Beijing's Economic Logic About Real Estate in Nanjing Raises The Prospect Of Political Backlash

Nanjing authorities finally made a move on property prices this past weekend.

And it’s likely that Beijing forced them to take action.

Nanjing decided to introduce restrictions on home sales by calling a halt to the frenzy that began last year and had continued unabated until just yesterday—when pretty much everything came to a juddering halt. Local residents of Nanjing--that is, those holding a bona fide Nanjing residency card--are stuck with the 2 homes they already have (1 of which they are almost certainly renting to those who cannot afford to purchase one for themselves). Those without such residency can stay with what they have or purchase a single new or second-hand home if they haven’t yet, but under the just announced regulations they’re unable to buy another.

Interestingly enough, under the new rules, Nanjing residents aren’t allowed to purchase new apartments, but can buy as many second-hand homes as they want without restriction. The logic is that speculators are buying new homes in Nanjing, fueling new projects and new land sales, driving up prices to new levels, and—more importantly by far--making the real estate situation far less manageable for the local government.

At least that’s what the original announcement in the Nanjing party newspaper said—that “to continue to guide rational housing consumption, and further promote the stable and healthy development of the city's real estate market, in accordance with the current situation, the city government introduced [this change] in the main urban housing purchase policy.” Nanjing government officials aren’t that worried about inflation, because while some purchasers aren’t pleased with the rise in property prices, a robust market of any sort is welcome news in a province that’s not been immune from the nation’s economic doldrums.

What really began to concern Nanjing decision-makers was the volume and pace of purchases—the buying-and-selling fever—that threatened to take control of the property market out of the hands of the government and developers. It’s a matter of political reputation, as the property market started to become an independent force--and made Nanjing officials look like they didn’t have the power to manage it.

The good news is that the Nanjing government is full of very smart people, who are in touch with what transpires here daily, and that perception worries them. They couldn’t avoid knowing about the local fixation with property and prices even if they wanted to—and they didn’t; every bus stop, subway platform, street crossing, sidewalk, and meal in Nanjing contains conversations about apartments and their pricing. What Nanjing officials had been trying to do is to get back some leverage over the market, and convince both the central government and their citizens that they knew what they were doing, that they were in charge.

But trying to change course wasn’t easy. Many in Nanjing benefitted greatly from the rise in real estate values, and so the perceived need for local government intervention was low. At the same time, Beijing was starting to grow more anxious. So, in August, the local government reluctantly raised the level of down payment for current owners buying a second home to 50% of the purchase price—a cute move because it was already at 45%, so that was more of a signal to Beijing that local officials weren’t ignoring the situation but that at the same time they hardly considered it critical. Call it a balancing act, a tightrope walk—whatever the metaphor, Nanjing officials were caught, as cadres here always are, between local needs and central demands—the political dilemma that challenges them daily.

Somewhere in recent days (probably because Li is abroad and Xi had a more open field where economic decisions are concerned), the central leadership must have come to a consensus that Nanjing authorities had to act far more aggressively than they had been; that local rumors and rhetoric here were only making people look to buy more property, not less, and there was too much uncertainty. Plus, there’s a political cohort here in Nanjing that already agreed that the local property market was getting overheated; there were also developers tired of being shut out of an auction process slanted towards a select well-connected few. Complaints about the unpredictability of property prices and the difficulties for some of finding affordable housing were growing too. So Beijing was able to push Nanjing to be more regulatory now, instead of continuing to move in piecemeal fashion.

Local officials here were quick to signal to colleagues and citizens that they had been forced to do so on Beijing’s timetable—hence the mention in their announcement that the city was acting “in order to implement the central and provincial government’s supply-side structural reform.”

Which is, in fact, nonsense, because everyone here at least knows that Nanjing’s property problem isn’t national but local, specific to the city and its suburbs, and not something that the central government understands, much less fix. Nanjing has been a magnet for migrants in Jiangsu (the city population stands at 8.2 million, a 16% increase in about the last decade), and the government has looked to expand its administrative control to gather more land outside the metropolitan area to sell as property as other sources of revenue have declined. Nanjing was calling for nuance and a free hand—something that makes Beijing very nervous.

And after all, if Nanjing officials thought that Beijing’s diagnosis was accurate, Nanjing Daily would have run Monday’s editorial from People’s Daily, which argued that the run-up in real estate prices and the public fixation with property was “a deviation from the real economy.” That editorial didn't appear, and that’s probably because many officials here believe that it’s been Beijing’s blindness to local economic development issues that’s largely responsible for people running to property for financial protection. 

What Nanjing officials did this weekend—abruptly, unexpectedly and decisively—wasn’t aimed at carrying out reforms, but compelled to get control through controls, and to get Beijing off their back. They think that they’ve pretty much done so, even though some cadres here probably wanted to make their case at the upcoming Party plenum a month from now before being forced to move so sharply. The bifurcated regulations distinguishing residents and non-residents, new and second-hand homes was likely the compromise that Nanjing insisted on, to yield to Beijing's directives to do something, anything, that would calm what the latter saw as a gathering storm in real estate here. Nanjing authorities know that this isn't turmoil that Beijing is seeing but something of an actual market at work; that there are local stakeholders--including citizens--who see price rises as good things. Acceding to Beijing won't make local officials all that loved.

How these actions will play out economically is unknown at this point. But there’s a larger battle beyond Nanjing that’s about to start. Beijing finally got local officials here to move more forcefully, and it’s looking like they’ll try the same in other cities shortly. There might be good economic logic at work in trying to rein in the real estate frenzy, but property has become the main engine of economic propulsion in local China, in large part because the central leadership has yet to produce an alternative model for economic growth. 

Convincing officials in China’s provinces and localities that Beijing knows best won’t be easy. But then it rarely is. The new challenge will be preventing that ongoing tension from growing any uglier.

The Local, The Seasonal, The Steady

In China, so much that is local is seasonal. Microeconomics and parochial concerns drive much of family decision-making in the country’s provinces and neighborhoods. That includes pricing, to be sure; but often it’s simply the availability of produce. So while policy elites in Beijing might debate the restructuring strategy of state-owned enterprises, the local tactics of residents are far more immediate, reactive more to the lunar calendar than they are to central directives.

A couple of cases illustrate how Nanjing and the counties that comprise it are in the midst of the transition into the fall season.

One is the disappearance of certain foodstuffs. Of course, residents in Nanjing itself—that is, the metropolis—can choose from just about anything in the growing number of larger grocery stores here; it’s in the countryside where certain vegetables and fruits disappear until next year, a new season. Plus, many locals prefer their nearby market, because freshness is crucial. The further one is from Nanjing, the more challenging the task, as local markets there depend directly on nearby farmers bringing their produce for sale because wholesalers focus on the city.

This cycle is nothing new, and residents prepare different recipes as a matter of routine. With prices relatively stable (save pork, which has been affected by recent flooding in various localities), the real issue is local supply. When there are shortfalls—particularly of fruit—farmers in regions outside of Jiangsu often show up in Nanjing with specific local produce for sale. It’s common at this time of year to see large trucks selling apples, pears, and other fruit that hails from different provinces, thanks to the extensive road network that connects much of China’s east to elsewhere. These lorries show up suddenly, and disappear almost as quickly after a few days, when their stock is exhausted. Some vendors are middlemen, simply transporting supplies for others, though most are in the business of growing and selling themselves, especially those offering produce from the next province over.

Interestingly enough, urban management officers [城管] in Nanjing largely leave these visitors and their products alone, sometimes sampling the fare, but rarely hassling the salespeople; they recognize  that attempts to harass sellers risks the wrath of local buyers. And for their part, those hawking foodstuffs often find out when and where the officers will be by using WeChat, so as to avoid confrontations. It pretty much works out for all concerned, in large part because Nanjing isn’t Beijing, where police punishing people trying to make an honest living seems to be local sport, or at least sanctioned public policy.

Another seasonal shift visible here is certain local restaurants closing for renovation. Some are in Nanjing’s outskirts, which are more dependent on tourists, workers provided holiday time and transport by their employer, and retirees (especially from Shanghai and its suburbs). As the summer trade ends, and both parents and grandparents become tied down to the care and feeding of children and grandchildren, there are fewer reasons and opportunities to travel—and thus, less motivation to keep eating places open (owners have families as well, and the staff tends to be mostly family anyway). These restaurants will often simply cease operations, and wait to see what next year’s season brings. What might seem to the unpracticed outsider to be a decline in commercial circumstances (and a further sign of a struggling national economy) is simply the rhythm of local economic life.

In Nanjing itself, there’s a specific sort of restaurant—that catering to the consumption of local crayfish [龙虾]—that does brisk business during the summer. There are a few places that still offer it on their menu, but everyone in Nanjing knows that the fresh variety expired a few weeks ago. There have often been health concerns about these “small lobsters”, and places trying to sell them in September are avoided at all costs (except by unsuspecting tourists). 

Many local restaurant owners in Nanjing, having used their space to take advantage of the high summer season, are now in the midst of changing their fare, their décor, and the name of their establishments, offering more standard family fare [家常菜] for the most part—though some will look to sell something more specific from their small spaces. 

That's unlike other places of power in China. Beijing is where good restaurants go to die, as ruthless landlords regularly expel outsiders who cannot afford a jump in rent (especially in the middle of a lease) and new establishments set up shop, only to be booted out themselves in a few months, so that very few have a chance to gain a foothold and offer good fare for a fair price. In Nanjing, shop owners and landlords are usually residents themselves, and often the very same people. That sort of continuity helps sustain local society.

This reliability isn't resistance to authority per se, though it's partly political, to be sure: After all, good local governance leaves good things alone. It's really the product of amendments and adjustments by residents who simply recognise the seasons. It may not be transformational, but the tradition of transition matters in the life of local China.

The Wonderland of Wukan

Here we go again.

Five years ago, the Guangdong village of Wukan was in the international news being touted as the potential birthplace of a new democracy in China. After months of protest in the summer and fall of 2011, residents were allowed in March of 2012 to select their own local leaders from a slate that wasn’t dictated by the Communist party. Even Chinese state media picked up the story then, though they spun it as the understandable consequence of citizen anger at illegal land seizures, using the case to chastise officials who Beijing claimed were out of touch with the common folk and their complaints.

Now, in 2016, Wukan is the scene of violent confrontations between residents and the government.

The story of Wukan [乌坎] has been a seductive one for many observers—a tale that fits very nicely in the Establishment Narrative of New China: suddenly angry and empowered peasants seeking to overthrow authority and establish a experiment that would eventually produce wider political change in a country purportedly crying out for it. That idea appeals to those who like change from below in China, led by a romantic figure or two who take heroic acts against oppression. Human rights activists, lawyers, feminists, students—anyone outside officialdom who finds the Chinese government repugnant is then elevated to the status of “change maker”. When it’s villagers fighting for their land rights, the story becomes even more appealing to observers, some of whom see it as their job to give these protestors voice—as if they weren’t capable to doing that themselves.

In 2011-2012, many commentators portrayed Wukan as a game-changer for China, the spark that would light a prairie fire under party officials and compel them to open up the political process, thereby challenging Communist rule. To change China, it only takes a village. Or so the story goes.

It was nothing of the sort then, and it’s nothing of the kind now.

In fact, what happened in Wukan the first time around wasn’t unique. Many villages throughout China already had local elections, and while the Communist party overwhelmingly dictated the acceptable candidates, the slate usually included officials that residents at least knew, even if they weren’t ones that they necessarily preferred. Indeed, Chinese villagers weren’t always seething with anger at this state of affairs; if they had been, there would have been many more Wukans before then. (Protests in China evolved locally and they were solved locally then and now.) Rural residents had other problems to deal with--economic growth, dwindling population because of the migration of residents to nearby cities, and other specifically local issues. They knew that village elections were really “selections” —and they elected to go along.

What was different in Wukan was that there were not only illegal land seizures, but also a local protest leader--Lin Zuluan--who was unafraid to mobilize protestors on his behalf and try to co-opt the existing system to run for office himself. Lin was (and remains) as articulate as he was fearless; made himself available to the foreign press; and won much local support, especially when he insisted on opening the Wukan village accounts to see just how much money local officials had managed to receive from developers and not distribute to residents. With the Guangdong party apparatus’ go-ahead to stand for office, Lin got himself elected. He fit the Establishment Narrative profile to near perfection (he was in his late 60s after all then, not the young rabble-rouser that many observers believe to represent a “New China”): an individual (so he’s not part of a collective, but a “hero” in the best Western tradition, so he can be singled out for praise); he was active and available for interviews; and he opposed the existing power structure. Lin was seen as a grassroots reformer, whose influence would surely spread beyond Wukan.

But the promised political renaissance in Wukan itself quickly ran into reality. Chinese local government is notorious for being run by cliques, sometimes families, supported by higher-level officials interested in exploiting a region’s resources (land, minerals, labor) for their own particular purposes. Wukan wasn’t an exception, and Lin and his allies very quickly encountered the problem of getting local power-holders to return seized land and start engaging in transparency. The foreign press largely left, having reported the story that more than a handful wanted to hear, because many believed that an election in Wukan had kick-started political change in China. State media pulled back too, and active support from some in Beijing for what Lin was trying to do locally began to recede. Lin’s adversaries—that is, Wukan’s main stakeholders—gradually sought to take advantage of dissension in the village that followed Lin’s election when he was unable to deliver on his promises. Lin might have been serving as party secretary of the village, but the real power was above and around him, and that situation hadn’t changed at all.

What kicked off these latest protests in Wukan isn’t a longing for more democracy but an attempt to help Lin stay in office when others—possibly in Beijing, almost certainly in Guangdong--want him out and think they can finally make that happen. Lin’s enemies—likely developers and their local patrons who wanted to clear more land--seem to have engineered a power play and managed to get Lin charged with graft this past June. Lin did what village leaders have done for decades: He threatened protests and for that he was detained—unsurprisingly, because the laws governing such activity have been noticeably tightened in the past 2 years. After Lin’s arrest, his supporters called for his release, demonstrating in the village for nearly 3 months without success. Last week, Lin received a jail sentence of at least three years (based in large part on what appears to have been a bogus confession), and it’s that verdict that’s sparked the assaults and anger from his people and government security forces, each with their own sources of support inside and outside Wukan.

Wukan is demonstrating once again the real limits of local people power in China. As of Wednesday evening, Chinese state authorities continue to censor reports of the protests, and have been scrubbing social media sites of mentions. Foreign journalists looking to broadcast about the contretemps in Wukan aren’t allowed anywhere near—which isn’t exactly shocking either. For many in the international media, Wukan is again the main show. That’s in large part because it has all the ingredients of a courageous local struggle against State power, complete with a citizen uprising, stone-throwing, truncheon-swingers, angry authority wading in and being pushed back by a populace eager to defend their rights. It’s great theater for some, especially because what was once seen as triumphant is now turning tragic.

But for Beijing, Wukan has always been a sideshow, and it’s time to shut it down. Indeed, for the Chinese leadership, the main act is elsewhere. While Wukan seethed, coverage of the expulsion of 45 deputies in China’s National People's Congress from the northeast province of Liaoning for vote buying and bribery led yesterday’s edition of People’s Daily. That's because Beijing believes that the greatest threat isn’t from grassroots movements but graft at the top. Not for the first time, outside observers and Chinese officials are looking in opposite directions.

September Surprise

The news that Chinese President Xi Jinping’s anti-corruption crusade captured another transgressor came on Sunday and, as it often does here, abruptly. While the announcement was pretty much political boilerplate, repeating the usual mantra that no one and nothing was exempt from the discipline of the Chinese Communist Party, regardless of the post they held [全覆盖、零容忍], there had been no clear indications in the preceding days that Tianjin’s mayor and acting party secretary Huang Xingguo [黄兴国] was about to be relieved of command.

Huang last made an appearance just 2 days before the announcement, and another at the end of August when he toured parts of Tianjin. But mention of either event has been mainly scrubbed from Chinese news sites, and local political commentators here have discovered that their own attempts to analyze that this latest takedown have been largely blocked.  State media following the standard line--and social media being forced to--is Beijing saying, that there’s one narrative; there’s nothing to see here; and everyone needs to move on.

But the real takeaway for observers of Chinese politics is that no one seems to have predicted this publicly.

In hindsight, it might appear that Huang was never the guy for Xi and his allies. Like Xi, he had worked in Zhejiang province (where he was born after all), and those connections to the current Chinese leader were supposed by some to have helped Huang’s career path. But they certainly didn’t save Huang, just as those purported ties to the Party chairman didn't prevent him from spending a very long time as mayor (9 years) and never advancing beyond acting Party chief of Tianjin. Huang was in charge of Tianjin when the port blast there last August killed nearly 200 people. Huang apologized then and took part in remembrance ceremonies last month. Somehow, Huang lasted more than a year in his post (while anti-graft investigations of the city’s real estate dealings were taking place), until malfeasance of some sort produced his removal. So, being around Xi around a certain time wasn't (and probably isn’t) a guarantee of anything—and maybe Huang knew that.

But if Huang was in real trouble—and it looked like major political figures around him certainly were—how’d he manage to last even this long? Why wasn’t he removed a year ago, as part of a purge of the Tianjin apparatus? As late as December of last year, Chinese media was extolling Huang's tenure in Tianjin and his connections to Xi. How did his political protection, clearly in place last summer and beyond, evaporate? More importantly, where were the predictions of his demise, the forecasts of his fall?

Now, many observers are saying that Huang’s dismissal has implications for next month’s annual meeting of the Central Committee, which is supposed to set the stage for a major shakeup of China’s leadership. Already, analysts are speculating on what the political lineup will look like, now that Huang, who seemed to some to be a striver, has been removed from the upper ranks. Are others better positioned, more vulnerable—or is Xi’s campaign about to be aimed at those who might look to challenge his rule? Does Huang’s takedown strengthen Xi’s allies, or their opponents? There are lots of conjectures flying about in recent days.

The problem is that there’s really no reason to take any of this speculation as anything more than---well, speculation. No one yet knows what will happen. Just as predictions about the political fate of Politburo member Li Yuanchao have turned to be wrong (after 3 or more years of rumors), Huang’s removal for “suspected serious violations of discipline” [涉嫌严重违纪的教训] wasn’t anticipated by analysts. So why look for answers from the same sorts of people who failed to forecast this latest event anyway? If it’s anything at all, Huang’s dismissal isn’t a case-study of Xi’s anti-corruption crusade in action but an example of yet another surprise in Chinese politics. Everyone is right after the fact about China, but very few are correct before the facts appear here.

It’s probably too much to expect that Huang’s sacking will lead some observers of Chinese politics to act with a little more humility when it comes to appointments, promotions and dismissals of major figures while Xi is running the show. In any event, we’ll probably find out more about Huang’s offences in the weeks to come, though those revelations may well produce as many questions as answers. At least there’s some predictability in that.