In principle, as long as you are not worried about the problem of uneven wealth, you should let it go up. But first it will lead to uneven wealth, this will be dealt with. Second, it is the so-called bubble problem. I can not see a bubble problem in China, I think the Chinese government is too strict."

Japan experienced a real estate bubble in the mid-1980s, because the loan expansion was too strong and it broke. Property prices fell 80 basis points in two weeks and have not recovered today.

In China, I don't see the problem of borrowing inflation. The bubble of property prices is based on historical experience. The three bubble events in the world are due to the expansion of lending, the United States in 1929, Japan in 1987, and the United States in 2008. The expansion of borrowing has broken down. This is a big problem. But sometimes? There is no lending inflation, or a bubble burst. This situation does not matter, but represents the redistribution of wealth. Like Hong Kong in 1975, the Hang Seng Index fell from more than 1,700 points to more than 500 points, but it has no impact on the economy. If there is credit inflation and then it bursts, that will be very troublesome.

ZHang thinks the U.S. could be growing much faster under Trump, if there is no trade war:

Phoenix Net Finance: Do you think that China's economic growth in the future can continue to maintain such a rapid growth rate?

Zhang Wuchang: It is impossible to maintain this kind of lasting, but what is demanding? Six, seven percent, this growth is not demanding. The US economy was the highest in the United States in 1984, at 6.82. The United States is probably about 5 now. As long as Trump does not engage in trade wars, the US economy may grow to 7. He (Trump) I don't understand why he's doing this.

According to FRED, the highest quarterly growth rate was above 8 percent and was 7.26 percent for all of 1984.