A New Test for China’s Crackdown on Finance

China’s recent efforts to curb speculation in its property market have brought scores of angry homebuyers onto the streets of Shanghai, the Wall Street Journal reports:

In response to skyrocketing home prices, governments in China’s big cities have set limits on the buying of multiple homes and higher down-payment ratios, which has left many unable to sell their homes and others worried they won’t be able to buy in before prices rise further.

Protests over the new rules started in early May. In the latest and largest breakout, hundreds of people marched down a busy Shanghai shopping street this weekend. […]

Shanghai’s government had no official response to Saturday’s protest. In ​a statement released​ late​ Monday, ​a local housing bureau​ ​suggested a softening of policies applied to developers and buyers, though it stopped short of explicitly saying commercially-zoned units could be permitted for use as residences.

Middle-class homeowners marching in the streets is never a good thing. Now, in an attempt to cool the outcry, the Shanghai city government is blaming property developers for “distorting the policy” while making a limited concession to allow buyers of dual-use homes to move in. Whether that half measure will suffice to placate the protesters remains to be seen.

The Shanghai situation illustrates a familiar Chinese pattern: every time China tries to curb the asset bubbles in its economy, the political pushback dulls the reform push. When resistance to fiscal reforms arises, China responds by kicking the can down the road, softening reform measures or easing credit controls. But this just incentivizes more resistance while the overall health of the economy suffers.

It is far from clear what the outcome of all this will be, or when the bill will come due. But so long as Beijing is torn between implementing painful reforms and upholding a risky status quo, the government will be preoccupied by serious internal stresses.