Gao Feng: Chinese real estate and the fate of the CCP regime


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June 24, 20220

In the eyes of the Chinese government, real estate is like a crazy dinosaur. It has to use it to protect the home and care homes, and it is afraid of being attacked by it. However, the government cannot let this crazy dragon die. Once it dies, the CCP regime will also Buried for it. Because China’s real estate and the CCP regime have already formed a deformed community of destiny.

China’s greatest wealth is real estate

According to a report by the Nikkei Chinese website on December 20, 2021, the net assets of the world as a whole will reach US$510 trillion in 2020, a three-fold increase from US$160 trillion in 2000. By country, China reached US$120 trillion, an increase of 17 times and 14 times higher than the international average. In terms of the share of national wealth, China ranks first in the world, accounting for 23% of the world; the United States accounts for 17% ($89 trillion); Japan accounts for 7% ($35 trillion). China’s total national wealth surpassed that of the United States for the first time in 2013 and reached 1.3 times that of the United States in 2020.

The backdrop of China’s wealth growth is an oversized real estate bubble. According to statistics from the E-House Real Estate Research Institute, residential prices in 50 major Chinese cities will rise to 13 times the average annual income in 2020, a further increase from 10 times in 2015. Shenzhen has reached 40 times, and Shanghai has reached 26 times. In major cities, its real estate bubble far exceeds the warning line of the economic crisis.

According to the “Report on China’s Housing Stock: 2021”, in 2020, China’s housing market value will be US$62.6 trillion (about 445 trillion yuan), accounting for 52.16% of the country’s total wealth; Accounting for 37.78% of the country’s total wealth; Japan’s 10.8 trillion US dollars, accounting for 30.85% of the country’s total wealth; the total market value of housing in Britain, France and Germany is only 31.5 trillion US dollars.

From the perspective of the ratio of housing market value to GDP, in 2020, China’s GDP is 14.72 trillion US dollars, and the housing market value is 414% of GDP. In the same year, it was 148% in the US, 233% in Japan, 271% in Germany, 339% in the UK and 354% in France. Before the 2008 financial crisis, the ratio of housing market value to GDP in the United States peaked at 169%. In the 1990s, before Japan’s housing bubble burst, the ratio of housing market value to GDP peaked at 391%. The high ratio of China’s housing market value to GDP is due to the mismatch between people and land, high housing prices in the first and second tiers, and high inventory in the third and fourth tiers, resulting in a high national housing market value.

From the above data, it can be seen that, firstly, China’s real estate bubble has far exceeded the warning line of the crisis outbreak in the United States and Japan; secondly, more than half of China’s national wealth is real estate, and once the real estate collapses, the Chinese government will not be able to function normally; Third, the excessive investment by the Chinese government has led to a high vacancy rate of urban housing, and many investments have become ineffective.

For the rescue of the housing city, the Chinese government made a strange move

Local governments in China rely on land sales and real estate taxes to maintain normal operations. According to the list released by China Real Estate Research Institute in December 2021, there are 12 cities with more than 100% dependence on land finance, namely Wenzhou, Kunming, Fuzhou, Hangzhou, Taiyuan, Hefei, Wuhan, Xi’an, Guangzhou. , Nanjing, Foshan, Zhengzhou. Among them, Wenzhou topped the list with a land financial dependence of 179%, Kunming 163%, Fuzhou 153%, and Hangzhou 140%. Guangzhou is 107%. Once these cities stop selling land, the government will shut down. This is also the reason why local governments have to invest in real estate despite the high vacancy rate. Due to the severe economic downturn in recent years, the real estate industry has also been hit hard. In order to save the housing market, local governments have resorted to all kinds of strange tricks, in order to maintain fiscal revenue from falling. Case 1: Pingtan District, Fujian issued a “price limit order”. Pingtan is the closest seaside city in the mainland to Taiwan. It was once surrounded by “real estate speculators”. The housing price has soared from 3,000 yuan per square meter in 2013 to more than 20,000 yuan. Today, even if the price is reduced by 50%, it still cannot be sold. In order to save their lives, some real estate companies are discounting in half on the basis of the discount. In response to this phenomenon, recently, the local government issued a “price limit order”.

On June 17, 2022, multiple departments of the Pingtan Comprehensive Experimental Zone in Fujian Province jointly issued the “Notice on Further Regulating the Order of the Commercial Housing Sales Market in the Experimental Zone”. The notice stipulates that when real estate enterprises sell commercial housing, the actual sales price shall not exceed 15% of the record price (government tax price). If the range is specified, online signing and filing will not be processed.

Case 2: Buying a house and sending a job in Yulin City, Guangxi. According to the statistics of the Yulin Municipal Government, in 2021, the fiscal revenue of Yulin City will be 14.079 billion yuan, and the public budget expenditure will be 37.576 billion yuan. In other words, in 2021, Yulin City will need to borrow 23.497 billion yuan in order to maintain the normal operation of the party and government organs. In order to solve the problem of cadres’ difficulty in paying wages, the local government had to make real estate ideas, because for every 1 million yuan sold by real estate developers, the government could make a profit of 550,000 yuan in various taxes and fees. In June last year, the average house price per square meter in Yulin City was around 6,700 yuan. By June this year, the average price per square meter had dropped to 6,200 yuan.

In order to boost the real estate market, on June 21, 2022, the Yulin Municipal Government issued a real estate promotion plan of “100,000 troops entering the city”. The main purpose of the program is to encourage farmers to buy houses in cities. The government promised in the propaganda: Anyone who buys a house in Yulin City can provide a subsidy of 10,000 yuan per house, solve the problem of children’s schooling, and solve the employment position of 3 public institutions.

Case 3: The Xihai New District of Qingdao City included the purchase of houses by cadres into the annual performance assessment, with the purpose of pushing up the housing price. According to the housing prices of, in January this year, the average price per square meter in Xihai New Area was 78,000 yuan. Due to government policies, by June this year, the average price per square meter in Xihai New District had risen to 110,000 yuan.

According to, at the beginning of this year, the government of Qingdao Xihai New District stipulated that all communities and joint-stock economic cooperatives should actively mobilize residents in their jurisdictions to buy new houses, conduct investigations on residents with purchasing ability, and organize group purchases of new houses. . By the end of June, each neighborhood committee and cooperative must complete at least two online house purchase contracts. This work will be included in the 2022 annual work assessment.

Three Roots of China’s Real Estate Bubble

At the end of 2018, a report released by the China Household Finance Survey and Research Center of Southwestern University of Finance and Economics showed that the housing vacancy rate in China’s urban areas was 21.4%, and the number of commercial housing vacancies was at least 130 million. If calculated according to the proportion of China’s GDP growth, in 2018, China’s GDP will be 13.89 trillion US dollars; in 2021, China’s GDP will be 17.77 trillion US dollars. That is to say, by the end of 2021, there will be at least 166 million vacant commercial housing units in China.

The Chinese government knows that there is already a surplus of urban housing, so why is it vigorously developing real estate? There are three main reasons for this:

First, the central and local fiscal and tax distribution policies are unreasonable. Before 1994, the central government accounted for 25% of the total national tax revenue, and the local four-level government accounted for 75%. Under the leadership of then Premier Zhu Rongji, starting in 1994, China’s fiscal and tax allocation policy was reversed, with the central government accounting for 75 percent and the local four-level government accounting for 25 percent. The four levels of local government include provinces, cities, counties, and townships. Administrative villages continued to rely on farmland tax commissions and family planning fines and confiscations to maintain operation. During the Hu-Wen era, Wen Jiabao was exempted from the national farmland tax. In this way, the expenditures of each administrative village were also supported by local taxes.

With the local finances being cut by 50% of their revenue, it is difficult to maintain normal operations. In this case, in order to fully mobilize the enthusiasm of the local government, Zhu Rongji adopted the principle of delegating power and giving up profits, and formed a system of “big contract” for local finance. The central government has relaxed policies for local governments, assigning land transfer fees and various fines and confiscations to local governments, and allowing provinces to withdraw their lands and form cities. At the same time, the tax bureau is divided into two: the national tax bureau and the local tax bureau.

In order to maintain operations, local governments began to expropriate and sell land and exploit mining resources, and began to issue fines to administrative law enforcement departments at all levels. In order to increase fiscal revenue, many localities also launched a promotion policy to buy a house and send it to the city. Until 2020, local governments can no longer maintain normal operation with land finance, and Li Keqiang had to make some adjustments to the division of central and local revenue.

Starting from 2021, the five-five-year sharing reform will be implemented for value-added tax, and the business tax (currently changed to value-added tax) of local revenue and the central and local tax sharing ratio of 75%: 25% will be uniformly adjusted to the central and local tax. 50%: 50% share ratio, and use environmental protection tax as local fixed income. But this adjustment is not enough to pay bank interest for the heavily indebted local government. Therefore, local governments can only continue to increase the intensity of land sales and administrative fines.

Second, China’s government-to-people ratio and administrative system are unscientific, resulting in an excessive financial burden. In 2005, Zhou Tianyong, deputy director of the Research Office of the Party School of the Central Committee of the Communist Party of China, wrote in an article that there were more than 70 million civil servants and quasi-civil servants supported by the state finance in China, and the ratio of officials to citizens was as high as 1:18. This does not include external staff.

In March 2021, Li Dongyu, a member of the Chinese People’s Political Consultative Conference and vice chairman of the Shaanxi Provincial Political Consultative Conference, revealed at the two sessions that the ratio of officials to citizens in Shaanxi has reached a maximum of 1:5. She also gave an example of a county with a permanent population of 30,200 in 2019, a local fiscal revenue of 36.61 million yuan, a general public budget expenditure of 865 million yuan, more than 120 administrative undertakings and social organizations, and more than 6,000 financial support personnel.

According to the “Data Analysis of China’s Third Population Census” in 1987, the ratios of officials and citizens in the past dynasties in China were: 1:7945 in the Western Han Dynasty; 1:2927 in the Tang Dynasty; 1:2613 in the Yuan Dynasty; 1:2299 in the Ming Dynasty; 1:911 in the Qing Dynasty. ; Republic of China 1:600.

The ratio of officials to citizens in the United States is 1:700; in the European Union 1:720; in Brazil 1:610; in Africa, the ratio between officials and citizens is about 1:350; in Russia 1:330;

Who in China should not be supported by finances? The first is the civil servants of party and youth organizations at all levels; the second is that the prefecture-level cities across the country belong to the duplication system; the third is social organizations such as the Disabled Persons’ Federation and trade unions. The staff of these institutions occupies at least two-thirds of the financial expenditure.

The third is that the central bank’s currency is over-issued, and most of the over-issued currency flows into the real estate market. According to figures released by the People’s Bank of China: In 2012, China’s total GDP was 51.9 trillion yuan, and the broad money supply (M2) at the end of the year was 97.4 trillion yuan; by the end of 2021, China’s total GDP was 114 trillion yuan, The balance of broad money supply (M2) was 238.29 trillion yuan. The basis of China’s money supply is to refer to the total GDP of the year. In other words, printing more money can build more buildings, and building more buildings can increase the total GDP, and when the total GDP increases, more money can be printed. This creates a vicious circle.

China’s housing market and the fate of the CCP regime

There are five main reasons why the Chinese government will protect the housing market at all costs: first, to protect the housing market is to protect the government’s finances; second, to protect the housing market is to protect the National Bank from bankruptcy; third, to protect the housing price is to protect the total wealth of China It will not shrink, because the shrinking of the total wealth will directly affect China’s international status; Fourth, there are about 60 industries related to the real estate industry. Once the housing market collapses, the related industries will be wiped out; National economic growth, and national economic growth is related to Xi Jinping’s re-election performance.

It can be seen that China’s real estate and the CCP regime have long become a community with a shared future. In other words, when the housing market declines, China declines; when the housing market collapses, the CCP perishes. In the face of the impending collapse of the real estate industry, Xi Jinping was not reconciled to the demise of the CCP regime, so he ordered the central bank to massively over-issue money to ensure economic growth, while stepping up efforts to maintain stability in the real estate market, and at the same time accelerating the pace of restoring the planned economy. I hope to use this to prolong the life of the CCP regime. But this is only his wishful thinking, because the building that is falling can never be saved by human beings.

(This article only represents the author’s personal views and positions, please indicate the source for reprinting, thank you)