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The Housing Crisis

Foreigners who visited Beijing last summer witnessed a city made of state of the art skyscrapers, fancy hotels, luxury condominiums, high-end shopping malls, and ring roads. Beijing, Shanghai, Shenzhen, and other big cities have been experiencing a construction boom helped by China’s impressive economic growth, and more recently, by the government’s efforts in preparation for the 2008 Olympics. Underneath this impressive development, however, China has been facing an alarming housing crisis, a time bomb ready to detonate.

The housing crisis is intimately linked China’s successful economic reforms, and its model of low-wage capitalism. Prior to the reforms, Chinese working in factories and state-owned enterprises lived in company housing, modest apartments provided by the government. The market reforms put an end to that practice. To lower the cost of production, millions of new workers laboring in private enterprises were placed in overcrowded factory dormitories. Housing 10-12 people in each room, factory dormitories helped China offer unbeatable wages to local and foreign investors.

Living in dormitories was convenient and practical for the first generation of workers, farmers leaving their land and flooding the factory towns in the coastal areas with the hope of working long hours and saving money to build a better home on their farms, or starting a small business in their villages. The dormitories were dirty and overcrowded, but in many ways, they were no worse than the mud houses back on the farm. To most migrant workers, factory work was a means for a better life in the village.

The overall poverty in country, especially in rural areas, and the migrant workers’ attachment to land helped create China’s great leap into the world market. However, all that changed with the second generation of migrant workers, and with that, dormitory housing is proving unsustainable, and destabilizing.

Today, China’s factories are filled with the children of the first generation of migrant workers, or young men and women from small and remote townships. Born in the late 1980s and the 1990s, they had an improved living standard, attended high school, and, only in their free time, helped their parents with farm chores. Now, away from home, and earning money in the city, they cherish what their new life offers: window shopping in malls in their spare time, occasionally outing in McDonalds and KFC, visiting karaoke joints with friends, going to movies, dating freely, meeting foreigners, and feeling a part of the open China. They do not know farming, and detest life on the farm. To most, the farm life belongs to the old China, the China of their parents. City provides hope; farm does not. They do not intend to return.

The migrant workers accept the harsh life in factory dormitories during the first months or years of their arrival in the city. However, what they see after the dormitory life is a chance to have a private home in the city, marry, raise a family, and send their children to city schools, even if they remain factory workers. They are members of China’s new working class, expecting to benefit from all the promises of the modern China, most of all, a home, and life in the city. Their current wages, existing residence laws that limit access to public services, and the state of China’s industries make this impossible for many. To buy, or even rent a private home requires a level of wage increase that is beyond the means of most Chinese manufacturers (exporters) who are already hurt by rising energy and other raw material prices, and face fierce competition from India and other emerging low-wage countries.

“Today China is enjoying a rapid growth and stability. A large wage increase will send investors to India, Vietnam, or other countries. Unemployment will skyrocket, and people will pour into the streets protesting,” Stanley Chen, the general manager of New Balance China operation told me. “If people realize that there are no jobs out there any more, the leader is going to face some personal risk. I don’t know what incentive he has to say no investment.”

Most entrepreneurs share Stanley Chen’s concerns. The India fear is pervasive. For years, corporations in the West responded to demands for wage increases either by moving to China, or threatening to move. They are now threatening to move to India, keeping wages down in China. Meanwhile the housing crisis continues.

Sooner or later, China has to provide government-subsidized housing, or normal factory housing—single apartments—for millions of workers now living in dormitories. Having embraced the free market ideology, the Chinese government has no plans to provide public housing for the workers, or to subsidize private housing. Most current exporters, even the large enterprises hiring thousands of workers, could not afford changing the dormitory system. Their low profit margins do not allow the change. To make matters worse, many foreign companies operating in China are demanding even lower prices from their subcontractors, threatening to move to India, and Vietnam.

Three decades after its inauguration, China’s low-wage capitalism has become a trap for the manufacturers, the workers, and the government. Hoping to escape the country’s position as the producer of cheap and low-end products, the Chinese government is moving towards what it calls Scientific Development: upgrading the economy, discouraging low value added export industries through various tax laws, and pouring resources into high tech R&D and production. In the long run, perhaps another twenty years, the move will create better paid-jobs for many migrant workers, helping them realize their dreams. In the meantime, China will experience widespread bankruptcies in export industries. More than one-third of all existing exporters will be out of business in the next three years according to some estimate. The move will also cause massive unemployment of workers who would remain in the cities, demanding jobs and other services. Pushed out of the dormitories, and unemployed, their demand for housing will be even more immediate.

Once an important pillar of China’s unprecedented growth, dormitory housing poses a threat to the political and social stability so scrupulously created by the Communist Party of China. The instability feared by Stanley Chen and others may arrive even without substantial increase in wages.

BEHZAD YAGHMAIAN, a professor of political economy at Ramapo College of New Jersey, is currently in China working on a book about the Chinese economy. He is the author of Embracing the Infidel: Stories of Muslim Migrants on the Journey West. He can be reached at: behzad.yaghmaian@gmail.com

 

 

 

 

 

 

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