Land reform can revitalize GDP growth
The Chinese economy is facing downward pressure. Maintaining stable growth has again emerged as a key issue. China has reached a point where it must choose whether to expand real estate and infrastructure.
Infrastructure has shown negative growth and real estate has passed its peak. Counting on these two sectors is not reliable anymore, and doing so is likely to add to leverage ratios. Governments will have to leverage further if infrastructure continues to expand, and the household leverage ratio will increase if the hot real estate market persists.
The development model based on financing with land is coming to an end. Land has been owned by Chinese governments, and supplies have been monopolized.
Residential sites’ prices were driven up by auctions. Local governments made excess profits, which became an important part of fiscal revenue. In many cities, profits from land sales have yielded 40-50 percent of government revenue. Moreover, local governments can even raise more capital by using land as collateral.
In recent years, China has pumped a decent amount of money into the economy, and a large portion of that has entered the real estate industry. This model has become less sustainable. The old development model will fail if one of the conditions matches.
First is if the real estate sector peaks. Second is if the real economy declines because of high real estate costs – Hong Kong is a typical example, and first-tier cities in the Chinese mainland have showed similar signs. Third is if expansionary monetary policy is exhausted. Fourth is if the bubble in the real estate sector finally bursts.
Development driven by land is hard to sustain. The model helped China for years, but it has reached its limit, and it’s time to transform it.
Is there any other driving power aside from infrastructure and real estate? We need to change our thinking. Markets for factors of production such as land, capital and labor should be mobilized freely among cities, so optimal resource allocation can be achieved. The reform of China’s land system is badly needed. Rural collectively owned construction land and urban land should gain equal footing as to rights, prices and access to the market. Exchanges of rural residential land should be allowed.
There’s a significant social trend: Many farmers want to move to cities while city dwellers desire to go to the countryside.
But the question remains as to whether rural collective land and residential land can be equally tradable, given that it has been years since some people bought affordable homes built on collectively owned land whose ownership is not officially recognized.
This is an area where reform is urgently needed. If successful, the reform will augur well for economic growth. It would help to lower urban home prices. If the government bestows legal status upon the homes constructed on collectively owned land and also allows for rural residential land to be marketable, runaway housing prices, especially in first-tier cities, would be arrested.
Land system reforms are a fairly significant part of efforts to unlock China’s growth momentum. With farmers moving to cities, public services need to be fairly accessible. This is quite important as the country moves to stimulate consumption and address housing concerns. It will also increase the buying power of low-income people.
It’s also worth contemplating whether the old methods of infrastructure spending need to be revisited when it comes to proactive fiscal policy. Fiscal expenditures should be weighted toward areas of weakness such as healthcare, elder care, education, social security and basic research.
Meanwhile, the nation should continue its push for State-owned capital to be funneled into social security funds.
Greater efforts are needed to press ahead with reforms of sectors where State firms hold administrative monopolies, including oil and gas, as well as electricity and railways. Private capital should be given easier access to these areas, which will boost investment in these sectors.
Pragmatic moves toward further reform and opening-up lie at the heart of China’s response to trade tensions with the US. A high-quality market economy and a high-level opening-up policy are the two prongs of the nation’s efforts to boost its competitiveness in technological and economic terms.
With farmers moving to cities, public services need to be fairly accessible. This is quite important as the country moves to stimulate consumption and address housing concerns.
The article was compiled based on a speech by Liu Shijin, former vice president of the Development Research Center of the State Council, at a forum on Chinese urban development on Sunday in Chongli, a county in North China’s Hebei Province that’s one of the main venues for 2022 Winter Olympic Games. bizopinion@globaltimes.com. cn