Between People and Land: reading notes, part 1

Between People and Land discusses China's growth model over the past forty years. Its title points to the important role land plays in the economy. I recently read the first chapter on WeChat Reading. The book offers clear reasoning and perceptive observations about that growth model. It explains several social conditions: why farmers lose their land but cannot establish themselves in cities, and why commercial and residential property prices become so high that cities cannot serve most ordinary people. It also explains why, during rapid growth, protected monopolies, government bodies, financial institutions, and senior figures in private manufacturing accumulated wealth while most people bore the costs of low incomes and environmental pollution.

Outline

• Introduction: the broad challenges of China's urban and rural land system
  • Excessive urbanization of land and incomplete urbanization of people.
  • Local governments depend too heavily on land finance. They acquire land cheaply and sell commercial and residential land at high prices. Cities expand rapidly, industrial land is used inefficiently, and farmers' land rights suffer.
  • Household registration reform lags behind. Migrant workers become urban residents slowly, traditional farming areas retain their populations, and fragmented farmland is difficult to use efficiently.
  • Urban housing supply is unbalanced. Places losing residents have excess supply, while places gaining residents have excessively high prices.
• Chapter 1: China's growth model and the rise of land finance
  • Excess production capacity and weak domestic demand. Central and local governments use competition across domestic and international regions to lower manufacturing costs: a double race to the bottom.
  • Industrial parks and growth in the secondary sector create groups with middle and high incomes. These groups generate demand for property, retail, offices, and other services.
    • Local governments need continuing manufacturing exports so they can capture the benefits that industry brings to services and recover the cost of developing industrial parks.
    • The central government needs strong exports to support growth and employment.
    • Both needs lead to artificial support for exports and delays in market-driven appreciation of the renminbi.
  • Loose monetary policy raises housing prices sharply. Higher fiscal revenues then speed up industrial park construction and support manufacturing again.
  • Administrative monopolies in three areas: state-owned enterprises in upstream industries, banks in finance, and local governments in commercial and residential land.
    • China achieved growth comparable to Japan and South Korea, but fell behind them in income and wealth distribution, environmental protection, and labor protection.
    • Monopolies extracted a large share of export profits. Distortions included widespread pollution and growing income and wealth gaps.
  • Policies subsidize production and exports, suppressing household income and savings and limiting domestic consumption. Household consumption takes a much smaller share of the economy than in Japan or South Korea.
  • Domestic capacity greatly exceeds demand. The government continues to hold down the currency's exchange rate and provide export tax rebates, pushing goods into international markets.
  • Changing the system used to evaluate officials will not by itself reverse local government behavior.
  • Reform needs to change the centralized, partly market-based system and reduce local governments' extraction of resources from communities and markets.
  • Structural reform is difficult and risky, so policy returns to the cycle of stimulus, control, and more stimulus.