Apartheid Without the Racism': How China Keeps Rural Folks Down

By Mark Magnier Features Dow Jones Newswires

YANJIAO, China--An epic property boom restricted to city dwellers has opened a wealth gap that continues to widen in China, setting back a state campaign to ease poverty and shunting rural dwellers from the middle-class dream.

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China's system of hukou, or household registration, a decades-old legacy of the planned economy, binds most Chinese to their place of birth, and denies those outside China's booming megacities the right to buy property inside them.

That has largely shut them out of one of history's biggest wealth transfers; 98% of Chinese housing is now in private hands from virtually none a generation ago. Over the past decade, housing prices have increased up to 700% in cities like Beijing and Shanghai. Property now accounts for 70% of personal wealth in the country.

"Housing is everything in China," said Southwestern University of Finance and Economics professor Li Gan. Unless the Communist Party privatizes land, which is unlikely, farmers will continue to lose ground, he said.

Meanwhile the pace of home prices keeps rising; March was the fastest gain in the last five months. China has recently stepped up efforts to fight poverty, including extending medical insurance to the poor and resettling them from areas prone to landslides and other geological threats. It also said it is building a new megacity two hours from Beijing, bringing whirlwind growth to a dusty backwater. Both initiatives suggest leaders' awareness of the deep inequities along rural-urban lines.

In 1978, when China embarked on economic reforms, city dwellers earned about twice as much as rural residents; they now earn about 3.5 times as much, according to a study released in April by Paris School of Economics professor Thomas Piketty and World Bank consultant Li Yang.

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Studies by the Asian Development Bank and the University of Michigan suggest China's rich-poor gap is even higher once property and hukou status are taken into account. "The urban-rural wealth divide is much greater than the income divide," said Southwestern University's Mr. Gan.

Often the difference comes down to a line on a map.

Wang Qiang, a 30-year old construction engineer from a village in northern China, bought an apartment in 2014 in the "Banyan Tree Harbor" residential complex astride a garbage dump in Yanjiao, just outside Beijing, across a dying river in Hebei province.

Looking across the dry riverbed separating Yanjiao from the capital, Mr. Wang says he hopes Beijing will someday absorb his community.

Giving him hope, some cities across China have extended property-buying rights to rural hukou holders around them. With a Beijing hukou, Mr. Wang's family would have access to better schools and hospitals and his two-bedroom apartment would be twice as valuable.

But for now, "I feel stuck," he said. "Yanjiao schools have up to 80 children in a classroom. It's two different worlds."

On the other side, 38-year-old app developer Liu Wei emerges from his apartment in upscale "Jingmao International City," a gated community with bamboo groves and Maserati cars. Over the past decade, his Beijing residency status has helped him to purchase several apartments and a villa that he said are now worth up to ten times what he paid for them.

"I'm absolutely delighted with the price appreciation," he said. Does he feel lucky? Not particularly. "I'm no different from my friends."

Speculation that Yanjiao may be absorbed into Beijing has driven up property prices there at a rate matching that of Beijing in the past couple of years. But Yanjiao property values are still one fourth of those across the river.

And across China, urban residents accumulated wealth at twice the rate of rural dwellers between 2002 and 2010, leaving citydwellers with a nest egg six times larger, mostly due to housing, according to a 2015 study by Shi Li & Haiyuan Wan in China Economic Journal.

The opportunity cost of a rural background becomes even starker when considering the insider deals handed to urbanites who lived in apartments associated with their government jobs when China started to privatize housing.

Fang Liping, a 55-year-old retired math teacher, and her husband got their big break in the late 1990s when her school let her buy their three-bedroom government-owned apartment in central Shanghai for 500,000 yuan [around $72,000]. The five-story walkup is now worth around $1 million and the family has since purchased two more apartments.

"We didn't consider it an investment," she said of her original apartment. "It's what everyone was doing."

China has for decades talked about overhauling the hukou system, which economists say undercuts economic growth. Political resistance is strong as city officials balk at providing services to more people.

"The hukou system is kind of like apartheid without the racism," said Scott Kennedy, a China expert with the Center for Strategic and International Studies. "The life chances or rural and urban Chinese are vastly different."

While Beijing and Shanghai have plans to cap their populations, small cities ringed by unsold apartment blocks have welcomed rural hukou holders. However, they have little to offer in terms of jobs.

Beyond access to appreciating property markets, rural residents are also boxed out of good schooling and a range of other services in major cities.

"I've always thought about getting a home in the city and a city hukou, but it never came true, " said Yang Shuanghu, 35, a driver from a village in poor Gansu province who can't work due to a back injury. Mr. Yang, who never finished middle school, gets a rural income allowance of about $15 a quarter.

"To get by, sometimes I have to go to my sister's house to get food," he said. "Perhaps my daughter can grow up, get some education, and leave this place."

Liyan Qi and Fanfan Wang and Pei Li contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

YANJIAO, China -- An epic property boom restricted to city dwellers has opened a wealth gap that continues to widen in China, setting back a state campaign to ease poverty and shunting rural dwellers from the middle-class dream.

China's system of hukou, or household registration, a decades-old legacy of the planned economy, binds most Chinese to their place of birth, and denies those outside China's booming megacities the right to buy property inside them.

That has largely shut them out of one of history's biggest wealth transfers; 98% of Chinese housing is now in private hands from virtually none a generation ago. Over the past decade, housing prices have increased as much as 700% in cities like Beijing and Shanghai. Property now accounts for 70% of personal wealth in the country.

"Housing is everything in China," said Li Gan, a professor at Southwestern University of Finance and Economics. Unless the Communist Party privatizes land, which is unlikely, farmers will continue to lose ground, he said.

Meanwhile, home prices keep rising at a faster pace, with March the quickest in the past five months. China has recently stepped up efforts to fight poverty, including extending medical insurance to the poor and resettling them from areas prone to landslides and other geological threats. It also said it is building a new megacity two hours from Beijing, bringing whirlwind growth to a dusty backwater. Both initiatives suggest leaders' awareness of the deep inequities along rural-urban lines.

In 1978, when China embarked on economic overhauls, city dwellers earned about twice as much as rural residents; they now earn about 3.5 times as much, according to a study released in April by Paris School of Economics professor Thomas Piketty and World Bank consultant Li Yang.

Studies by the Asian Development Bank and the University of Michigan suggest China's rich-poor gap is even higher once property and hukou status are taken into account. "The urban-rural wealth divide is much greater than the income divide," Southwestern University's Mr. Gan said.

Often, the difference comes down to a line on a map.

Wang Qiang, a 30-year-old construction engineer from a village in northern China, bought an apartment in 2014 in the Banyan Tree Harbor residential complex astride a garbage dump in Yanjiao, just outside Beijing, across a dying river in Hebei province.

Looking across the dry riverbed separating Yanjiao from the capital, Mr. Wang said he hopes Beijing will someday absorb his community.

Giving him hope, some cities across China have extended property-buying rights to rural hukou holders around them. With a Beijing hukou, Mr. Wang's family would have access to better schools and hospitals and his two-bedroom apartment would be twice as valuable.

But for now, "I feel stuck," he said. "Yanjiao schools have up to 80 children in a classroom. It's two different worlds."

On the other side, 38-year-old app developer Liu Wei emerges from his apartment in upscale Jingmao International City, a gated community with bamboo groves and Maserati cars. Over the past decade, his Beijing residency status has helped him to purchase several apartments and a villa that he said are now valued at as much as 10 times what he paid for them.

"I'm absolutely delighted with the price appreciation," he said. Does he feel lucky? Not particularly. "I'm no different from my friends."

Speculation that Yanjiao may be absorbed into Beijing has driven up property prices there at a rate matching that of Beijing in the past couple of years. But Yanjiao property values are still a quarter of those across the river.

Across China, urban residents accumulated wealth at twice the rate of rural dwellers between 2002 and 2010, leaving city dwellers with a nest egg six times larger, mostly because of housing, according to a 2015 study by Shi Li and Haiyuan Wan in China Economic Journal.

The opportunity cost of a rural background becomes even starker when considering the insider deals handed to urbanites who lived in apartments associated with their government jobs when China started to privatize housing.

Fang Liping, a 55-year-old retired math teacher, and her husband got their big break in the late 1990s when her school let her buy their three-bedroom government-owned apartment in central Shanghai for 500,000 yuan (around $72,000). The five-story walkup is now valued at around $1 million and the family has since purchased two more apartments.

"We didn't consider it an investment," she said of her original apartment. "It's what everyone was doing."

China has for decades talked about overhauling the hukou system, which economists say undercuts economic growth. Political resistance is strong as city officials balk at providing services to more people.

"The hukou system is kind of like apartheid without the racism," said Scott Kennedy, a China expert with the Center for Strategic and International Studies. "The life chances or rural and urban Chinese are vastly different."

While Beijing and Shanghai have plans to cap their populations, small cities ringed by unsold apartment blocks have welcomed rural hukou holders. However, they have little to offer in terms of jobs.

Beyond access to appreciating property markets, rural residents are also boxed out of good schooling and a range of other services in major cities.

"I've always thought about getting a home in the city and a city hukou, but it never came true, " said Yang Shuanghu, 35, a driver from a village in poor Gansu province who can't work because of a back injury. Mr. Yang, who never finished middle school, gets a rural income allowance of about $15 a quarter.

"To get by, sometimes I have to go to my sister's house to get food," he said. "Perhaps my daughter can grow up, get some education, and leave this place."

--Liyan Qi, Fanfan Wang and Pei Li contributed to this article.

Write to Mark Magnier at mark.magnier@wsj.com

(END) Dow Jones Newswires

April 24, 2017 12:47 ET (16:47 GMT)