[Continued from yesterday’s Part 3 and the preceding Part 1 and Part 2.]
By: David A. Smith
In yesterday’s part 3, we established that while Bo Xilai’s red star was still rising in Chongqing, he initiated a comprehensive urbanization reform program with three parts.
Point 1, reform hukou. Point 2, deliver affordable housing
First he dissolved the judicial hukou exclusionary system, at a stroke doubling the number of Chongqing residents who could claim urban status (and benefits), and then, as reported in the Economist (March 26, 2016), Mr. Bo moved on to the other two planks of leveling the fields of opportunity:
D. Point 2, Deliver affordable housing
As I covered earlier, Chongqing made a dramatic commitment to new housing, with a bold numerical goal – 40 million square meters of new housing, or roughly 1 million new flats. N or did the inclusivity stop there: the affordable housing was targeted for those who deserved it, with the three classic elements:
Bargain rents. Chongqing set the rent at about 60% of comparable private properties.
Income eligibility. To be eligible, tenants had to earn less than 1,500 yuan (now about $230) a month.
Rent-to-own. Residents are allowed tenants to buy their homes after living in them for five years.
That’s a great trio:
We are here to rescue your village!
Bargain rents make affordability self-evident, thus creating instant curious and almost-instant demand. Then the income eligibility addresses fairness and equity, as well as conveniently setting up reporting requirements. And rent-to-own gets people thinking about an ownership society without having to put down an expensive down payment to jump-start it; plus it also reduces the odds of speculator-flipping or the fleecing of rights holders.
It was a big undertaking: governments elsewhere in China are reluctant to spend money on housing migrant workers.
I’m not even ready to accept that the reluctance is solely or even principally about cost – China’s municipalities and its state-owned enterprises (both developers and banks) have had no compunction about pouring all the concrete it’s possible to imagine, and then pricing it up to book profits whose unreality won’t be discovered for years.
One problem has been the enormous cost. Yang Jirui of Sichuan International Studies University reckons that the municipality has spent about 50 billion yuan [$8 billion] building public housing so far and would need another 50 billion to meet its construction target.
Yang thinks Chongqing is off by a factor of two
But the municipality has not fulfilled its promises. Only about 15m square meters of public housing have been built (one project is pictured), half the amount that was supposed to be finished by now.
Economist caption: “And somewhere to park the car, one day”
It’s still an impressive achievement – 350,000 homes in seven years – the more so for being driven by a pro-poor agenda, and in the context of the next point.
E. Point 3, Democratize private property rights
Land speculation and land mafias do not corrupt all governments, but all corrupt governments find ways to control land use and land value. The Communist party’s grip on the ownership of land in China – all urban land is owned by the state, which also controls all zoning – has enabled the party (and its well-connected friends) to control the growth of urban land value.
Where the richer people live, the land prices rise exponentially
Having wiped out imperial landlords, the people’s committees substituted themselves – though of course, solely for the people’s interest. For China’s elites, nearly all of whom are connected to the party apparatus, the result has been massive wealth generation and massive wealth concentration.
Toto, we’re not in Kaifeng anymore: Dorothy Wang, ‘funemployed’
And just as in Everett, land transactions offer fertile ground to make money, to extract money, and to launder bribes, because in between the price you pay to the land and the price at which you sell it can be things that increase its buildable density, things that add value like casino licenses, and a seemingly endless line of intermediary politicians, all of whom believe that they and those they claim to represent deserve compensation for their assistance, their non-objection, or the adverse impact they will surely, surely experience.
This is entirely a matter of principle
The most promising and controversial of the reforms involves the trading of rural land, at a price set by the market.
The idea of revising Mao’s hallowed notion of “collective” ownership of rural property remains all but taboo.
Whatever one thinks of Mao Zedong and his series of national crusades – the Great Leap Forward, the Cultural Revolution – with disastrous consequences, in the abstract one can understand the notion of collective land ownership, especially for agrarian use.
You see, if all of you break stones with your hands, then we can keep those kilns running
After all,’ Communist’ derives from commune and communal, and communal farming holds a romantic appeal for those who’ve not had to make a life of it.
(National self-sufficiency in food is one of the party’s obsessions.)
For our purposes it doesn’t matter whether the food obsession is a justifiable reaction to China’s huge population, fear of urban overcrowding leading to mass malnutrition, or trying (out of caution or paranoia) to de-risk China from the global political economy; it’s a governmental fact and it significantly hinders China’s economic development.
Meanwhile, communal ownership fails utterly in the urban context, which is why Mao’s successors, most especially Deng Xioaping, who drove China into a market economy while skillfully adapting Mao’s language as a cloaking device.
When I’m gone, you’ll keep giving out the Little Red Book, won’t you?
The results we see today: an urbanizing China that is a huge economic and industrial/ manufacturing power, fully immersed in the global economy, and with thriving urban property markets – all largely captured by the private companies that enjoy the protection of being state-owned enterprises (SOEs).
AHI posts on China’s urbanization and capital
.
April 27, 2007: Chinese property rights: the shot heard ‘round the world?
July 28, 2010: Little Chinese nested shoeboxes, the ‘ant tribes’ of urban men
August 23, 2010: Gleefully running up the debts, 2 parts, SOEs and development
October 28, 2011: A little learning is a dangerous thing, 2 parts, hukou and schools
May 2, 2012: Old before rich? 2 parts, China’s gray wave
July 29, 2012: I’m shocked, shocked, kickbacks in property development
August 23, 2012: China’s cities and housing: “Nothing outside China matters”
August 25, 2012: China’s cities and housing: “Imperial economy is successful society”
August 26, 2012: Suburb stuffing, 2 parts, new ghost high-rise towns
September 17, 2012: China’s cities and housing: “Between observation and doctrine, report doctrine”
November 14, 2012: Not nice places to live, 2 parts, the shortage of girls
July 22, 2013: China’s runaway money train, 4 parts, out-of-control monetary policy
December 16, 2013: Formula for an instant slum, 5 parts, supply-side urbanization
September 19, 2014: Where the money goes, people will follow, 3 parts, expatriating
February 1, 2016: Yuan to buy American housing?, 4 parts, Chinese buying US assets
March 8, 2016: The fall of China Mae, 3 parts, the likelihood of major overleverage
Naturally, those in the city who have profited from land development and land speculation believe it is too dangerous to give the rural population the same flexibility – for their own good, of course.
Urban China is used to free trade in property, but in the countryside farmers are not allowed to sell their homes, nor the land they till.
Preventing people from moving by giving them only a use tenure on a specific property is a kind of human ‘economic nitrogen fixing,’ binding them to particular soil. But the binding is involuntary and uneconomic.
That creates problems. As people move, they often leave houses in the countryside unoccupied.
Who will live here when we’re gone?
People who move in the face of forfeiting their rural property are making the ultimate economic sacrifice; that’s proof, if proof were needed, that the collective-land model is outdated and impoverishing. Worse, if inhibits the new urban dwellers – whom China wants to accommodate and turn into consumers, remember? – from having the capital resources to jump into the new forward-looking economy.
Chongqing’s reform allows land used for housing in faraway villages to be converted to use for farming, and a corresponding amount of farmland near towns to be used for urban expansion.
Collective land ownership was a form of national rural down-zoning. Allowing development-rights swaps is akin to upzoning via market forces, and so like 421-a in New York City, or Transferable Development Rights in Mumbai, it’s going to boost activity.
The aim is to promote urbanization, while slowing the rate at which Chongqing loses arable land.
But once development rights can be privately monetized, all sorts of changes occur.
Continued tomorrow in Part 5.]