SCMP Wednesday, January 10, 2001
The real cost of housing
For Liu Jianmin, owner of a printing firm, it was the happiest day of his life. Last year he left the small army apartment he inherited from his father and moved into a new home three times larger on the 10th floor of a new complex in Beijing.
"From here, on a clear day, you can see the Summer Palace," he said, pointing to one of Imperial Beijing's most famous monuments. "They have promised not to build any factories in this area, to retain the quality of the air and the land."
Mr Liu, 43, paid 700,000 yuan (about HK$656,000) in cash for his new home, which has 120 square metres of living area and a parking space in the building's basement for the black Buick he bought last year for 320,000 yuan.
Thanks to the success of the printing business he set up 10 years ago, he is near the top of the pyramid of China's society, enabling him not only to buy a new home in a prime site but also to do it without a bank loan.
Mr Liu is part of what people call China's "urban revolution", equal in importance to Deng Xiaoping's radical decision 20 years ago to break up the people's communes in the countryside and distribute the land to individual farmers on long-term leases.
China is doing the same in the cities. It is selling homes belonging to government departments, public companies and other state institutions at a discount to those living in them, and ordering banks to provide loans to individuals to buy homes on the commercial market.
According to figures from the People's Bank of China, the banks in 1997 lent 19 billion yuan to urban residents for housing loans. In 1998, this figure more than doubled to 51.4 billion yuan, soared to 137.2 billion yuan in 1999, and reached 267.5 billion yuan in the first nine months of last year.
The Government wants to turn China into a nation of home owners, like Singapore, which has a home-ownership rate of 90 per cent, the highest in the world and one of the most important elements of social stability.
It sees the housing market as a key engine of growth, the best way to recycle some of the 6.4 trillion yuan in private bank deposits into buying homes, with knock-on effects on home building, decoration and materials.
There are no official figures to show how many of China's 300 million urban residents are home owners. Liu Hongyu, head of the housing research institute at Qinghua University, estimated the figure in Beijing at 55 per cent, including people who have bought homes on the open market or from their work units.
In this housing revolution, there are winners and losers. The winners are the rich: private businessmen, film and sports stars, pop singers, managers in foreign-invested companies and successful state firms, and officials who exchange their power for money.
The winners also include thousands of civil servants, teachers and employees of state companies who took advantage of the Government's decision in the mid-1990s to sell public housing at below-market prices.
"In 1997, my husband bought the apartment where we live from his school - just 10,000 yuan for 60 square metres," said Wang Guomei, 48, a civil servant. "It sold all its apartments to school staff with more than 10 years' experience, for up to 30,000 yuan. Our location is in a suburb, but it was a bargain. We cannot sell it for five years. If we could sell it now, we could get 240,000 yuan."
The biggest beneficiaries were those who bought early and those in work units that were well-off and had built housing units that could be sold to employees.
The losers in this revolution were those not senior or experienced enough to be allocated a home by their work unit, including those who joined the workforce in the past five years when such allocation was supposed to have stopped, those in companies too poor to build housing and new entrants to the workforce who earn no more than average incomes.
This class of people, which numbers millions, has almost no chance of buying homes on the commercial market.
In Beijing, prices are among the highest in China. The cost of one square metre in the city centre costs 6,000-7,000 yuan, falling to 4,000 yuan in the suburbs. The average income in the city is 900 yuan a month.
A 70-sq-metre apartment in the suburbs costs 280,000 yuan, equal to 156 years' income for an average family with two incomes.
Such prices will divide urban Chinese into two distinct classes - those who own homes and those who do not.
"I estimate that those who earn less than 1,500 yuan a month cannot afford to buy a home," said Shi Wei, an economist at a research institute under the State Council.
"That rules out 60-70 per cent of Beijing people. If we take the urban population of China as a whole, about 10 per cent can afford to buy a home. This is not equality, but we have no choice. It is as it was in Western countries 30 years ago.
"The middle class is the biggest source of stability, and more than 50 per cent of people in Britain and the United States belong to this class. In China, if we define it as having assets of more than one million yuan, it is less than 10 per cent. If it were 20 per cent, China would have no problem," he said.
A survey of 50,000 households in 12 cities published in the China Business newspaper last week found that 10.5 per cent of individuals earn at least 1,500 yuan a month, of whom 7.3 per cent earn between 1,500 and 2,500 yuan.
Mr Shi said a generation was being sacrificed as the price of the "urban revolution" of turning housing from a commodity provided by the state into one provided by the market.
He was referring to the millions in their 40s and 50s who have spent their working lives in state companies on modest wages but were not given a home. With limited savings, they find themselves without the skills needed by the new economy and are in danger of unemployment.
They have every right to feel bitter. When they started work, the deal with their state employer was that they would receive a low wage in exchange for housing, a pension and medical benefits covered by the state.
If they were poorly educated, it is not due to their lack of intelligence or unwillingness to learn but to the Cultural Revolution - 1966-76 - which closed most schools and universities and forced urban teenagers to work and live in the countryside.
They have kept their part of the bargain, but the state has not. It has changed the rules, leaving these unskilled and semi-skilled workers at the bottom of the urban pyramid.
To justify this, scholars in China sound similar to their counterparts at right-wing think tanks in the West.
"In all countries, there are poor people and rich people, people with ability and those without," Liu Hongyu said. "Many apartments in Beijing and other cities are empty because they cost too much or people do not want to buy them. Some developers leave them empty until prices go up. That is normal in a market economy."
Mark O'Neill is a member of the Post's Beijing bureau.