22 January 2019

The dark side of urbanization

Shortly before the Lunar New Year break, civil servants in Caoxian {曹縣}, a county-level city in the eastern province of Shandong, received a strange order from their bosses: They were told to help sell at least two flats each — to their relatives, friends or lovers, it doesn’t matter to whom — otherwise they may risk not getting their full salary.

Almost all employees of the city government were given the same additional duty, the China Securities Journal reports. Highly anomalous as the directive was, the city’s top cadres were careful enough not to issue a formal document stating the new task, but simply let everyone know through verbal notice.

Sources close to the local government told the Journal that the task must be finished before the year ends and that it will become an important aspect in the appraisal of a civil servant’s performance in December.

The backdrop to the story is that too many homes have been built in the city, and, although the authorities have put a stop to new projects, the local housing market is still stuck in a painful destocking process that is likely to take an eternity to finish.

One thing going for Caoxian is that the central leadership is bent on pushing forward the country’s urbanization program, and small to medium-sized cities like Caoxian are seen as the backbone in absorbing migrants from the rural areas.

Still, not too many in the city’s civil service army are confident that they can accomplish the job. If only all of them had a rich aunt or uncle, instead of snooty in-laws who would laugh at their latest dilemma. So they did the next best thing, which is to sell homes on paper.

For just 500 yuan (US$82.50), a civil servant can get a buyer’s quota together with a fake purchase contract from a salesperson of a housing project. The civil servant, thus, can hand in the “proof” of a successful transaction to their supervisor. Mission accomplished, everyone happy — except that no real deal is made. 

Caoxian is the epitome of the dark side of urbanization in China’s lower-tier cities, many of which kicked off their new town developments as early as 2008 with the help of cheap money from the central government’s stimulus package. Meanwhile, Beijing turned a blind eye to these reckless moves as virtually all housing projects were launched in the name of urbanization.

In early 2009, Caoxian began pouring money into its ambitious northern new town plan, which even included a central business district. The scale of the development was so massive that the new district can comfortably house 50,000 households, almost the same size as its existing urban population of 200,000.

Although government offices, hospitals, schools and coach terminus have been relocated to the new district, the lack of retail and community facilities has deterred potential buyers from signing a deal. The same reality exists in many other ghost towns across the nation, like those in Ordos {鄂爾多斯} in Inner Mongolia, Huizhou {惠州} in Guangdong and Jingjin New City {京津新城} between Beijing and Tianjin. The average occupancy rate in Caoxian’s new district is less than 50 percent, according to an investigative report by Shandong’s official mouthpiece Dazhong Daily.

Local cadres in Caoxian are now as worried as the developers over the huge stock of homes as it means less tax income from transactions to repay its debts. Besides, they are increasingly feeling the heat from Beijing, which has taken a tough stand against irrational city expansion and government borrowings since last year.

This explains the city’s desperate campaign to deploy civil servants to sell homes.

Caoxian has a population of over one million, including about 800,000 peasants, and analysts say that if urbanization had been properly carried out, a large proportion of its rural population could move into homes in the new district, providing sustainable demand for the local housing market to go forward.

Sadly, the local government has failed to forge sizable clusters of manufacturing and tertiary sectors — vital in providing career opportunities and attracting people and capital — along with its new district initiatives.

Quite the contrary, stagnant local economic development has forced about a third of its population — 300,000 — to flock to larger cities in search of jobs, further damping local demand for housing.

Caoxian is not a standalone case of this ill-conceived “housing project-led” urbanization model. Analysts warn that lower-tier cities are treading a similar path that may lead to a dead end.

According to realty think tank China Index Academy, 37 out of the 100 cities it monitored across the nation saw home price drops on a month-on-month basis in January, five more than in December. Except for Xiamen, Suzhou, Changsha and Ningbo, most of the 37 are third- or lower-tier cities.

– Contact the writer at [email protected]




EJ Insight writer

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