ARTICLE ORIGINALLY PUBLISHED 19TH MAY 2017
In 1982, my uncle’s family was thrilled by some good news. The head of the family, my uncle Xiang, had been allocated a new apartment unit by his employer, which was the largest state-owned company in the remote town where he lived in China. Uncle Xiang’s old house was far from ideal. It was nicknamed a ‘triple jump’ house because it would take a little kid three jumps to get from the bedroom to the street outside. The floor of the bedroom was lower than that of the kitchen, which had a door that opened to the front courtyard, and the ground of the front courtyard was at least 20cm below the level of the road outside. This is important if you remember that water runs downward.
After heavy rain, the house was usually flooded. Uncle Xiang, his wife, and their two little children had to use pots and buckets to scoop water out of the living room. The house, as a matter of fact, consisted of a kitchen and a bedroom only, all in a boxlike space of about 16 square metres. There was not even an indoor toilet. This was one of many makeshift houses for urban residents who worked for state-owned companies in China at that time. Under the communist regime, the Party promised to take care of everyone, from cradle to grave. Housing provision was an integral part of the social contract. But given the weak economic foundation and the large population size of the nation, most of the urban residents were living in houses that were of poor condition. Uncle Xiang, like many others, did not complain, but patiently waited for his chance to be allocated with a decent house.
In the early 1980s (as for decades before), housing was allocated to urban residents by state-owned institutions, which were the only employers in many urban areas of China. The allocation of this valuable resource was based on a complex scoring system that factored in many variables such as the age, party membership, and seniority of the position of each individual. After working diligently for more than a decade, uncle Xiang finally got his turn. The new apartment had two double bedrooms, a bathroom, a kitchen, and a living room. It had everything a dream house could offer. It was also free of charge. One can only imagine how excited the family was.
Unfortunately, as in many cases in the China of that era, their excitement was short-lived. When the day came to distribute the keys of the new apartments to their owners, my uncle Xiang’s supervisor showed up in his office and dropped a key in front of him. The key was old; not new as he expected. The supervisor told uncle Xiang, plainly and clearly, that he liked the new apartment and had decided to swap. Uncle Xiang would take the supervisor’s old house; and the supervisor would have the new apartment. The allocation was perfectly fair; but the final outcome was not. The supervisor could not get the new apartment because he had been allocated with a good house years ago, which effectively disqualified him from getting on the waiting list for new housing. But he took the new apartment because uncle Xiang ‘willingly’ traded his new apartment with his supervisor’s old house. The details are complicated, but uncle Xiang had one option: say yes and smile. He did.
A small consolation was that the supervisor’s old house was not terribly bad. It was one of the terrace houses constructed by Japanese occupiers during the second world war. Although there was a lack of indoor plumbing, the house had its own front and back garden, a living room, a kitchen on the ground floor, and a large bedroom upstairs. The house was in a development that was low in density and centrally located, whilst the new apartment was in a high density development that was further away from the city centre. The supervisor was correct to assume that uncle Xiang was still much better off by taking his old house, because it was a huge improvement over the ‘triple jump’ house. Nowadays people may jump on the opportunity to own one of those well-built old town houses. However, in the 1980s, tastes were different. High-rise apartment buildings were such a new phenomenon in China that they were the most popular property type around. It was an emotional rollercoaster for uncle Xiang to first learn the good news about the new apartment, and then to accept the ‘deal’ that was forced upon him, not to mention the stress that he went through before telling the family about the swap. He always took pride in taking care of his family and doing a good job at work. This incident greatly undermined his confidence and esteem at work and his adequacy at home. He did not say anything other than the plain facts, but worked nonstop for days to clean up the old terrace house. Uncle Xiang probably wanted to channel his anger and disappointment into these works. However, the stress was overwhelming and his body took the toll. He had a high fever and eventually lost complete hearing in his left ear. Even today, I talk to uncle Xiang by standing on his right-hand side, so that he does not have to turn his right ear to me in order to hear me.
I have spent more than ten years living in the UK after my early life in Inner Mongol (China). My friends are fascinated and intrigued about China and especially Inner Mongol – they often ask me to tell them stories from my hometown. This is one of the stories that I have told them often. As sad as my friends found the story was, they were also amazed about how China has changed in such a short span of time. Back in the 1980s, terraced housing was considered to be inferior to apartment units, and housing was allocated centrally free of charge. In less than 30 years, the country has a completely different taste towards housing, and a market mechanism has replaced the state allocation system in urban China. That being said, ‘triple jump’ houses still exist and corruption is still rampant in some parts of China. It is a country that has transformed itself in many ways over such a short period of time. It is also a country with such a rich texture to which one cannot find a single model to fit. This is the challenge that everyone will face when trying to understand the property market in China.
Housing is such a personal affair. One cannot fully appreciate the working of the housing market in China without understanding what the citizens have been through since the establishment of the New China in 1949. It is through the lens of history that we can obtain a better understanding of people’s incentives and concerns. In the rest of the China Watch series, I will walk the readers through these historical milestones in modern China’s history, and relate these significant events to the characteristic of its property market today. I will tell stories that can be broadly classified into the five categories as outlined below.
Culture is not the answer
The 5,000 year history of China makes its culture both fascinating and complex. It is often tempting to use culture as the explanation when it is difficult to understand a Chinese phenomenon. However, this approach can also stop us from seeing the truth. I will firstly introduce the 1966-1976 Culture Revolution and its profound impacts on social and economic lives in China, followed by a discussion on other political or economic reforms, such as the recent anti-corruption campaign. These two articles will help readers to understand why there is a lack of interest in long-term investment in China, as well as the intriguing relationship between the Chinese stock and property market.
Hukou system
The Hukou system, or the household registration system, is the fundamental cause of regional disparity in China. It is a powerful tool for the government to control resource allocation between and within urban and rural residents. It is also an integral part of the education, medical care, pension, and housing provision systems in China. I will share stories surrounding the Hukou system to reveal its far-reaching impacts on the property markets in China, such as the widening gap of property prices between first-tier cities and the rest of the country, as well as the rise of senior housing industry in China.
I vs. We
Chinese businesspeople generally do not believe in win-win. Zero-sum is the ultimate outcome: for a deal to go through, one party must lose. There is no ‘we’, but just ‘I’. Once again, it is easy to say “it’s the culture!”. We need to go beyond this superficial explanation to understand this mentality. Through stories about the Great Leap Forward and the Great Chinese Famine between 1958 and 1962, the readers may recognise the evolutionary roots of this phenomenon. The discussions will also explain why food is such an important element in Chinese culture, and why meeting over meals is essential when doing business in China.
N is the population size
In statistics, N is the symbol for population size. I am using this term literally. It is the population size – the number of people in China. When doing business in China, one has to consider the country’s sheer size of population. Scale matters, big time! I will share two stories to help readers to understand why fraud is so rampant and why economic and political reforms (such as the short-lived stock market circuit breakers experiment in January 2016) can easily spin out of control in China.
All for one, one for all
The one child policy, introduced in 1979, has now been replaced, with a two child policy introduced in 2015. However, its impacts will still be felt by generations to come. This unique family planning policy created an upside down pyramid-shape family structure, with four grandparents and two parents to support one young adult to climb the property ladder. This partially explained the small proportion (i.e. less than 15%) of home purchases with a mortgage in most Chinese cities. On the other hand, a couple will typically have as many as four parents and eight grandparents to support when they get older. Consequently, the care home industry has been on the rise, and the demand in residential property market in the long-term is gloomy. ‘All for one’ is nice when one is young, but ‘one for all’ is tough when one gets older. Stories about family planning policies in China will be helpful to understand the demographics and its implications to the property market in this country.
So, let’s talk about C.H.I.N.A.
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