Despite the fact that China’s economy will become increasingly diverse, it still suffers from many problems and affects global markets.

Housing prices are sensitive topics in China. The Chinese government should keep its eyes on economic development and draw some lessons from Japanese assets price bubble. The New York Times published statistics in March 2010, indicating that real estate prices increased by over 150 percent from 2003 to 2010 in Shanghai.

A Chinese Government Index in 2011 showed that the Average Selling Price Index grew as fast as 120 percent between 2006 and 2010 in Beijing. The housing prices stress members of China’s relatively well-off urban middle class, who cannot afford to purchase a home. Meantime, house investment constitutes 10 to 12 percent of economic activity in China.

In order to keep the booming housing market in balance, the Chinese government promulgated some regulations on March 4, 2013: (1) 20 percent tax on capital gains from home sale; (2) Higher down payments and interest rates on second home and (3) New real estate tax introducing. Negative opinions were raised by CNBC reporters, based on a large amount of Chinese property occupying domestic GDP, it will hurt the global economy if the property economy slowed down.

Legitimate concerns rise considering that the housing bubble in China will cripple the global economy. CNBC held a debate on this topic on March 4, 2013, and invited professors, Peter Navarro and Ann Lee, to voice their opinion.

The debate was very drastic due to their totally opposite views: Navarro expressed his worries that if the Chinese property bubble collapsed, they would dump even more products on the US such as steel and motor vehicles, causing more unemployment and damage the export sectors of bulk commodity in Australia, Brazil, Peru, Chile, and Canada. On the other hand, Lee asserted that there is no property bubble in China because of a more diversified economy and Beijing’s pro-action to avoid a real estate bubble and any collapse.

The crash of the Japanese property bubble, where the prices of real estate at Tokyo was exaggerated since the 1980’s much more than that at Beijing and Shanghai, has been damaging to its economy since 1990. Compared to stock market bubbles, the real estate bubbles take a long time to deflate, the prices decline slower because the real estate market is less liquid.

It is true that it took more than 20 years for Japan’s economy to recover. The same is true for China if the Chinese real estate bubble collapses. So it is important for Beijing to mirror what Tokyo has done during its financial crisis.

The Chinese property curbs are one of the actions taken by Beijing. However, it is just a buffer against a booming housing market instead of a fundamental solution. Learning from Japanese action on real estate bubbles, China should take precautionary measures.

Currently, China’s urbanization rate is 45 percent, relatively below in comparison with Japan’s 76.7 percent in 1985. With the low urbanization rate and fast-paced urbanization, the house price in large cities including Beijing, Shanghai and Shenzhen, would be promoted during this progress. Hence the government should focus more on rural areas rather than the overburden urban construction and balance the development between both fields.

Despite that China’s economy will become increasingly diverse, it still suffers from many problems. China does not realize the significance of financial liberalization and exchange rate flexibility under the old methods of government macroeconomic regulation and control. The immature financial systems force people to invest in the real estate industry, which returns the investment income rapidly and stable, as a result of housing prices rocketing.

Therefore, the Chinese government should leave the market with a higher degree of openness for development to facilitate more investment.

Xiangyi Zong is a graduate student of International Relations at New York University.