May 08, 2017 07:44 PM

Beijing Collectives Test China’s Latest Land Reform

“Socialism with Chinese characteristics” has been a driving force behind the rise of private enterprise, home ownership and other hallmarks of market capitalism in modern China.

Streets once clogged with throngs of Mao-suited bicyclists are now jammed with cars owned by a growing middle class. And the old land-control system based on government-allocated apartments and collective farms has been largely replaced by a booming real estate market.

The shift to a market-based economy isn’t over. Government regulations in place since the Mao Zedong era continue to pose challenges to reform efforts.

Challenges have been especially evident in the real estate market, as all land in China is still either collectively or state-owned — just as it was in Mao’s day. Even expensive villas and apartments in China’s largest cities — homes with square-meter prices as high as those in New York and London — are owned only in the sense that the government grants land-use rights to homeowners for 70 years.

Moreover, the law says any land owned by a collective must be expropriated by a government before it can be used for urban construction. Most collective land in general cannot be sold, transferred or leased for non-agricultural use.

Against the backdrop of these and other reform challenges, municipal officials in the capital, Beijing, are cautiously experimenting with a new shade of real estate control by opening land plots owned by collectives to low-rent housing developments.

The Beijing municipal government decision, affecting about 1,000 collectively owned hectares (2,470 acres) is considered a major government-policy breakthrough. The targeted land represents one-sixth of the area slated for new residential projects citywide this year.

The decision was included in the city’s land-use plan for 2017, which was released in April. For the first time, the annual plan clears the way for collectives to build residential complexes and rent apartments.

Some policy details “haven’t been straightened out yet,” said Miao Le, a member of the Beijing Municipal Housing Committee who also serves as secretary-general of the China Real Estate Association.

But in an interview with Caixin, Miao predicted the reform will “not only help increase the supply of land” available for housing “but also protect the rights and interests of farmers. It’s a win-win.”

Glacial Pace

Authors of the pilot project, which if successful could expand to other parts of Beijing, is designed to provide more affordable housing while at the same time giving villagers and farmers in affected collectives an extra source of income.

The project builds on a Beijing program in place since 2010 that encourages construction of publicly subsidized, low-cost residential apartment buildings on land owned by five village collectives. The plan calls for building 10,000 units citywide.

Within the land-use policy framework, the 2010 pilot represented a huge breakthrough.

But the project’s progress has been slow. And the same regulatory hurdles blamed for the glacial pace of the 2010 initiative’s implementation could hinder the latest policy.

One impediment is a regulation that says collectives whose land is targeted for development must finance subsidized housing construction projects, even though another regulation dating from the Mao era bars the mortgaging of collectively owned land.

One collective that was earmarked for land development under the 2010 project was the village of Tangjialing, a home to “ant tribes” of young people who chose not to return to their hometowns but pursue careers in the capital after graduating from Beijing-area universities.

Tangjialing Communist Party Secretary Yan Guoqiang said that in the past, the village’s population has swelled at times to 80,000 from its non-tribe base of 3,000 native villagers. As a result, tens of thousands lived in shoddy buildings rented out by villagers, including seven-story structures with weight-bearing columns no thicker than a finger, Yan said.

Beijing officials eventually targeted Tangjialing and dozens of other villages for urban rehabilitation projects. But only Tangjialing, Wenquan, Xibeiwang, Pingfangxiang and Beiqijia were picked for the 2010 pilot project.

Administrative red tape has been blamed for the slow pace of construction in these targeted villages.

Some building projects slated for Tangjialing’s 20 billion yuan ($2.9 billion) project stalled due to land-use issues, according to the development’s chief engineer, Cao Jianbin. One plot tagged as “collectively owned farmland ... had to be reclassified as collectively owned industrial land,” which delayed the process, he told Caixin.

Indeed, the project’s first buildings were completed only recently. The first residents were expected to move into their new homes in June.

The government’s mortgage restrictions have also hindered the Beijing project, as collectives have confronted various financial challenges.

According to a media report, Tangjialing in 2012 had to borrow about 300 million yuan from Beijing’s Haidian District Housing Security Office to supplement earnings from previous land expropriations set aside for the development.

Pingfangxiang had to redirect funds from other projects after bank loan applications for its housing development were rejected.

Collective land within Beijing’s municipal boundaries and targeted for the pilot project “are in good areas,” Miao said. “But there’s a lack of long-term support for funding.”

The fact that banks are not allowed to financially support these projects reflects a policy shortcoming, Miao said.

Financial Adjustments

Once all buildings are completed and occupied, however, the collectives targeted under the 2010 project should be in line for healthy earnings. Tangjialing, for example, expects to collect about 100 million yuan a year in revenue from rentals.

Collectives also expect to pocket rents from business tenants, since the government is allowing commercial developments on some of their targeted plots.

Future collective land-conversion projects could benefit from a new framework for financial requirements whose elements are now under discussion.

For example, experts close to Beijing-area urban planning departments told Caixin that officials are considering giving collectives permission to raise funds through special mortgage financing.

One source told Caixin that other official discussions are revolving around letting collectives build and control market-priced rental apartments. This year’s pilot for building low-income housing on 1,000 hectares, for example, could be revised in the future to allow apartments that command higher rents.

Officials are also looking into letting collectives build more commercial developments on land they control.

In light of Pingfangxiang’s financial woes, the government approved adjustments to the village plan that allows commercial developments such as shopping malls and office buildings, according to project developer He Jianfeng, deputy general manager of Beijing Hongke Xinyu Real Estate Investment Co.

The government had previously required that Pingfangxiang build only public housing, He said.

Individual villagers who earned extra money previously by renting dilapidated units to ant tribes are technically in line to benefit financially from the latest conversion project. How much they’ll earn through rentals of collective-owned public housing remains to be seen, though, as an income distribution mechanism has yet to be rolled out.

Since 2010, most village collectives in Beijing have operated like economic cooperatives. Individual villagers in Haidian typically hold 70% of each collective’s stock, for example, while the collective controls the rest.

Most villagers hope the government in the future lets collectives earmark more land for commercial development.

Indeed, in Miao’s view, collectives and their members should be granted the same land rights, pricing levels and market access as governments have enjoyed since the Mao era.

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