We all have a stake in China’s real estate bubble
By Editorial Board,
WashPost
FOR MOST OF the past four months, the people of Wukan, a town of about 20,000 in Southern China, were in open revolt against the local Communist Party authorities. The uprising began as a protest against officials’ decision to sell a village-owned pig farm to developers of luxury housing for $156 million, precious little of which wound up in the hands of townspeople. The protests intensified after a leader’s death, which Wukan residents blamed on a severe beating from police. With local Communist officials ousted by the people, China’s higher-ranking authorities were forced to negotiate.
The villagers and the party have now reached a settlement, involving the return of the dead man’s remains, though the fate of the land deal that started it all is not clear. What is certain is that events in Wukan expressed deep structural flaws within Chinese society — defects which, if left unresolved, could have repercussions for the entire world.
The land sale was a typical transaction in China, where all real estate ultimately belongs to the state and where local governments, lacking other sources of revenue, fund themselves by selling public property for development. This has been a big business in China during the past few years, as housing prices have soared and China’s savings have been poured into speculative land deals. In that sense, the dispute in Wukan is also typical: Corrupt land sales, and the resulting dislocations of local residents, are one of the leading causes of unrest across China.
China has depended on rising real estate prices not only for local government funding but also for much of its growth in recent years. As Tsinghua University business professor Patrick Chovanec reports in Foreign Affairs, residential real estate construction now accounts for a tenth of China’s gross domestic product, compared with 6 percent of U.S. GDP at the peak of this country’s housing bubble in 2005. Prices have started to plummet in Shanghai and Beijing, leading to despair, and even small-scale violence, among those who invested life savings in costly but now unmarketable apartments. Indeed, the Communist officials in Wukan who managed to sell the pig farm were lucky: More than 100 local government land auctions failed in November, according to Chovanec.
(More here.)
WashPost
FOR MOST OF the past four months, the people of Wukan, a town of about 20,000 in Southern China, were in open revolt against the local Communist Party authorities. The uprising began as a protest against officials’ decision to sell a village-owned pig farm to developers of luxury housing for $156 million, precious little of which wound up in the hands of townspeople. The protests intensified after a leader’s death, which Wukan residents blamed on a severe beating from police. With local Communist officials ousted by the people, China’s higher-ranking authorities were forced to negotiate.
The villagers and the party have now reached a settlement, involving the return of the dead man’s remains, though the fate of the land deal that started it all is not clear. What is certain is that events in Wukan expressed deep structural flaws within Chinese society — defects which, if left unresolved, could have repercussions for the entire world.
The land sale was a typical transaction in China, where all real estate ultimately belongs to the state and where local governments, lacking other sources of revenue, fund themselves by selling public property for development. This has been a big business in China during the past few years, as housing prices have soared and China’s savings have been poured into speculative land deals. In that sense, the dispute in Wukan is also typical: Corrupt land sales, and the resulting dislocations of local residents, are one of the leading causes of unrest across China.
China has depended on rising real estate prices not only for local government funding but also for much of its growth in recent years. As Tsinghua University business professor Patrick Chovanec reports in Foreign Affairs, residential real estate construction now accounts for a tenth of China’s gross domestic product, compared with 6 percent of U.S. GDP at the peak of this country’s housing bubble in 2005. Prices have started to plummet in Shanghai and Beijing, leading to despair, and even small-scale violence, among those who invested life savings in costly but now unmarketable apartments. Indeed, the Communist officials in Wukan who managed to sell the pig farm were lucky: More than 100 local government land auctions failed in November, according to Chovanec.
(More here.)
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