Communism and Home Ownership in China

  1. China is a communist country.
    The Communist Manifesto calls for “Abolition of property in land” and the Chinese constitution states that “Socialist public property is sacred and inviolable”.
  2. Home ownership is a core cultural norm.
    Husbands are, by and large, expected to at least have a deposit down on an apartment before asking a girl’s hand in marriage. Preferably the property is already owned outright. I only know one person over the age of 28 who is renting, and that’s because she was recently divorced.

Clearly there is a serious tension between these two principles.

Apartments in Longjiang, Nanjing
Apartments on the riverfront in Nanjing

Land-Use Permits

The tension is currently negotiated through the use of land-use permits. The commonly owned land is managed by the representatives of the people – the local Communist Party of China (CPC) committee – and leased out. Homeowners do own the physical bricks and mortar (prefabricated concrete) of their home, but only have temporary rights to the exclusive use of the land below. The lease given is typically the legal maximum – 70 years – but as has been reported in the last week, some local administrations have issued lesser, 20 year leases. On some properties in Wenzhou, one of the first cities to embrace the market economy and develop, these leases are fast approaching their expiry date.

This brings us to the conflict that all political tensions are inevitably heading towards. Only in this case, ruptures in the obvious incompatibility of these two ideas are appearing much sooner than the CPC had probably been expecting. I imagine that their choice of 70 years was a shrewdly political one. On the one hand appeasing the traditional left of the party that bourgeois private property wasn’t returning. On the other, considering that the majority of people live in apartments constructed less than 20 years ago, so any conflict wouldn’t arise before 2065. They may have anticipated that the social, political and economic climate would have changed sufficiently by then to allow for their quiet removal or automatic renewal.

The Caixin article I linked above, and it is worth a read, points out that this provision for automatic renewal is already included in the 2007 Property Law, “but it does not say whether homeowners should pay a fee”.

Tensions

Since the death of Mao and the rise of Deng and his ideas for transforming China into a market economy, the CPC have rigorously proclaimed the idea of ‘Socialism with Chinese characteristics‘. This includes the aspiration to home-ownership, which the Chinese embraced wholeheartedly as a defence against the miserable poverty and punishing uncertainty most had faced in their lives up to this point, and a way to solidify highly valued family ties.

True enough, the CPC’s legitimacy now rests almost entirely on their ability to keep everyone’s standard of living rising at levels every other country on earth baulks at. They’ve overseen 10+% economic growth a year for most of my lifetime. Much of the surplus value accumulated has gone into bricks and mortar, and the last twelve months of rollercoaster volatility in the Chinese stock markets has reminded everyone just why that is. However, and particularly if they are to continue to try and write a narrative of East vs West, the CPC’s different – Communist – ideology needs to be maintained. Otherwise, haven’t they just been co-opted by the capitalist, liberal, Western world order?

Granting automatic, free renewal of land-use permits is authorising the private appropriation of public property for unlimited lengths of time. This clearly contravenes a founding tenet of the communist ideology. At the same time, houses aren’t cheap in China. In tier one cities (Beijing, Shanghai, Guangzhou and Shenzhen) prices have been continually, sharply rising for two decades. In the last year this was between 13 and 57%. Properties in desirable city-centre districts of Beijing rival those in London. In the tier two city where I’m living, Nanjing, the average house price rose by 17.8% in the last twelve months.

Apartments recently constructed near NUIST
Apartments recently constructed near NUIST

Are citizens who’d already paid at least a 20% downpayment and now spend large parts of their monthly income servicing a mortgage going to be prepared to pay another lump sum during their life? Not to mention that the permit renewal fee may be linked to the current market price of the property. The article suggests one-third of the value.

In Nanjing the average apartment costs somewhere around 830,000元 (£88,000)[1] but the average salary is just 6500元 (£690) a month. The fee to renew the land-use permit could thus be in the region of 250-300,000元. Surely a catalyst for social unrest.

Rationale

So why has the local government in Wenzhou decided to pursue this line, when they could very easily follow precedent, let it slide and let the top leaders worry about ideological decay? Simply; taxes are extremely low and collection is inefficient and pervaded by corruption. One of the biggest revenue sources for local governments has been appropriating land, parcelling it up, assigning development rights, and selling off for development. As the economy matures in tier one-three cities the stock of realistically desirable land is reaching a hard limit. How far away from Beijing is still Beijing? Furthermore, the national government has set a minimum on the amount of farmland, which the suburbs of Beijing will soon reach. Enforcing a law (debatably) already on the books, but certainly backed by state ideology, is an awful lot less painful than confronting the hydra that is party member discipline and taxation reform.

But will the people agree?

 


[1] I calculated the average property price in Nanjing by combining the figure for average apartment size in China from this website – 60m2 – with the figure from this news article for average Nanjing house prices – 13,877元/m2 – to give a rough estimate of 830,000元. Most of these properties will have been bought for substantially less during the last 10 years, but as mentioned, prices are going through the roof in the big, developed cities. Apartments within 20 minute’s drive of the city centre will today be between two and four times more expensive than this figure.

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