推动“新城镇化”的巨额资金从何来？
By He Qinglian on February 4, 2013.
Following the emergence of the new industrial zone of Tijuana, Mexico, Beijing has finally realized that “the factory of the world” will relocate elsewhere and it has to find a new supporting point for economic development. Judging from incoming Premier Li Keqiang's speeches on economic development in the last six months, “new urbanization” will be the core of China's economic development from now on.
In fact, the so-called “new urbanization” derives essentially from the same mindset of “using real property (as an engine) to drive economic growth”, only that something new is added. For example, social policies like the probability that individuals of rural registered household could adopt an urban one.
But I think that the registered household policy could only address the problem of discrimination against people from rural background, it is of little significance to the urbanization success and economic sustainability in China.
The problems of new urbanization are as follows: 1) where do the huge funds required to promote the new urbanization come from? 2) who will be the genuine purchasers of these real estate? 3) with urbanization driven by policy, where do the job opportunities for the new urban population come from? 4) and how to solve the conflicts caused by the land acquisition of the rural population?
This article will analyze the first two questions.
First, who would inject the funds needed for “new urbanization”?
The urbanization of developing countries is generally an outcome shaped jointly by the rise or shift of industries and government policy, with diverse sources of funds. This was the case in the Pearl River Delta and the Yangtze River Delta years ago. At that time, various enterprise-based community funds came together to compete projects, be it the construction of industrial zones, living facilities, or logistics infrastructure. But the “new urbanization” that is about to start coincides with the shift of the “world’s factory” to Southeast Asia, Latin America and elsewhere and could only depend on government policy. Therefore, the first question for the “new urbanization” is that where to raise the huge money needed?
Judging from the current situation, this new urbanization is solely driven by policy and thus there can only be one major source of investment, the government funds.
In the past five years, the Chinese government sought to avoid recession and keep thriving amidst the global economic downturn by issuing astronomical amount of currency. The so-called 4 trillion by the Central government and over a dozen trillion in investment by local governments were just approximate numbers. The amount of currency issued by China’s central bank far exceeded this figure, as proven by data: by the end of 2012, the global M2 balance was as high as 366 trillion dollars, the amount of China’s new issued money was half the world’s total. Take 2011 for example, China’s contribution was up to 52% of the world’s new currency; and at the end of 2012, China’s M2 balance was close to 100 trillion. Interestingly, despite being the world’s largest cash printer, China has been openly condemning Japan for its unlimited monetary easing policy.
With new issuance at a scale rarely seen in the world’s history, coupled with the RMB not being an international currency, the impact of excessive issuance could only be digested domestically and it resulted in severe inflation. The so-called inflation indicators of the China's National Bureau of Statistics were far lower than the price increases felt by the Chinese people. However, the property price is a fact that they cannot hide.
In 2012, British luxury property consultant Knight Frank announced the average house prices increase in the last five years among countries. China topped the list with an increase of more than 110%; Hong Kong, and Israel ranked second and third; Taiwan, with an average increase of 30.1% in house prices over the past five years, came sixth.
The statistics calculated the average increase of all countries from the fourth quarter of 2006 to the fourth quarter of 2011 and showed that the housing price in China has more than doubled over the past five years. Take Beijing and Shanghai for example. In 2011, the average housing transaction price in Beijing stood at 13,173 yuan per square meter and the city's per capita income was 32,903 yuan. A person's annual income was enough to purchase 2.5 square meters of flat; in Shanghai, the average housing price was 13,448 yuan per square meter, and the per capita income there was 36,230 yuan, the annual income of an individual could purchase 2.69 square meters of flat.
The rapid rise in property prices illustrated that the "economic boom" China maintained by massive over-issuance of money came at the costs of the swift devaluation of the currency and the drastic diminution of the people's wealth. A property market that is above the purchasing power of the majority of the members of a given society and is supported mainly by speculators is only a highly inflated economic bubble. If the government continues to make investment to push for “new urbanization” before the bubble subsides, there will be serious consequences. David Daokui Li, former member of the Monetary Policy Committee of the People's Bank of China, believed that China with such a huge amount currency in stock is like placing a “dammed lake” above it, “A stock of money too large in scale would bring corresponding risks, such as high inflation, asset price bubble or the outflow of funds.”
These are what China is experiencing right now. Regarding the amount of capital outflow, I quoted in “Xi Jinping’s Dilemma: to fight corruption or not to fight” a report by the Central Commission for Discipline Inspection (CCDI) and calculated the ratio of that to the GDP of the year: in 2012 the amount of capital outflow was estimated to exceed $1 trillion, making up 12% of the year’s GDP of $ 8.23 trillion; in 2013, the scale of illegal capital outflow is expected to reach $ 1.5 trillion, based on the annual GDP growth rate of 7%, that would approximately be 17% of the year's GDP.
Second, who would purchase the apartments constructed in the “new urbanization”?
As the term “new urbanization” implies, the focus of future urbanization would shift from Beijing, Shanghai, and Guangzhou to cities of third- and fourth-tiers. But whatever types of cities that would be, apartments constructed have to be purchased, or there won’t be “sustainable development”. Now let’s analyze what kinds of people there are in China that could be potential apartment buyers.
China’s property prices have rendered over 80% of the Chinese people unable to become buyers. Before 2009, China’s property buyers comprised big and small speculators from inside the country and worldwide; after 2009, it was domestic speculators that made up property buyers. These people purchased apartments not for rent or their own use; they stocked up the apartments to preserve the value of their assets and wait for an opportunity to reap a profit. The “apartment families” that got exposed since November 2012 were just a few of those.
The “apartment family” mainly set their target in big and medium-sized cities like Beijing and Shanghai as there is great potential for appreciation, the market is relatively stable and it is easier to cash. They basically would not consider third- and fourth-tiers cities. Therefore, even after a round of promotion, the demand for real property in third- and fourth-tiers cities remains cold. Recently, major property enterprises withdrawn from third- and fourth-tiers cities and moved back to the first-tier ones in succession, the “ghost towns” are spreading in China.
What is more, since November 2012, Xi Jinping has been making “anti-corruption” rhetoric, coupled with the news that real property data network from 40 cities across the country would soon be (inter)connected, predominant members of the “apartment family” like officials and managers of State-owned enterprises jumped on the bandwagon to undersell their real property. These people are now cashing their real property and transferring their assets, and they would not reenter the property market in the near future. Without this legion of apartment buyers, who would purchase the apartments constructed in the “new urbanization” process?
Although I am aware that the "new urbanization" is the most important development plan in the heart of the incoming Prime Minister, I would in no way be able to envisage the following: what is the difference between the apartments that will be built in the "new urbanization" process and the 6,540,000 idle units in 660 cities across the country? Will this difference be so significant that those future apartments would actually attract enough buyers?
According to Chinese media reports, on average 450 acres of arable land are “requisitioned” each day in China, the urbanization project is like an arrow ready to leave the bow at any time. However, faced with the countless “ghost towns” in China—the samples of the bubble economy created by the power of the government, the policy makers should at least think through two questions: first, will the “dammed lake” of excessive currency issuance above their heads burst? and second, with hundreds of “ghost towns” that are already there, does China really need to construct yet more “ghost towns”?
