Does the Shanghai’s Housing Reform Meet the End?

1. Does the Shanghai’s Housing Reform Meet the End? :Analysis of the Property Right Economics Approach Ruey-Hua Liu Associate Professor, Department of Economics National Tsing- Hua University, Taiwan Ping- Hsiang Hsu Assistant Professor, Department of Tourism and Leisure Diwan College of Management, Taiwan Hong Kong Baptist University

2. Introduction: • China’s Economic Reform v.s Gradualism • The dual-track system means two different price systems. One is from the official price, and the other is from the market. • After 1990s, dual-track system had been emerged into one. • However, it does not mean the institutional reform had been done completely from the viewpoint of property right economics .

3. Introduction (Cont.) • There are few research discuss theoretical dimension of property rights. • Zhu(2002, 2005) is an exception. He regard the Danwei and local government as a coalition, which creats an ambiguous property right between SOEs and local governments. • Besides Zhu’s research, it is not easy to find any spatial researcher use property right approach to analyze urban housing reform in China. This dimension is surely underdeveloped.

4. The Position of this Paper • The authors argue that the emergence of dual-track system is not subject to commodity or commodity price, but the consistency of the property rights belong to the people who use the commodity. • Shanghai’s housing reform as the empirical study. • Commercial housing v.s Non-commercial housing（ex.直屬公房） Commercial housing for overseas sale v.s Commercial housing for domestic sale

5. Theoretical Framework • V is the value function of housing. • E includes many endogenous variables, such as location, crime rate, employment opportunity, public facility etc., to determine the price. In Lai’s original discussion, he intends to point out formal institution like zoning causes incomplete property right for land owners and further affect the land price (Lai, 2001:59-63).

6. Theoretical Framework(Cont.) • When gradualist reforms are adopted as the strategy of China’s economic reforms, dual-track system is the mechanism for implementing efficient Pareto-improving economic reform (Lau, Qian & Roland, 2000). • Dual-track system means price control. However, price discrimination also creates opportunity for rent-seeking since government has to set up some formal rules and enforcing them. • Establishing property rights is not enough, it is necessary for protection of the rights to economically efficient from a societal standpoint (Parisi, 2004: 64).

7. Shanghai’s housing reform • The projects of residential buildings for overseas remittances are the pioneer in 1979. • In 1983, foreign investors were allowed to be engaged in real estate industry if they established joint-venture companies with local private or state-owned companies. After the contract period is expired, 20 years in average, the ownership shall belong to the party of China. • In 1986, the land use fee was started to levy. • Through land leasing, joint-venture companies and foreign companies obtain the land use right. The buildings on such lands are called “commercial housing for foreign sale”. (1988)

8. Shanghai’s housing reform(Cont.) • The pre-sale system was started in 1992. The projects of residential buildings for overseas remittances are also changed into high quality commercial housing for domestic sale. • In 1994, Shanghai’s city government decided to sale Danwei’s public houses to their employees. (This policy effectively increases the family wealth. Making implicit lump-sum transfers to compensate potential losers of the reform) • In 1996, the houses which bought from Danwei were allowed to resell. Later, Land and public houses belongs to SOEs were allowed to be included in total assets of enterprises. (It further destroys the barrier between commercial housing and non-commercial housing. )

9. Shanghai’s housing reform(Cont.) • In 1999, monetary subsidy, instead of subsidy in kind, was implemented. • The distinction of two kinds of commercial housing, for overseas and for domestic, was officially cancelled in 2001.

10. Evidences of why Shanghai’s housing reform does not meet the end. Institutions are interdependent! Empirical Evidences • “Blue Print” Huko system • Danwei and Housing Reform

11. Blue Print Huko (藍印戶口) • Lauched in 1994 • The people who invest 200 thousands U.S. dollars (or one million R.M.B), buy a unit of commercial housing for foreign sale, or specialist hired by branch of city government over three years are qualified to apply. • The people who get blue print Huko will have the same rights with Shanghai’s citizens such as job opportunity, children’s education, application of business licenses, application of telephone and gas, discounted price of public transportation. • If a person who buys a commercial housing unit and is not included in a normal Huko system, he (or she) still does not own some rights as Shanghai’s citizens.

12. Danwei(單位) and Housing Reform • In Shanghai, 85 per cent of commercial housing was sold to work units in 1990 and in 1993 this was 75 percent. It also implies that only part of the process was privatized (Wang & Murie, 1999: 1485-90). • If one of family members works for his (her) Danwei which builds or buys commercial housing, a family should be easier to own a house. • There are 1.63 million flats belong to government, which occupied 85 per cent of flats allowed to sell, were sold to their employees. The 1.63 million flats belongs to government is 32 per cent to all housing stock in Shanghai (2005 Shanghai Economic Almanac).

13. Concluding Remarks • Different buyers in the housing market face different institutional constraints. When such phenomenon is observed in the housing market, the authors argue that the dual-track system of housing is not really demolished. • Indeed, the emergence of dual-track system is not subject to commodity or commodity price, but the consistency of the rights belongs to the people who use the commodity.

14. Concluding Remarks (Cont.) • Policy Implications There are supporting institutions of housing reform, such as huko system, SOEs reforms etc., have to be further improved to create the consistency of the property rights belongs to the people who use the housing.

15. Thank Q for Your Further Comments. Ping-Hsiang Hsu hsiang@dwu.edu.tw