(Picture by: 安小庆)
Over the years, people have come up with various barometers for the Chinese economy, which, due to the opaqueness of official statistics, proves to be a tough nut to crack. The price of pork, the output of coal, the number of windows that light up at urban neighborhoods at night have all been used to take the pulse of the massively complex country. One of the more famous examples of such makeshift indictors is the now legendary “Keqiang Index”, named after Premier Li Keqiang, who, while serving as the governor of Liaoning province during the early 2000s, used railway cargo volume, electricity consumption and the amount of bank loans as surrogates of the official GDP figures which he, as a Communist Party provincial chief, deemed unreliable.
Jokes are to official statements what the Keqiang Index is to GDP numbers. Nowadays, The best online jokes are about the overheated housing market that since late 2015 have preoccupied the nation. “Today’s HR gauges a candidate’s hireablility by asking if he or she owns real estate. A person without an apartment is often pessimistic and cynical about the society. Those having to pay mortgage tend to be loyal, not itching for job change.” Another version has a more real-life feel to it: “Engineers who own more than one apartments in Beijing are unmanageable in the office, always ready to fire their boss, sell an apartment and go travel the world with the money; engineers who own one apartment are completely demotivated, as they are basically set. The raise they earn through harder work would be rendered pointless by the rising house price. Those without an apartment are anxious to go into the finance sector or do an MBA and won’t spend a single minute on perfecting their engineering skills. The housing market is shaking the Republic’s foundation!”
Ever since the 2009 post-financial-crisis government stimulus of 4 trillion RMB, which kick-started a massive housing market boom, anxiety about skyrocketing housing prices has filled the pages of the country’s newspapers and cadres’ speeches. Premier Wen Jiabao’s numerous promises to keep housing price “reasonable” during his last few years in office still resounds. But the jokes today capture something new in that anxiety. The rallying market is reshaping people’s psyche as much as their pockets.
One of the most cited expressions of concern in the Chinese media today is Longview Economics CEO Chris Watling’s comparison of the current housing price hike to the Dutch “Tulip Fever” that happened almost 400 years ago. The London-based consultancy lists Shenzhen, the Chinese city that borders Hong Kong, as the world’s second most expensive housing market, next only to San Jose in California. According to the firm, Shenzhen’s housing price has risen a whopping 76 percent in a single year, surpassing longtime real estate strongholds, its sister city Hong Kong, and even inner London.
It is debatable if China’s housing boom today is as economically shaky as the Tulip Fever or even the housing boom in the United States before the financial crisis, fueled by subprime mortgage. As recent as in Jun this year, bullish advocates for the Chinese property market, such as star developer Ren Zhiqiang, a Weibo celebrity, were still arguing that the rise in housing prices is driven by the unabated pace of urbanization and population inflow into cities. The large amount of down payments, backed by actual saving of the Chinese consumers, not credit, makes the boom qualitatively different from the subprime mortgage driven US housing market before the crisis.
But concerns with the sustainability of the current boom is only part of what people have been fretting about. Yes, the prospect of a spectacular crash in the fashion of the stock market last year is scary. However, to many people, the alternative, a market that continues to rally in the foreseeable future, looks as troubling if not more fearsome. The engineer joke is an embodiment of such concern: an ever booming housing market is going to eat into the very foundation of a robust, creativity-based economy that China is so eager to become.
A much more articulated version of this fear appeared on the Financial Times Chinese website on Aug 29. The author enumerates a few dire consequences of an ever enlarging housing bubble, including financial risks and depleted capitals for the “material economy” such as manufacturing. More piercingly, he observes that with the housing price spike, the “landlord mentality” that historically haunts China has been rekindled among the Chinese nouveau riche. “Many rich investors have accumulated a large amount of real estate in their hands to collect rent or simply the additional value generated from more rise in price. One the other side, more urban proletarians, those workers who can never afford housing, are created in the process.” For a regime that, more than 60 years ago, gained support by wiping out the landowning class through collectivization, the current situation seems ironic.
To illustrate their increasing uneasiness about where real estate is leading the country, commentators need to borrow an entire vocabulary from a place where the dominance of property developers have agonized a society, Hong Kong. An article that warns about the mainland cities slipping toward “Hong Kong-ization” characterizes the autonomous metropolis as having three distinctive features: sky high property price and living costs, huge income inequality, and increasing conflicts between the natives and newcomers. The author attributes the problems to the Hong Kong government’s laissez-faire approach to real estate profiteering, whose unbridled growth squeezes the space for small and medium businesses (through expensive rent) and exacerbates social inequality (property owners vs. those who can never afford).
Nothing highlights the mainland’s resemblance to the Hong Kong case better than the 6-square-meter apartment in Shenzhen that causes a stir in the public conscious. On Sept 24, news had it that a developer was selling a set of ultra-mini flats in Shenzhen with a jaw-dropping per-square-meter price of 150,000 RMB (roughly 22,000 USD). As a reference, monthly average salary in Shenzhen is about 5000 RMB (746 USD). The mean salary is lower. Reporters visiting the place as potential buyers were shocked to find a packed scene: people were rushing there to get hold of the deal. A woman reportedly wept after her apartment slipped away to another buyer just because of a minute of hesitation.
Commentators were quick to refer to those mini-apartments as “pigeon cages“, a term once used to describe the horrible hellholes immigrant laborers and poor residents inhabit in Hong Kong. (To be fair to the developer, those Shenzhen apartments are actually much more spacious than their registered 6 square meters.) They become the symbol of the property frenzy, 880,000 RMB for literally a jail cell in the middle of a city.
There are people who see it differently. Again, Hong Kong provides the inspiration. They call such small apartments “Get-on-the-bus-property“, meaning that the relatively low total cost (because of the tiny space) allows cash strapped consumers to embark on the “bus” of property ownership. The housing boom makes it perfectly clear to many that property has become the watershed of one’s fortune. Ownership means a quick accumulation of personal asset, a defense against inflation and access to cheap credit. Without it, you are doomed with the dwindling value of cash in the bank or under your bed. To buy or not to buy, it’s not a question. That’s why when Hong Kong developer Cheung Kong Property released a 16 square meter mini-condo for RMB 1.32 million back in 2014, the Hong Kong media dubbed it “mercy to the poor“. Mainland observers bring up this anecdote with sarcasm and resignation.
The exacerbation of already severe income inequality through this recent episode of housing price spike, which spread to second and third tier cities, is the most disturbing aspect of this property market rally. As one commentator puts it, “without denying their hard-working, the property owning upper middle class should attribute most of the build-up of their fortune to property price increase. Today’s housing boom is not primarily hurting the anxious middle class, but the desperate lower classes that won’t share a penny of this market. Observers who do not acknowledge this sad fact, or even watch with amused indifference, should go into the hall of shame.”
Not just the cold-blooded spectators are to be shamed. The above-mentioned Financial Times commentary also points the finger directly at central ministries and local governments, which, as the author claims, willingly hijack a top leadership policy of clearing housing inventory and turn it into a call for re-stimulus. The result is rapidly increasing leverage of households and the simple shift of debt from the balance sheets of property developers to those of individuals. Local governments benefit tremendously from land sales and taxation on transactions while families bearing the financial risks. They are becoming “super landlords”.
As the country’s top propaganda organ, the People’s Daily weighed in on Sep 26 with an opinion piece, reflecting the graveness of the current situation. Titled “Losing the hard-working spirit, we will still be homeless with all the properties”, the article devotes much of its content to an uneasiness about the ascent of a opportunist, speculation mentality, in the same vein as the engineer joke, but with a notable twist at the end: it calls on individuals to cling to their faith in self-improvement and to not get lost in the housing pageant. The commentary was met with disbelief and ridicule. In no time, another joke starts to spread on the Internet. It applies a light touch to the original title of the People’s Daily article: “Losing all the properties, we will still be homeless with all the hard-working.”