KATSUJI NAKAZAWA
Affordable housing comes before commercial housing.
That was the surprising message to come out of a key Chinese Communist Party meeting on the economy last week.
The policy will affect the fate of big property developers across the country, including the embattled China Evergrande Group, which has recently defaulted on part of its debt.
"President Xi Jinping has made clear that houses are for living in, not speculation," one Chinese economic source said.
"Affordable rental housing for low- and middle-income households was put ahead of the development of commercial housing by private companies," in the announcement after the Central Economic Work Conference, the source added. "This speaks volumes."
The annual gathering to discuss how to manage the world's second-largest economy was held for three days until Dec. 10 in Beijing.
An Evergrande Real Estate development in Jiangsu. Evergrande Group recently defaulted on some of its debts, sparking worries about systemic failure. © Getty Images
Xi has long worried about rising home prices in China. While those concerns briefly receded as the country's real estate market soured more than expected, the Central Economic Work Conference confirmed that "houses are for living in, not speculation" is the basic principle going forward.
From a political standpoint, the most noteworthy aspect of Xi promoting affordable housing is that the concept is quite similar to the "red" economic policies undertaken by his rival Bo Xilai around 2010 as Chongqing's top official.
Bo is currently behind bars serving a life sentence. Dubbed the Chongqing model, Bo promoted subsidized infrastructure, housing and public works projects. Along with the campaign to sing "red songs," Bo was highly conscious of Mao Zedong's fundamentalist socialist policies.
Official media reports said in 2010 that Chongqing would build 40 million sq. meters of public rental homes to resolve a housing shortage that low- and middle-income earners were up against. That accounted for around 30% of the population living in the old city area.
Under Chongqing's affordable rental housing policy, a low-income family of three earning 1,000 yuan ($157) a month could live comfortably in a unit with a kitchen and two rooms, paying around $15 or so in monthly rent, excluding electricity and water bills.
Bo Xilai, once seen as a rival to Xi, is now serving a life sentence behind bars. © Getty ImagesChongqing's situation 10 years ago is somewhat similar to China's overall situation today. Premier Li Keqiang revealed last year that there were as many as 600 million low- and middle-income people earning an average of around 1,000 yuan a month in the country.
The recent trial introduction of a property tax, spearheaded by Xi, was also implemented in Chongqing by Bo a decade ago.
In the case of Chongqing, property taxes were levied on assets such as luxury single-family homes and condominiums, and the revenue was used to build housing for low-income households.
While the overlap of policies between the bitter rivals is an irony of history, it was also inevitable.
Since the second half of the 1990s, the Chinese government has been encouraging families to purchase their own homes. It was a departure from the "Chinese style" of employers providing housing.
It was also symbolic of market-oriented policies pursued by three successive Chinese leaders, Deng Xiaoping, Jiang Zemin and Hu Jintao. But abnormally high housing prices have clearly warranted a change.
Xi, who recently passed a "third resolution on history," wants to open a new era in housing policy. His obsession with overtaking paramount leader Deng has led him to Mao Zedong's policies, which Bo used as models.
Portraits of former Presidents (from left) Deng Xiaoping, Jiang Zemin and Hu Jintao, and current President Xi. (Photo by Ken Kobayashi)Chongqing today is led by Chen Min'er, a key member of Xi's "Zhejiang faction."
Since becoming party secretary in 2017, Chen has striven to eliminate each and every footprint left by Bo. The mission has been described as clearing the leftover "poison" in Chongqing.
But as soon as the new policy was adopted at the Central Economic Work Conference, Chen began to tout measures to expand the supply of affordable rental housing. It was as if he had forgotten what Bo used as the centerpiece of his politics.
The new housing policy will pressure major private sector property developers to change their policies as well.
The highly profitable business of developing and selling regular condominiums will inevitably have to be scaled back. Developers will have to either diversify into other business areas or break into the affordable rental housing market.
Another important decision connected to "common prosperity" -- Xi's signature slogan on correcting disparities -- was made at this year's Central Economic Work Conference. Bo Xilai appears in this picture as well.
It hearkens back to the "cake debate," which broke out 10 years ago between Bo and Wang Yang, currently chairman of the Chinese People's Political Consultative Conference, the country's top political advisory body.
The debate was over how to divide the cake, or the fruit of economic growth. At the time, Bo sensed growing public discontent over inequality and the worship of money, and insisted the cake be divided immediately and fairly.
Bo's massive affordable housing projects were part of his serve-the-cake-now ethos.
Wang, who was then the top official in the southern province of Guangdong, squarely disagreed, stressing a need to first make the cake bigger. When he was a young local executive, Wang was noticed by Deng, the father of the economic policy of "Let some get rich first."
Bo (left) before his incarceration and Wang Yang, current chairman of the Chinese People's Political Consultative Conference. The two disagreed on how to divide wealth in the country. (Source photo by Kyodo and Xihua/Kyodo)Coming from that Deng school of thought, Wang is highly suspicious of Mao Zedong's style of radical egalitarianism. The fact that Wang was Bo's immediate predecessor in Chongqing also played into the clash.
According to a statement issued after last week's Central Economic Work Conference, the meeting concluded that to realize common prosperity, the nation should first "make a bigger and better cake," then divide it through rational institutional arrangements.
Here, contrary to the housing issue, Wang's position prevailed in the great cake debate, an outcome that reflects the difficulty Xi has in steering the economy. Bo Xilai's policies contradict Wang Yang's. Now Xi has adopted a compromise between the promotion of housing and wealth distribution.
A slowdown in the Chinese economy has been clear since this past summer. It is a "policy-induced slump" triggered by Xi's efforts to achieve common prosperity.
A decline in housing prices has spread, giving local governments no choice but to restrict the scale of new home discounts.
It was Liu He, the vice premier in charge of the economy, who persuaded Xi to weaken the impression that the administration is rushing to correct disparities and to distribute wealth. Liu was able to do this only because he is one of Xi's most trusted aides.
Given Xi's political objective to become a greater leader than Deng, he would no doubt want to bring common prosperity to the fore more clearly to declare the advent of his new era.
That he doesn't do so is a reflection of the dire economic situation he has to manage.
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