Only healthy urbanization is sustainable

Updated: 2013-01-29 19:12

By Li Yang (chinadaily.com.cn)

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The housing market rebounded in first-tier cities in China, but not in second and third-tier cities, indicating that the bubble is one step closer to bursting, said an article in the 21st Century Business Herald. Excerpts:

The lackluster housing market in second and third-tier cities removed the apparent layer of prosperity covering China's real estate industry. Many real estate developers and investors have started to withdraw from those cities.

The development of Chinese cities in the past decade was basically supported by the land price differences between rural and urban areas.

Urbanization was driven by the local governments' desire to get more profits from land transfers. Even if the GDP steadily grew, the quality of the growth was very low. Although the urban areas are becoming larger, the GDP yield per unit of urban area is actually shrinking. Let alone the large numbers of migrant workers who live and work in cities without being granted urban household registrations, or hukou, and the affiliated citizen rights.

This kind of urbanization is not new, or healthy, contributing to asset bubbles and the local governments' addiction to low-level asset accumulation. The profits from the land price differences should have been used to pay the rural land population new demands for social welfare and public services after they become urban residents. However, the profits now go to the pockets of the land developers.

That’s why the fast increase of China's GDP cannot be translated into real growth of payment for laborers. The real demand from the newcomers for houses is sapped because their wealth has been exploited largely by real estate developers.