China's real estate goldmine

In his keynote address at the 17th Party Congress, Hu Jintao announced that China would create conditions to allow even more people to enjoy income derived from property. This disclosure seems to have gotten lost amidst the speculation about China's fifth-generation leadership, but its ramifications could be substantial.

In People's Daily's Chinese-language coverage, much space was devoted to exegesis of the meaning of the words "creating conditions" for the "masses" to enjoy "income derived from property." And while the news report provided only superficial elucidation of the quoted words and phrases, serious consideration is worthwhile.

What does it mean to "create conditions" for income derived from property? If the example of Western countries is any guide, a bedrock condition for the enjoyment of property is an operational legal system. After all, a property right is only as good as the ability to enforce it, and in places where property rights cannot be safeguarded by law, they are protected by force. While China is understandably resistant to the wholesale transplanting of Western institutions into Chinese society, property rights seem unlikely to flourish in China without significant development of its court system, which is neither independent nor institutionally experienced in enforcing property rights.

As for the "masses," the campaign by definition seems to target China's middle class and seems unlikely to alleviate the widening gap between China's rich and poor. As a National Bureau of Statistics expert quoted in the People's Daily piece explained, "property income" includes money from a sale or lease, and also interest accrued on, dividends paid on, and the appreciation in value of: bank deposits, negotiable securities, houses or vehicles. Overwhelmingly, the people in a position to earn such income are already middle class.

The property from which China's rural poor might be able to earn income, of course, is land, but despite the new property law, the State still claims ownership of all land in China. This situation casts the phrase "income derived from property" in a curious light. Private ownership of real property — land — is the norm for private property systems in the West. While personal property (e.g., jewelry) and intangible property (e.g. copyright) have long been recognized as forms of private property as well, real property is the conceptual basis for Western understanding of private property. How income-generating property develops in China, in the absence of freely-alienable land, will be interesting to watch.

The stated goal of this income-generating property campaign is to provide ordinary Chinese people with a means of hedging against inflation and enjoying even greater wealth. The ambition is admirable, but given the constraints, actual implementation will likely prove elusive. For the moment, then, the true promise of this campaign may only be that there's new lingo for the masses.