It seems that two large problems listed here are 1) high land values (apartments) in cities, and 2) lack of substantive hukou reform that will enable Chinese citizens to urbanize.



These problems are interrelated as far as local government expenditure capacity is concerned. Local government relies heavily on land sales for revenues, and hukou is a ticket to local public services -- education and hospitals mainly.



So how do you fix these problems? It seems difficult. If land values take a plunge, this will benefit the average Zhou and Zhang in the street, as their ability to finance a home will be easier on the abysmally low salaries most Chinese earn. Yet if land values drop, while a few families will benefit with lower home prices, this means that simultaneously the local governments will have a debt crisis (their ability to borrow will be curtailed as their major source of revenue will be shrinking as a share of their expenditure). If local governments cannot fund social services, hukou reform will go on the back-burner (where it has been for thirty-years, even during boom times this political hot-topic wasn't solved, although of course it got lip-service every five years as the capitalist-roaders had their meetings to talk about their special interpretation of socialism).



Fact is, Chinese peasants are worthless inputs to an industrial machine because automation will take over Chinese manufacturing. Skilled engineers, technicians and managers will be needed, but those jobs will be few because technology allows one person to perform the same job that used to take several people.



The biggest problem is Chinese, especially urbanites, are demanding of government services -- remember, China prides itself on Socialism with Chinese Characteristics, and the people are aware that socialism means they deserve a piece of the pie. Urbanites demand good hospitals for their ageing parents and good schools for their children. Local governments already have trouble providing these basic goods -- hospitals that aren't special foreigner hospitals are often dirty places with obnoxious price-gouging in my experiences; education fees for high school are high, and increasingly in lower grades low- to high-scale bribery is ubiquitous.



Hukou reform means uneducated peasants will flock to the cities and not be able to contribute to the modern, knowledge-services sector. Clearly, local government does not want these people. The entire system is built around perpetual high-growth rates that allows you to roll-over debts indefinitely. Times of low growth means this blueprint needs to be scrapped, and if hukou reform was impossible politically in the era of 10% growth, then it will be even more impossible in today's massively reduced growth environment or 7% or whatever percent.



It was foolish to not solve this hukou issue earlier, or to force local governments to diversify their revenue sources so they were not heavily reliant on one sector (real estate).