China’s New Revolution: Private Home Ownership

The newly built two-room apartment cost a small fortune by a Chinese worker’s standards--more than 5,000 yuan, or about $1,562.

The floors are concrete and required painting. The walls were bare, and there were no lighting fixtures.

Still, Shen Huanshan, 58, scraped up the cash to buy the apartment. There are restrictions on any resale, because the local chemical company, his employer, subsidized its purchase, but Shen and his wife hope that someday they can pass it on to their children.

At the moment, Shen is one of the tiny minority of urban Chinese who have bought houses or apartments. But if the authorities have their way, there will be many more. Slowly, and with great trepidation, China is trying to open the way for private home ownership and a state-controlled commercial housing market.

“This is going to be the future of housing in China,” He Shaoyi of Peking’s Municipal Housing Management Bureau said recently. “The ultimate goal is to have people buy houses rather than have housing assigned to them by their work units.”

Since last year, Peking has required factories and other state enterprises to make available for sale to their employees 20% of the housing that they build.

Other cities have started programs similar to Peking’s. They are following the instructions of Chinese leader Deng Xiaoping, who for several years has been encouraging the idea of private home ownership.

The effort represents a dramatic shift. Property owners who stayed on in China after the Communist victory of 1949 were generally permitted to keep their homes, but virtually all of them were evicted during the Cultural Revolution of the late 1960s. Many Chinese and overseas Chinese families have been embroiled in protracted legal and financial disputes in an effort to reclaim property that was seized.

Now China is trying to revamp its policies in an effort to overcome the chronic housing problem--a severe shortage of space and a huge backlog of people waiting, often for years on end, to be assigned a state-owned apartment.

But for the reformers, who are trying to blend Chinese socialism with marketplace economics, housing may turn out to be one of the most difficult problems of all.

Under the system that has been developed over the last 36 years, housing may be hard to find, and it may be cramped and inconvenient, but it has one virtue: It is cheap.

According to housing officials, the average rent last year in Peking for a two-room apartment with 50 square meters of floor space was six yuan a month, about $1.90. Many people live in smaller flats, or in old courtyard houses, and pay even less--as little as one to three yuan a month, less than $1.

Rent Only 5% of Income

The average worker in Peking was paid about 110 yuan a month last year, so rent accounted for only about 5% of his or her income, a small fraction of what the figure is in other parts of the world.

Chinese authorities admit that if they want to make the nation’s housing supply more abundant and the distribution system more efficient, they will have to cut back on housing subsidies and raise rents.

“If the rent is too low, nobody will buy a house,” Deng told the Communist Party Central Committee two years ago.

Yet despite official acknowledgement of the problem, the authorities have not yet shown any willingness to take on the political battle of a general rent increase.

The removal of price controls on vegetables and meat last year touched off widespread public complaints about inflation. The backlash was serious enough to cause Premier Zhao Ziyang to promise recently that there will be no price reforms in 1986.

Nevertheless, Chinese officials make it clear that they expect housing costs to go up eventually.

“We anticipate a great increase in rents,” said He, who is head of housing management policy for the city of Peking.

On March 25, in a speech on China’s economic plan for 1986-1990, Zhao told the National People’s Congress that “to gradually commercialize housing, we should fix reasonable rents and sales prices for housing units while making readjustments in the wage structure.”

Rental System Experiments

Already the central government is experimenting with new rental systems in a few Chinese cities, among them Wuhan and Shenzhen.

In Wuhan, the authorities have initiated a program in which every family is charged a low, state-subsidized rent for a certain minimum amount of floor space. The family must pay a premium for any additional space--the larger the apartment, the higher the rent.

Such a system may seem commonplace by American standards, but it is nothing short of revolutionary in China, where under the assignment system, party and government officials have been able to get relatively large apartments at low rents. The Wuhan experiment has reportedly angered older officials who are now having to pay more.

The Communist Party newspaper People’s Daily admitted last year that the system of assigning apartments on the basis of rank has been a major cause of China’s housing shortage.

‘Token Rents’ Criticized

“The state gets neither return on its investment nor income to finance housing maintenance and management costs,” the newspaper said. “Token rents mean that people in high places or with influential connections often receive more rooms than they need, while the less well-positioned suffer overcrowding.”

Officials also acknowledge that the system has been a serious drain on the state budget. Because rents are so low, every time the state invests money in new housing construction it is required to increase the amount of money it devotes to rent subsidies.

It is for these reasons that Deng and other leaders have been encouraging the idea of private home ownership.

In an effort to attract foreign capital, the regime has encouraged city governments to build special housing developments in which overseas Chinese can buy apartments, for their own use or use by relatives living in China. Peking has one such housing complex and Canton has another.

Of course, most Chinese have neither relatives overseas willing to buy housing for them nor enough cash of their own to pay for an apartment. So the authorities have been experimenting with a program in which individuals are allowed to buy apartments for only a third of the price.

This is the plan that enabled Shen Huanshan to buy his apartment. In his case, the Peking No. 2 Chemical Works subsidized the other two-thirds of the price.

In China, most factories and other state enterprises function as the socialist equivalent of a company town. Usually, an individual factory constructs a housing complex and then assigns the new apartments to its workers.

But under the new system, a fifth of all the new units must be sold rather than assigned. The employer puts up two-thirds of the cost of the apartment but gets back the other third from the purchaser. In Shanghai alone, about 6,000 apartments were sold in this way last year.

No Subsidies in Future

“In the future,” He of the Peking housing bureau said, “this housing will be sold without any subsidies. But for now the housing rent is too low, so we have to subsidize these sales. Otherwise, no one would want to buy.”

People who buy the apartments--the one-third share usually amounts to about 5,000 to 6,000 yuan--are allowed to pass them on to their children. But they can be resold, for now, only back to the factory--at a price that reflects inflation and depreciation since the original purchase.

For young Chinese workers who can get together the necessary amount of money, the new program offers a chance of circumventing what would otherwise be a long delay in getting an apartment under the allocation system.

Young Workers Buying

“Most of our sales have been to young workers,” said Li Lian, vice director of the No. 2 Chemical Works. “The system of allocating rooms is according to seniority. Older people can expect to be assigned homes within one or two years, but young people cannot get them so fast.”

There are 5,600 workers at the chemical plant, and the waiting list for housing has 1,500 names on it. Those who cannot get housing are usually forced to continue living with parents or relatives.

Li said that when the factory completed 180 housing units last year and put 36 of them up for sale, “they sold very quickly.” The factory was willing to allow buyers to pay in monthly installments over a 10-year period, but most of them paid the full price and were given a 10% discount.

Among the buyers were He Jinghua, 30, a researcher at the chemical plant, and her husband, He Jingkun, also 30, a translator for the China International Travel Service.

Until last year, the couple had been forced to live with He Jingkun’s parents in a courtyard home far out in the Peking suburbs. In order to accumulate the necessary 5,160 yuan (about $1,612), they borrowed 1,500 yuan from her parents and 1,000 from his parents. The rest came out of their own savings.

He Jingkun was asked whether he feared that the apartment might be taken away from him some day, as in the Cultural Revolution, and he replied: “No, I’m not afraid of that. I have insurance on the apartment. Even in case of fire or other disaster, we could get our money back.”

Nor did the new property owner fear that he might inspire envy in his neighbors in nearby rental housing.

“If we had had this house assigned to us, people would be jealous,” he said, “since we shouldn’t expect that. But since we bought it with our own money, I don’t think people will be jealous.”

Chinese matchmaker arranges housing swaps, not marriages. Page 22.