Farmer’s apartments in China

(Sorry, you’ll need to open a few links to make sense of this post.)

Chongqing, which is the biggest city in western China, is very hilly.  Thus 30,000 “stick men” make a living there carrying goods on the end of long poles:

Like most rural workers in big cities, Gui Laiyun sleeps in a basic 80-square-meter apartment, which he shares with about 50 other men. The beds here are made from wooden boards and rusty scaffolding. Rent is just 1.5 yuan a day.

For you Americans, that’s 22 cents a day for 1.6 square meters, or 17 square feet, of living space.  That means about 6 men in a 10 by 10 foot room, as you can see from the picture in this link

There are more Chinese people living in tiny places then there are people in America.  It’s a good example of what Franklin Roosevelt referred to as “one third of a nation ill-housed,” although of course it is more than 1/3rd.

We normally think of the urban Chinese as the more affluent and the rural Chinese as being relatively poor.  That’s true on average, but there are far more exceptions than you’d think.  I suppose nobody’s surprised to see examples of poor migrant workers in the cities, but consider this example:

these are farmers houses that stretch for about 100 miles between Hangzhou and Shanghai. If youve seen
them in person the sheer scale of the devlopment is amazing, it basically looks like one vast urban suburb rather than
countryside. It took me over 2 hrs to get through it by train.

All the houses have steep roofs, turrets, towers and even onion domes, by the thousand. Its one of the most amazing ‘urban’
things Ive seen – seriously if anyones in Shanghai, take the train to Hangzhou and look out of your right window…

Theyre all built for free by the progressive local councils:

To see what he is talking about you need to open this link and scroll down to post#49.  Then look at the pictures.  One of them nearly blew me away.  BTW, I have doubts about the accuracy of the statement that all those houses are “built for free.”  I don’t even know what that means.  But I did the Shanghai to Hangzhou drive in 2001, and I could see the beginnings of this amazing (appalling?) landscape beginning to take shape.  As you look at the pictures toward the bottom of post #49, keep in mind you are looking at rural China.

But it gets even weirder.  If you scroll down to post #55 of the same link you will see a Jetson-style rendering of a proposed “farmers apartment” building that is nearly the size of the Empire State building—proposed for a site in rural China.  You’re probably thinking “Sure, the Chinese love those gee-wiz drawings, but how many actually get built?  If you open up this link (post #255), you’ll see that the project is already mostly built.  Question:  Is there anywhere else in the world where a 1076-foot skyscraper would be built for “farmers” and located not in a city, but in the “countryside?”

Yes, I understand that Huaxi is the richest village in China, and is hardly typical.  But I also think that there is far more wealth being accumulated in the rural parts of eastern China than many people realize.

When I used to hear about 800 million “rural Chinese” I pictured dusty little villages in western China.  I may need to re-adjust my mental images.

What does this all mean?  I have no idea.  I’m sure you guys will inform me in the comment section.  The only thing I am willing to predict is that if Tyler Cowen ever does a post on this, the term ‘Austrian’ will appear at least once.

Question for China experts:  Do most Chinese still have to put 30% down on mortgages?  If so, they just might avoid the worst of our sub-prime madness.  If not . . . well I’d rather not think about that possibility.

PS.  Interested readers can scroll up from post #255 to #244, which has a plausible sounding explanation of what is going on there.



22 Responses to “Farmer’s apartments in China”

  1. Gravatar of woupiestek woupiestek
    23. June 2010 at 12:02

    We have some rural villages like this in Holland, but on a less massive scale. We call it ‘lintbouw’ which translates into something like ‘ribbon construction’. Many examples are in the Green Heart — the rural area between Amsterdam, Rotterdam and Utrecht. Nowadays development of that area is mostly forbidden.

  2. Gravatar of Thorfinn Thorfinn
    23. June 2010 at 12:10

    My impression is that this is partially a local issue. Shanghai, for instance, has raised limits up to 30% down on first homes.

    Michael Pettis has argued that China’s real estate boom is caused by excess liquidity, a surge in credit, and suppressed financing costs; and restrictions on certain assets or in certain areas just move speculation around.

  3. Gravatar of scott sumner scott sumner
    23. June 2010 at 12:30

    woupiestek, Thanks for that info. I’ve been there, but never paid much attention to rural land use.

    Thorfinn. Pettis knows more about this than me, but you could argue that interest rates should be low in China. If China had open capital markets then interest rates would be lower than in the US (due to the interest parity condition and Yuan appreciation). My understanding is that most Chinese do put down large dowmpayments. In that case they should be able to borrow money at low rates–it is an efficient allocation of resources. Or am I missing something?

  4. Gravatar of Doc Merlin Doc Merlin
    23. June 2010 at 13:47

    “Do most Chinese still have to put 30% down on mortgages? If so, they just might avoid the worst of our sub-prime madness. If not . . . well I’d rather not think about that possibility.”

    Well, China is a partially communist country, a lot of the bubble is very directly fueled by the state, as opposed to ours which was indirectly fueled. So even with reasonable mortgages we can get problems.

  5. Gravatar of Sean Sean
    23. June 2010 at 16:40

    Hey Scott,

    Yup, 30% is generally the norm. As Thorfinn mentions, local laws dictate this.

    As far as the variation in those laws, 30% is the norm, while some cities have moved it up to 40% for first time homes. Of course, some people are getting around this. Second homes usually require over 50% down, but some places have raised it much higher or disallowed mortgages on second homes entirely.

    The government simply won’t be able to meaningfully slow down the property market until other investment options are opened up. Cash in banks barely earns anything (net interest margins of Chinese banks are huge — those worrying about bad loans rarely factor this). The stock market’s still dangerous; no real bonds to speak of. Locals can’t move significant money abroad or into other currencies. Property is still a great store of value here, especially compared to the other options. Until that changes real estate is always going to have a bunch of nutty projects.

  6. Gravatar of Christopher Hylarides Christopher Hylarides
    24. June 2010 at 03:05

    Rural skyscrappers exsist in Korea. Due to cultural reasons, almost everyone there lives in apartment buildings (the rich just live in bigger units). On the train ride I took to the southern city of Busan, I took this picture, which is a single row of flats in the middle of nowhere…a modern Korean “village”.

    When i enquired about this, they said it was a quirk of when Korea developed/industrialized and a relativly small area to build up on due to the penisula’s mountainous terrain. Skyscrappers are just seen as the modern way to live, though they say it’s starting to change with the very wealthy.

    I should add that the 1 flat I saw from the inside in northern Seoul was very nice. It was a spaceous 3 bedroom flat that cost ~$270K and was a nice setup for a family.

  7. Gravatar of Christopher Hylarides Christopher Hylarides
    24. June 2010 at 03:09

    Here is another shot in rural Korea in case the other one seemed to zoomed in.

  8. Gravatar of scott sumner scott sumner
    24. June 2010 at 04:38

    Doc Merlin, Explain how there could be a problem if the mortgages were reasonable.

    Sean, That’s good to hear. That suggests the banks are not nearly as exposed as in the US. 30% is a pretty big downpayment, and I’d guess that foreclosure costs in China are far lower than the US. (I don’t know that, it just seems to me that those sorts of things are generally cheaper in China.)

    I actually don’t see much problem with all the housing that is being built in urban China. China clearly needs much more housing for the rural people moving there, and to upgrade tiny apartments that urban people live in. If people are spending their own money (30% down) I just don’t see a problem.

    Christopher, Yes, I understand that people throughout Asia live in tall buildings. But there is a vast difference between a 20 story apartment building and a 1076 foot tower. Buildings over 1000 feet are extremely expensive to build, and generally exist only in big cities. As far as I know the building in Hauxi is the only exception to that rule.

  9. Gravatar of Indy Indy
    24. June 2010 at 04:39

    I haven’t been to Korea or China yet. When I was in Japan I saw differently dense “rural” farming – which sometimes seemed to consist of an endless terrain of smallish, detached houses on plots that looked to be an acre or less, with very tightly packed suburban developments every few miles or so.

    I remarked to my travel companion, “You know, this is ironic. Japanese companies are very competitive globally in producing farm machinery. Kansas farmers get to choose tractors from American John Deere or Japanese Yanmar, Mitsubishi, Kubota, and several other Japanese companies. And they buy these pieces of equipment because they deliver high-productivity – the point, in other words, is to work as much land with as little human labor as possible.

    But when you look out there – none of that equipment is to be seen! It’s tiny little miniature toy tractors, or even smaller hand-operated contraptions on the smallest plots.

    So the Japanese are globally-competitive masters at inventing and building devices for efficient farming – and yet they keep infinitely more people on the land and employed in agricultural production than they could possibly need or what makes seems to make sense. How do they make a living in expensive Japan on that tiny amount of output? Maybe they have salary jobs and farming is a hobby / source of some additional income? Maybe their subsidy system is even more bizarre than ours and encourages this?”

    Perhaps this has something to do with Japan’s lower-than-I-would-have-thought GDP-per-capita. You have to average all the productive engineers, factory-workers, and city-dwellers with a large but very-low-output “rural” sector. It looks to this Midwesterner as if Japan has at least 100 times as many farmers as it needs given it’s level of technology.

    But my friend made a wise retort, “Well, it’s not like they can turn all this into efficient Kansas farms, can they? I mean, where would all those people go? They already have packed, dense megacities. Between the steep mountains and the sea – the flat, inhabitable land in this country is *full*, and probably has been for a long time.

    Is it possible that, as Japan’s population declines and there’s more available space per person – the average productivity of a farmer could grow enough to sustain or actually increase the total GDP?

  10. Gravatar of Tom Waye Tom Waye
    24. June 2010 at 05:14

    Huaxi Village supposedly is a commune run like a corporation, whereby dividends are shared among the villagers through social projects – hence “built for free”. According to some sources it started up in secret during the Cultural Revolution and became very wealthy simply by producing at market quantities and prices. If all that’s true then the village is another example to add to your list of symbols of capitalism’s successes, but who honestly knows if it is?

    I’m also very curious about bubbles. As I understand it, a large part of the problem is loans to local governments which are no longer guaranteed by the central government? Not really sure though, is this similar to China’s other financial crisis earlier in the decade?

  11. Gravatar of Matt Matt
    24. June 2010 at 07:02

    If there was any sort of central planning in land use, this is what I’d expect from any government concerned about arable land and/or the environment.

    This also appears to be Jim Roger’s vision of the future, since he’s said that farmers will be the ones driving Lamborghinis.

  12. Gravatar of Nathan Nathan
    24. June 2010 at 07:41

    Tip on linking: If you want to link to a particular post on one of those message boards – rather than linking to the whole page and telling people to scroll to a particular post – you can click on the post number (e.g. #255) to get to a permalink for that particular post.

  13. Gravatar of OGT OGT
    24. June 2010 at 09:14

    Sumner- Here’s a good interview with Patrick Chovanec, from Tsinghua University’s School of Economics and Management in Beijing:

    The banks are very exposed in the commercial sector. People holding commercial property are generally leveraged up. The situation is different in the residential sector. Go back four years and almost every residential purchase was in cash. Last year, it was more half and half. And now I’ve heard we’ve neared to two-thirds mortgage.

    But even if the mortgage market is small, a lot of the country’s loans are made on the basis of collateral. They don’t loan based on earnings projections like they do in the U.S. They’re trying to move in that direction, but much like Japan and like developing countries, they lend on collateral. And the prize asset they look for is land. When a factory wants a loan, they go to a bank and the bank asks for collateral and they say we own the land underneath the factory and they just built luxury condos down the street and that’s what our land is worth. So if the bubble bursts and you need to take these empty units and get people to live in them, all those loans will be called into question. The government says that property prices could drop by 30 percent without causing a spike in non-performing loans. I don’t know whether that’s accurate or not. But it tells me that they know there’s a lot of property exposure, and that’s why they’re running these stress tests.

  14. Gravatar of happyjuggler0 happyjuggler0
    24. June 2010 at 09:19

    What does this all mean? I have no idea. I’m sure you guys will inform me in the comment section. The only thing I am willing to predict is that if Tyler Cowen ever does a post on this, the term ‘Austrian’ will appear at least once.

  15. Gravatar of Benjamin Cole Benjamin Cole
    24. June 2010 at 11:08

    I recently read in the NYT or WSJ about a single city spending $190 billion in pending infrastructure improvements. I can’t find the cite, but I did find this 2005 NYT story about Chongqing spending $200 billion over 10 years.

    NYT–CHONGQING, China “” The engineers who run China have decided that this congested southwestern city, cupped by the Zhongliang Mountains and divided by flood-prone rivers, needs a complete makeover.

    Construction crews have carved a small canyon in the center of town, where they are burrowing through mountains to create 600 miles of superhighways, four new railway lines, an urban light rail system and a new airport. Chinese officials are also promising parks, drinkable tap water and riverside promenades for the city’s 30 million residents.

    The cost of remaking Chongqing into the heartland’s metropolis, most of it shouldered by the government and state-owned banks, is estimated at $200 billion over the next decade, a bit more than the United States Congress spent, in adjusted dollars, to build the American interstate highway………..

    There are times I wonder what the USA thinks it is doing. We are building $14 billion aircraft carriers, and occupying supremely unimportant regions of the world at huge multi-trillion-dollar expense, while 1.5 billion Chinese are building railroads, factories, and whole cities.

    China already manufactures more than the USA (recent chart in WSJ). It’s economy will eclipse ours in 10 years.

    You may wish to migrate to the Far East.

  16. Gravatar of Doc Merlin Doc Merlin
    25. June 2010 at 07:48

    ‘Doc Merlin, Explain how there could be a problem if the mortgages were reasonable.’

    If a market conditions were caused by the government, then when they shift what they are doing, the conditions readjust themselves. Because there are costs involved in this shift, macroeconomic problems arise. We don’t need bad banking policy to get problems, bad regulatory policy can do that all by itself.

    A more local example the green energy bubble that is on the verge of popping in the US. The energy programs are unsustainable without very heavy subsidies, here’s an example of it here. When the government adjusts the subsidies, the wind farming industry will collapse.

  17. Gravatar of scott sumner scott sumner
    25. June 2010 at 11:21

    Indy, Those are good points, except I do want to correct one thing. The number of farmers is very large per square mile of arable land, as you say. But it is small as a share of population–below 5% I think. They could easily be settled into the cities.

    Like many countries, they use subsidies to protect the rural way of life.

    Tom, Yes, I had heard that about Hauxi. I don’t know about the loan problem. My guess is that the loans to individuals for housing will be repaid, as the downpayments are large and Chinese incomes are rising fast. So it won’t be like our subprime crisis. My hunch is that the problem loans are those made to local government, or businesses owned by local governments. But that’s just based on what I have read.

    Matt, Yes, I suppose it does economize on land.

    Nathan, Thanks, I’ll remember that. I’m still learning blogging.

    OGT, Thanks for that info. I may be too complacent, but it struck me that 30% down on mortgages is way more conservative than the US. And with NGDP in China rising at 10% a year for another 20 years (say 7% real and 3% inflation), housing prices should trend upward long term.

    happyjuggler0, Yes, that was cute.

    Benjamin, You and I tend to think alike. I have also been following the progress on Chongqing. When I visited in 1994 it was a pretty depressing-looking place. I guess the pollution is still very bad, but the changes I see in pictures have been stunning. The website I linked to also has posts on Chongqing if anyone is interested. BTW, the population of the city itself is much less than 30 million, most of the people live in other cities and rural areas within the province. Chinese population data is very fishy.

    I invest most of my pension in East Asia, partly for the reasons you mentioned.

    Doc Merlin, I see your point. I admit to not knowing enough to have an intelligent opinion, but again, the 30% downpayments seem pretty impressive–in terms of “skin in the game.”

  18. Gravatar of Doc Merlin Doc Merlin
    27. June 2010 at 03:27

    ‘Doc Merlin, I see your point. I admit to not knowing enough to have an intelligent opinion, but again, the 30% downpayments seem pretty impressive-in terms of “skin in the game.”’

    Absolutely agreed. They strongly reduce the problems associated with hyperbolic discounting and mortgage loans. Warren buffet for example owns a lot of subprime, but his subprime hasn’t experienced a lot of defaults, because his subordinates required downpayments and made sure the incentive structure was properly handled.

  19. Gravatar of ssumner ssumner
    27. June 2010 at 07:05

    Doc Merlin, No wonder Buffet is so rich.

  20. Gravatar of Falcon Falcon
    29. June 2010 at 12:43

    I second everything Sean stated above. I would add that a large number of big purchases (cars, housing, durables) are paid straight cash and in full. I remember asking the family I was living with about their new car. I thought our confusion was with my trying to translate APR, but in reality it was with her surprise that she would spend so much money on a purchase and not pay in full up front.

    It’s going to be interesting to see how the Chinese refinance/personal credit markets evolve. Every time I read a textbook Econ explanation of credit markets, none of it rings true with my time in China.

  21. Gravatar of ssumner ssumner
    30. June 2010 at 05:48

    Falcon, I agree, China is a very different place.

  22. Gravatar of Pre-fabricated post-apocalyptic cities « My Name Is Legion Pre-fabricated post-apocalyptic cities « My Name Is Legion
    11. July 2010 at 10:06

    […] reported on is the more impressive organic growth. See that picture above? That’s an apartment for farmers in the countryside. Not only is it […]

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