How China’s Urbanization Pays for Itself The strength of a nation derives from the integrity of the home. Confucius, Analects.
San Franciscans unable to afford the $3,600 monthly rental for a one bedroom apartment sleep in the streets and, like most world cities Beijing recently faced a similar problem. Twenty-three million prosperous Beijingers wanted meals from local restaurants but the quarter-million migrant workers who delivered them could not afford the city’s eye-watering rents. Resourcefully, they found neighborhoods condemned for renewal, hooked up illegal wiring to leaky buildings and moved in until the inevitable fires drove them as TV cameras recorded their misery. The city built one-hundred thousand low-rent apartments in twelve months, the problem vanished, yet Beijingers barely noticed. China has been building homes for a million people–the entire housing stock of San Francisco, every month since 1950.
China’s landlords, the world’s oldest social class, maintained their grip on the country’s land for three thousand years until, in 1949, Mao placed it in public trust, divided[1] it, and began a series of experiments that continue to this day. In 1960 he combined individual plots into communal farms for the Great Leap Forward. In 1978, Deng redivided them into family plots that proved inefficient, but attempts to recombine them into larger, more efficient farms failed until 2012. Then a Trial Spot in Sihong County created land management rights that farmers could rent or pledge as collateral, so long as their land remained agricultural. Beijing promoted Sihong’s solution nationwide and, today, millions of rural people are unlocking twenty-two trillion dollars of previously inaccessible wealth. One farmer, Sun Zeshun[2], leased his plot to an agribusiness corporation, became a roofing contractor in a nearby town, and used his new income to build a house and buy an SUV, “Life is much better now. I have more freedom and my income is less affected by weather.”
Urban experiments began in 1953 when, to maintain food production and prevent slum formation, the government issued urban hukou, residency permits, to rural people only if they attended university, joined the Army, or worked in state-owned enterprises. The UN’s Alain Bertaud[3] says, “Urbanization didn’t happen because the government wanted the country to urbanize–they actually kept the hukou in order to slow it down. But the economy asked for it and people voted with their feet. The government has to cope with urbanization rather than it being a deliberate policy decision. In a way, they are paying the price of this rapid urbanization now.” Every year since then, as housing becomes available, ten million people converted their rural hukou into urban permits and soon only Tibet will retain hukou–so people won’t move to the country and overgraze fragile ecosystems.
In 1960, city governments began building hundreds of millions of homes to accommodate the biggest baby boom in history, and, though individual floor space was only forty square feet, they charged tenants nominal rent. Planners trying to build a more productive economy saw housing as a nonproductive expense, but public attachment to its low cost accommodation made reform difficult. Then, in 1981, a Housing Privatization Trial Spot encouraged renters to buy the homes they lived in–for half their market value and the experiment’s success reverberated in every city in China. Within seven years, tenants purchased two-thirds of all urban housing–worth one-third of China’s GDP–and unleashed the biggest real estate boom in world history.
Planners had capital to invest, the economy boomed, and housing became a pillar of the country’s welfare system. When markets overheated, city governments simply released more land for development to keep housing supply aligned to local wage rises. When oversized apartments created problems, a Trial Spot halved their value by applying a progressive sales tax to floorspace, forcing speculators to release thousands of units onto the market. Yet local price bubbles regularly caused social unrest because, though eighty percent of buyers paid cash, twenty percent or would-be owners–rural folk moving to cities, cash-strapped first-time buyers, students, and migrant workers–found city prices out of reach. Another Trial Spot, in 2007, allowed them to pay half the deposit while the government paid the other half and guaranteed to buy or sell its interest on demand. Yet another Trial Spot gave land, permits, utilities, and loan guarantees to developers to build rent-only dwellings–on condition that rentals remained below fifteen percent of local wages. The canny developers pre-sold entire projects to insurance companies and retirement funds for their secure, long term cashflows. The work of urbanization will continue through 2049, when half the current rural population will be living in new cities.
Two million people living in regions prone to natural disasters, severe desertification, soil erosion or water depletion need special assistance. Planners are spending thirty-billion dollars (of which each villager contributes five hundred) building cities for them and will complete their relocation in 2021. The publicly owned banks financing the project will recoup their investment over thirty years from increased tax revenues because, in addition to normal wage growth, each year of city life adds two percent to residents’ income. Meanwhile, planners are spending five billion restoring and reforesting the vacated land.
Some local governments are blurring the urban-rural divide. In 2018 Beijing Province began providing its fourteen million urban and seven million rural residents with the same world class education, healthcare, employment, social welfare and housing. The positive public response encouraged the city fathers to extend the largesse to the rural poverty belt in adjacent Hebei Province.
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