China has enough homes for everyone to have two, just not where they want to live.

(Originally published Sept. 25 in “What in the World“) Beijing faces a dilemma in reviving its moribund economy, according to the latest Reuters analysis.

Either the government pours taxpayer funds into fiscal stimulus projects and bailouts of heavily indebted local governments and developers, or it undertakes painful structural reforms that free up the mobility of its workforce and thereby encourage consumption of goods and services to lift the economy and reduce its dependence for growth on investment, particularly investment in property.

Nomura’s Rob Subbaraman points out sagely that the government needs to do both.

Reuters’ piece on China’s policy challenges contradicts the narrative spun by The Wall Street Journal, which suggests China’s economic mandarins are holding back on rolling out remedies because supreme leader Xi Jinping is squatting on the decision-making button.

The article also fails to really explain just what reforms might work, limiting itself to an age-old prescription that China scrap its hukou system, the residential registration system under which citizens can only move to new cities to seek out better jobs with a government permission. The hukou system may seem primarily a way to keep tabs on people, but it is also the main way governments establish who has rights to public services in a given jurisdiction. Hukou has also been used to try to control the rush by rural Chinese into the cities, but growing disparities between urban and rural conditions have led many to risk having no public healthcare to pursue opportunities in the city anyway.

While Reuters’ advocates ending hukou to unleash consumption, the same nostrum has been touted in the past for stimulating property demand, as new residents need new housing.

But nationwide, China faces a massive housing surplus. According to China’s National Bureau of Statistics, the country had 648 million square meters of unsold residential property. And that doesn’t count the many projects still under construction, many of which have been stalled for years as their developers struggle to stay afloat and finish them. One former Bureau official revealed that China may now have enough homes to house 3 billion people, more than twice its population. The problem is too many of those homes are in the wrong place, and even those in cities where people want them are falling in value.

With prices at home falling and pulling more mortgages under water, Chinese are now racing to dump their property investments overseas.

Policymakers are coming to recognize that cutting interest rates further is of little use without fiscal stimulus and structural reforms. As China’s rates fall and U.S. rates rise, the widening gap is prompting an accelerating rush by investors to move cash out of China.