China State Media On Corruption And Cooling Off The Real Estate Market

China continues to introduce new measures to cool off the property market. An integral part of the rollout is a very comprehensive propaganda campaign. Each day since the announcement news outlets carry several stories about new regulations, falling prices, dangers of speculation, concerned government officials, progress on allocating affordable housing etc. The Chinese government understands quite clearly that skillful propaganda can play an important role in changing psychologies and expectations.

The most striking article I have seen is Xie Yuhang’s (???) April 29 commentary in the very influential China Youth Daily (?????), the official newspaper of the Communist Youth League of China. The commentary was reproduced on major Chinese news sites. ChinaGeeks has provided an excellent translation, which I will excerpt here, and which you can view in its entirety on their site.

In the commentary, entitled “?????????????-To Solve The Populace’s Housing Difficulties We Must Root Out Self-Enrichment By The Powerful”, the author attacks corruption as the root cause of the failure to provide enough affordable, subsidized housing. And without a massive increase in the supply of affordable, subsidized housing, the government will not succeed in cooling down housing-related tensions that now threaten social stability.

Key excerpts from the China Youth Daily commentary include:

Although the welfare housing system has been ordered stopped, the covert housing welfare that exists for government employees1 has not stopped, and has become its own system. Some central government offices in Beijing not only have ample financial resources for housing welfare, but their prices are not even twenty percent of the market prices. And not only can local officials get a share of ownership in existing houses/property, but they even build new houses in the name of renovation and housing reform…

Housing is meant to be a one of the basic necessities of life, but at present it has become a very common problem. If the people want to realize their dream of having housing, they must count on the government to move. If government employees could feel the pain caused by these housing problems, that would give them the impetus to do something. But housing welfare for government employees is widespread, and it allows them to distance themselves from the housing market. Whether housing prices are high or low has little effect on their housing, so we must take useful steps to get them to do something. We can’t rely on their senses of responsibility or their consciences.

If the law has banned it, but civic organs are doing it openly, then that is public corruption! This kind of corruption not only destroys the government’s incentive to regulate the housing market, it gives government employees a vested interest in the continued rising of housing prices. Because government employees can get houses easily, the value and profit potential of their property increases as the amount of property they have goes up.

The existence of corruption impedes national efforts to safeguard the housing [market]2. Commercial prices are so high they’re untouchable, so a lot of people have placed their hopes in [the government] safeguarding the housing [market]. And while it’s popular right now to talk about protecting the housing market, this hasn’t really helped the common people much either, and the reason is again corruption. As commercial prices rise, the profit potential for those in power through rent-seeking rises. There has been a mass of construction in the past few years, which should bring housing prices down, but for the corrupt officials who’ve been bought by businessmen and control interests in the housing market, what reason is there to bother with “safeguarding housing”3. Money is owed on “safeguarded housing” all over, and in addition to the connections with the GDP and land finance, corrupt officials are also partly to blame.

“Safeguarded houses” are going up and down, but they aren’t being built for the common people who can’t afford a place to live, and many of them are being used to feather the nests of the corrupt power-holders. Recently, the media has been reporting on the Xinzhou situation in which its first housing price control program was cut apart and the housing sold for profit. The government there used the only pricing control program for the benefit of local cadres, so there was a lot of impetus for officials to build, and the officials were actively mobilizing people and capital. Most of the officials cutting apart this cake already had houses, and since fixed-price houses could be resold for massive profits, the cadres made a lot of money. “Safeguarded housing” isn’t a special case, low-income housing and fixed-price housing have also been taken over by government officials, so it’s clear to see who “safeguarded housing” is really “safeguarding”…

If the interest of the poor were really being taken into account, then the government’s limited funds should have been used to construct as many inexpensive houses as possible, so that poor people could afford them. This would be in the interest of a large number of people; how many people become consumers as a result of the sale of extremely high-priced commercial property? This is quite obviously using poor people’s money to help commercial developers […] It keeps prices high, prevents more people from being able to afford “safeguarded housing”, and influences the commercial housing market.

Because of corruption, government property market control policies have been built on stilts, they cannot be long-lasting. Every time a new policy is announced, a new way to counter it is also discovered. Because these countermeasures always prevail, [we know] there is corruption. Hoarding [property] is a frequently-used trick by developers, but if they weren’t being instigated by government departments, how could they be so brazenly unscrupulous? “The highest fine for commercial property hoarding is 10,000 RMB” is the masterpiece of some local government department. Recently the central government touted the so-called “most severe” new housing oversight, but the policy hadn’t been out for long when the media began reporting that some banks were offering “unsecured mortgage loans” “fifty-day exemptions on the [required] waiting period” and other methods of consumer credit that become housing loans. Regulatory policy will also be subject to interference by corrupt officials, from those who speak out in favor of high housing prices to those who will stop at nothing to prevent the lowering of housing prices, so one can clearly see the kind of impact corruption has on regulatory policy.

(You can read the entire translation at ChinaGeeks, and if you are interested in things China I highly recommend you bookmark and/or put ChinaGeeks in your RSS feedreader. It is a terrifically useful site)

This is probably about as clear a public warning you will ever see that local officials need to seriously tackle the affordable housing problem, and that a corruption crackdown is likely coming. Some officials need to become examples for the government to show that it cares about the masses and this time it really is serious about building affordable housing. The questions about a corruption crackdown are most likely not if but when, where, who, what level and how many? This a sensitive time politically, as I recently discussed in What Are The Politics of China’s New Real Estate Measures?

The central government has staked a huge amount of credibility on cooling the real estate market and resolving housing difficulties for the masses. Skeptics will rightly say that Beijing has tried this before, several times, and never successfully reined in the web of interests and corruption that distort China’s real estate market. This time I think will be different, as the central government likely believes that housing related issues are the biggest threat to social stability in China.

I also recommend reading two articles in the latest issue of Caixin’s Century Weekly. Hu Shuli has an excellent editorial discussing what many believe are the longer-term changes needed to structurally reform China’s housing market–Property Bubble Relief and Long-Term Resolve. The cover story–Sprawling Beijing Tries a Softer Urbanization–is an excellent look at the challenges of urbanization and two experiments in Beijing that are attempting to resolve the tensions and inequity stemming from forced demolitions and relocations.

What do you think? Please tell me in the comments.

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