For many Chinese economists, the policy of limiting purchase is unthinkable. Indeed, it reminds us of the days of the planned economy when people had to use ration coupons. People in Chinese economy dislike purchase limit instinctively, when the government sets a limit on the amount of commodities a buyer or investor could buy in market.

However, the financial market in China may eventually learn to regulate itself, although that day's a long way off.

In the meantime, the market is likely to attract enormous investments, creating and then popping huge bubbles.

Under such circumstances, government regulators have a clear right to intervene, both to deflate potential bubbles and to stop them distorting the real economy.

Take real estate. If the demand for investment is too large, and the ratio between rent and house price is too low, the investment on house is based on the profits gained from high house price and no one care about short-term rents. This pushes up house prices, but eventually both prices and yields will fall back to normal levels.

But this is a long process, and in the meantime, the bubble will waste a huge amount of land and resources, and cause huge shocks to the financial system. At the moment in China, this is an obvious prospect, and so it's time for the regulators to intervene.

One extreme form of intervention is to limit the purchase of houses. Such a direct limit is usually not an option, because regulating the housing market could also be done through requiring higher down payments or raising the interest rate. But these are relatively small measures compared to the enormous levels of demand, so limiting purchases becomes more plausible.

Using the household registration (hukou) system to measure who can or can't buy in a particular area is a mistake, though. Today there is already a grey market in residence permits in Beijing and other major cities. All this will do is funnel some of the profits of the real estate bubble into the underground household registration market.