FUNDAMENTAL ANALYSIS urbanization is that China
is already facing a glut of unoccupied commercial and residential space. In some places, ent i re ghost cities have be en buil t—New Ordos, Inner Mongol ia, which has enough unoccupied apar tments to accommodate almost a mil lion people, being perhaps the most famous example. Such space is typica lly in the hands of investors, who tend to hold it as a store of va lue rather than a source of rental income. Much of China’s real estate development thus consists of l it tle more than turning land into empty building s .
SAME BED, DIFFERENT DREAMS
Beijing ’s economic planners natura lly have a different view of
urbanization. For them,
it’s about ‘reba lancing’ the Chinese economy by moving rural residents into cities. This is not only supposed to make them more productive
but
also to turn them into middle - class consumers, thereby facilitat ing a transition from investment to consumption- led growth. Unlike loca l officials, who are ma inly interested in urbaniz ing rura l land by replacing farms with cityscapes, Beijing ’s goal is to urbanize China’s population.
A log ica l first step would be to remove the leg al dis t inction betwe en rural and urban resident s. Under the cur rent s ystem, the approximately 200 mil lion rural mig rant s now living in China’s cities cont inue to be considered as residents of their places of orig in. This makes them inelig ible for socia l wel f are benefits
like medica l
insurance and K-12 publ ic education that are provided by city government s .
Beijing would also like to see lo ca l government s build more affordable housing for the newly urbanized population. A high share of China’s residential development typica l ly
consis t s of luxur y apar tment s and ‘vil la s’
FX that
ordinary families cannot afford. Local government s can get high prices for the land on which such proj e cts are built, so can developers be cause
they
marg ins, and speculators find them eas y
g enerate to
fl ip. But
they do nothing to address the needs of rural mig rant s, who genera lly work low-wa g e factory and cons t ruction jobs.
Beijing and the loca l governments thus find themselves in the “same bed with different dreams,” as the Chinese saying has it. The former would like to see reforms that would facil itate the integ ration of rura l
high
New Ordos, Inner Mongolia – China’s most famous ghost town.
FX TRADER MAGAZINE July - September 2013
37
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