CJC H1 ECON P1

© Catholic Junior College 8819/01/Prelim/11 CATHOLIC JUNIOR COLLEGE JC2 PRELIMINARY EXAMINATIONS In preparation for General Certificate of Education Advanced Level Higher 1 ECONOMICS 8819/01 Paper 1 13 September 2011 1300-1600 Additional Materials : Answer Paper 3 hrs READ THESE INSTRUCTIONS FIRST Write your name, class and question number on all the work you hand in. Write in dark blue or black pen on both sides of the paper. You may use a soft pencil for any diagrams, graphs or rough working. Do not use paper clip, highlighters, glue or correction fluid. Begin each question on a new sheet of paper. Section A Answer all questions. Section B Answer one question. At the end of the examination, fasten your work securely together. Submit each question separately. The number of marks is given in brackets [ ] at the end of each question or part question. This document consists of 8 printed pages.

© Catholic Junior College 8819/01/Prelim/11 [Turn over] Answer all questions. Question 1 Property Markets Extract 1: Deconstructing China’s Property Market: What’s Behind the Bubbles? A year ago, as the global economic slowdown began to drag down China’s growth, the government rolled out measures to stimulate the domestic property market, which accounts for around one-third of fixed-asset spending in the country. Interest rate cuts and lower deposit requirements were among the measures introduced. In response, those Chinese who could afford it have gone on a house-buying spree. What is behind the staggering growth? Experts concur that the main short-term reason for the feverish growth in Chinese property markets is the excessive easing of credit. As China turned to its banks to fund much of its stimulus programme, nearly RMB 10 trillion of loans were extended in the year to October, representing 150% more than the previous year Yet China’s property market raises other, more fundamental concerns. One of them has to do with the land on which the property is being built. Economist Zhou Tianyong, deputy director of research at the Central Communist Party School, said in an interview published on December 3 in Economic Observer, a weekly Beijing newspaper, that soaring property prices are the result of the monopolistic way public land is auctioned. Ye Hang, an economics professor at Zhejiang Univ ersity in Hangzhou, is among the experts who concurs that rapid growth in China’s property sector could bring inflationary challenges, but not in the short term. That said, government policy decisions made in the near term could determine whether the challenges will crop up in three to five years, he argues. What's more, the boom could result in greater income disparities and weakening consumer power for many, according to blogger and economics columnist Ye Tan. “If people lose the ma jority of their consumer power after buying an apartment, what will the consequences be?” she asks, rhetorically. Experts say that beyond draining off funds from the real economy, ballooning property prices can have several other negative effects on China’s economy. Skyrocketing prices in Shanghai, for instance, not only increase the cost of living in t he city, but also eventually push up property prices in neighbouring areas, says Greenwood’s Young. He predicts that as migrants from other parts of China flow in to the big cities, the government will have to improve ca re for the low-income population, and build housing system for them. Adapted from Knowledge Wharton December 2009, The Washington Post. Extract 2 - China's property market The government has adopted various measures to curb rising property prices, including restricting residents in 35 major cities from buying second or third homes, higher down payment requirements for mortgages, property taxes in Chongqing and Shanghai, as well as a slew of monetary policies that have raised developers' borrowing costs. To offer more houses that are affordable for the public, the central government has allocated 103 billion yuan ($15.6 billion) for the construction of 10 million affordable housing units this year. While the gove rnment's policies have eased rising prices in some cities, authorities are pressing for a down-to-earth implementation of the policies. Adapted from Xinhua News, 17 April 2011

3 © Catholic Junior College 8819/01/Prelim/11 [Turn over] Extract 3 - China’s Construction Industry Dr Liu1 analysed that China’s main sources of investment in housing are from domestic enterprises, constituting about 87% (followed by investments from Hong Kong, Macau and Taiwan at 8%, and FDI at 5%) and the main driving force for housing price in China is the huge foreign exchange reserves, which are therefore channelled into the property market in China since the US greenback is not allowed to be circulated in China under the macro-control policy. Another way for China to diversify its investment, making use of its massive foreign exchange reserves, is to buy more gold. Turning to China’s construction industry, Dr Liu reiterated that it still plays an important economic role to China for the strong industrial linkage to construction-related industries such as construction material, construction machinery, furniture, renovation, landscaping works, etc., as well as provision of employment for the Chinese population. In 2010, the construction industry constituted 6.65% of the total GDP value, registering a growth rate of 12.6%. Furthermore, China’s property market will continue to spur the growth of the construction industry as residential housing construction accounts for almost one-third of the country’s total construction activities. Adapted from East Asian Institute, In Focus, 20 May 2011 1Dr Liu Yunhua, associate professor of economics at the College of Humanities, Arts and Social Sciences at Nanyang Technological University (NTU) Extract 4 - When will Singapore’s public housing bubble burst? A property bubble in the public housing market has been building for quite some time and Singaporeans will be “caught off guard” when the crunch comes. While prices have already reached astronomical levels with some property agents asking nearly a million dollars for 5-room flats in prime districts, the wages of ordinary Singaporeans have lagged far behind the rise in housing prices. At some point, the market will have to cr ash because there will no buyers for the overpriced flats. So the question on the mind of every body is: when will Singapore’s public housing bubble burst? Stung by criticisms from Singaporeans at its fail ure to provide adequate housing for first time home buyers, HDB has predictably increase the supply of flats in a classical knee jerk response to the housing shortage. Four BTO projects have already been launched this year with a projected number of 12,000 new BTO flats being built which will be completed in three to four years time, earliest by 2013. Singapore’s economy is heavily dependent on foreign workers and investments which explains why it became the first Asian country to enter into a recession in 2008. Any slight knock to the global economy will turn back crucial foreign direct investments (FDIs) from Singapore leading to an exodus of foreigners with disastrous consequences for the housing market. About 60 to 70 per cent of buyers of Singapore properties in the private sector are foreigners while they make up about 20 per cent in the HDB resale market. As their values have already been overly inflated, the resultant drop in prices will be equally as much if not more. There is a good chance that prices may be rolled back to the 2006 – 2008 levels meaning a drop by nearly 50 per cent which will plunge many Singaporeans into financial distress Source: Asia Property Magazine, 6 April 2010

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