June 18, 2011

CHINA WATCHERS the world over want to know: Is that fast-growing country’s real estate boom a bubble, and, if so, when will it burst and at what cost to the global economy?

These are important questions. But there’s a more immediate human cost to China’s property spiral, and we’re not just referring to the millions of Chinese with low or middle incomes who are being priced out of the market. Hundreds of thousands are being evicted from residences in the countryside — sometimes forcibly — to make way for speculative development.

This has led to social conflict, some of it violent.

Last September, three members of a family living on the rural fringe of Fuzhou set themselves on fire to protest the forced demolition of their home, according to a recent article in the Financial Times. One elderly family member died; the other two survived. In November, residents of Anhui province overturned a mayor’s car in protest of inadequate compensation for the demolition of their homes.

Government figures suggest that the rate of expulsions has accelerated since the second half of the 1990s, when 3 million people a year were being relocated, according to the Financial Times. One factor is the government’s effort to preserve arable land, which has had the perverse effect of shifting seizures from lightly inhabited farmland to villages.

What makes this all the more poignant is the fact that so much development in China is purely speculative. Many of the apartment buildings and shopping malls that stand where small houses once were are empty because no one can afford to live or shop in them. Yet local governments have little interest in arresting this cycle; they raise money by selling land for development, not through property taxes.

What about the property rights of the residents on that land? Well, they don’t have many. They own their homes, but not the land under them, for the simple reason that in Communist China all land is the property of the state. Even the developers who ultimately take over formerly rural land do so under long-term leases. To be sure, people receive compensation and a measure of relocation assistance. In some cases involving prime real estate, they have been able to negotiate large settlements. But the amounts vary widely and do not necessarily reflect the market value of the property.

Beijing is said to be working on legislation that would limit strong-arm tactics in relocations and guarantee market-based compensation. Let’s hope that the law ultimately passes and that it’s strictly enforced, unlike many other such reforms. As true free-market societies have discovered, the best bulwark against oppressive government land grabs is private property, buttressed by the rule of law. Until China develops similar institutions, it seems fated to more suffering and struggle on the land.