EYESHENZHEN  /   Opinion

Potential hazards of a land economy

Writer: Winton Dong  | Editor: Vincent Lin  | From:  | Updated: 2019-07-08

Thirty-seven Chinese real estate developers, including some big names like Vanke, Poly and China Resources, joined fierce bidding on June 24 for five residential land parcels in Shenzhen.

After more than 300 rounds of bids lasting three hours, the five land parcels, with a total area of about 170,000 square meters, were successfully sold at prices totaling 22.38 billion yuan (US$3.25 billion).

While some industry insiders have called it a landmark auction in the city and regarded it as strong proof of the city’s vigorous land market, the excessive enthusiasm shown by property developers has also aroused concerns among the public.

From the 1950s to 1990s, land-use rights in China were mainly obtained by administrative allocation. Since the beginning of this century, many Chinese local governments have been adopting a“land for money” policy to support rapid economic development and infrastructure upgrading. According to official statistics, fiscal revenue from land sales across the country was 59.5 billion yuan in 2000 and incredibly the figure reached 6.5 trillion yuan in 2018, meaning China’s income from land sales increased by more than 100 times over the past 18 years.

As a special economic zone, Shenzhen was the first city in the country to adopt the public auction model for commercial land usufruct. On Dec.1,1987, the city took the lead by holding the country’s first public land auction. However, as a city that attaches great importance to the development of high and new technologies, Shenzhen surely does not rely heavily on land commercialization. Its revenue from land reached a climax of 118.8 billion yuan in 2016, but the figure was greatly reduced to 44.9 billion yuan in 2018. At present, Hangzhou, capital city of Zhejiang Province, ranks first in China in terms of land sales revenue. Its income from land surpassed 200 billion yuan in 2017 and reached 244.29 billion yuan in 2018.

China has employed a GDP-dominated evaluation system for many years, so the revenue from land sales has been a major source of income for many local governments. Late Chinese leader Deng Xiaoping once said:“No matter if it is a white cat or black cat, a cat that can catch rats is a good cat.” We have no right to criticize local governments for their efforts to develop economically. However, while the national economic focus has shifted from quantity to quality in recent years, all local governments should reconsider their land-oriented development models and think over the potential hazards brought about by a heavy reliance on the commercialization of land.

Chinese developers have shown enthusiasm for acquiring land parcels and building houses not only in metropolitan areas, but also in third and even fourth-tier cities. As we know, food is the people’s first necessity, so we must make great efforts to stabilize the amount of farmland. The Chinese Government has frequently reiterated its red line of maintaining 1.87 billion mu (124.33 million hectares) of arable land by 2020 and has demanded the retention of at least of 1.83 billion mu by the end of2030. By comparing the two figures, we can see that China can only reduce its farmland by40 million mu between 2020 and 2030. To achieve this target, we must curb the rampant occupation of farmland with strict rules and regulations.

To stabilize housing prices, especially in big cities like Beijing, Shanghai and Shenzhen, the Central Government has also emphasized that houses should be used for living, not speculation. But real estate developers are not philanthropists. If they acquire land at terrifically high prices from local governments, how can they sell houses at low prices in the future?

Meanwhile, heavy reliance on land sales will pose a threat to the real economy. While more and more State and private funds are being invested into the real estate sector, less and less money will be channeled to scientific innovation and the development of the real economy, especially companies developing high and new technologies.

As we all know, in the modern society, talent in various disciplines is a core competitive force for any country or any city that wants to excel and keep its edge in the world. However, skyrocketing and even unaffordable housing prices are surely a major factor in dampening the desire to live and work in big cities among those young talents.

(The author is the editor-in-chief of the Shenzhen Daily with a Ph.D. from the Journalism and Communication School of Wuhan University.)