Special Report on China’s Property Bubble

Who will be suffering most as a consequence of China’s policy decisions?

From Reuters:

China has put big money down on a momentous gamble: rush to build new cities in its poor interior, then wait for people to come and help drive the economy to a new stage of growth.

In the first phase of urbanization, from the start of the country's post-Mao reform era in 1978 to the present, rural citizens began migrating to booming coastal towns from Tianjin in the north to Shenzhen in the south. About 140 million made the trek last year.

Few of these migrants stay on. The hukou system of residency registration deprives them of benefits, such as public education, away from their home villages. Only 19 percent of rural migrants had settled permanently in cities as of 2004, according to the National Bureau of Statistics.

In the new phase of urbanization, the government's strategy is not to move farmers to big coastal cities, but to draw them to new urban areas in the hinterland. Its clearest expression came in the Communist Party's No. 1 Document in January, a policy blueprint for 2010. In it, China vowed to reform the hukou system by giving rural citizens the right to the same services as urbanites -- but only if they move to small cities within their own province.

By 2025, the country will have 221 cities with populations of a million or more, compared to 35 in Europe, according to a report by McKinsey & Co, the consultancy firm. China had 108 such cities in 2004.

But whereas work awaited migrants who flocked to factories on the coast over the past two decades, the creation of cities and employment by decree in the interior is less of a sure thing.
China tried once before to develop small cities in a hukou reform experiment in the 1990s.
"There was not much success because of the limited employment opportunities and poor public services in small cities," said Tao Ran, an economist at Renmin University in Beijing. The modern furnishings in Duan and Rang's apartment in Xiangzhang Garden cannot gloss over Gushi's shaky prospects for creating lasting jobs. Duan earns about 2,000 yuan ($295) a month decorating homes. But officials fret the property sector, the pillar of the town's economy, will suffer as empty apartments pile up.

http://www.reuters.com/article/idUSTRE6721D320100803?feedType=nl&feedName=ustopnewsearly