Huang	  Yan	
  (Tina)	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Student	  ID:	
  51-­‐138215	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  Email:	
  tina_hy_cool@126.com	
  How	
  can	
  urbanization	
  policy	
  influence	  the	
  housing	  price	  in	
  China?	
  Abstract:
Nowadays, Chinese housing bubble is accumulating, more and more people worried about
the housing bubble will burst soon. According to the characters of Chinese housing bubble, I
think there are different housing bubbles in different tier cities of China. In the Tier 1 and 2 cities,
prices are high due to strong demand and constraint in supply, so the housing bubbles in thesecities seem to be more severely; in many Tier 3 and 4 cities, oversupply is the main problem,
even creating some “Ghost towns”. We should pay close attention to these housing bubbles, even
if the housing prices in these cities are not very high and housing bubbles seem not so severely.
After studying the influence of urbanization on housing prices, I will get my research result: weshould implement the new urbanization, which means population urbanization and resourcesaving urbanization, and we need to pay attention to many issues in the process of new
urbanization, especially, solving the Hukou problem. New urbanization would make housing
prices return to reasonable prices and soft-land overall housing bubble in the long term.
Keywords:
Chinese housing bubble;	
  urbanization;	
  new urbanization; Hukou.

Chinese housing prices have been skyrocketing over the past few years. The Chinese central
government has been worried about a housing bubble for years, and it has been taking steps tocool the market. There is always a tension between building enough to keep GDP growing andkeeping housing prices from growing too much that people can't afford them. 	
  

	
  	
  	
  	
  	
  	
  Urbanization Policy as one of the most important driving force of China's future economic
development is undoubtedly the most talked about topic recently. There are two different ideas
about the influence of urbanization on housing price: One is urbanization created enormous
consumer demand for real estate investment, so urbanization accelerate progress will certainly
have a huge impact on housing price in the future. Especially in some cities, the local
1 / 26	  government under the theme of urbanization, they really have the urge to push high housing
prices; the other is the new urbanization plan maybe have short term impact on supply/demand
prices but it will eventually lead to a moderation in prices in the long term.	
  

	
  	
  	
  	
  	
  	
  So I choose the topic “How can urbanization policy influence the housing price in China?”
to do my research paper, I think there are important practical meanings of it. After studying theinfluence of urbanization on housing price, I will finally get my research result: We should
implement the new urbanization, which can make housing prices return to reasonable prices andsoft-land Chinese housing bubble in the long term. 	
  I.

Literature review

1. In the article of “China’s housing least affordable in the world” (Zhu Weijing, 2013),
which talked about the serious housing bubble in China and will support my claim about theimportance of my research question;
2. In the article of “China residential, when will the party end” (Alpha Watch, 2014), whichtalked about housing price bubble in China and will support my analysis about the characters ofChinese housing bubble;
3. In the article of “Urbanization and real estate investment in China” (Guillaume RougierBrierre, Guillaume Jeannet, 2009), which talked about the economic effects of urbanization in
China	
  and will support my conclusion about urbanization maybe increase housing bubble;
4.	
  In the article of “New urbanization” (Business Sohu, 2014), which talked about the
timetable of new urbanization policy	
  will support my related analysis about it;
5. In the article of “Let us talk about NPC & CPPCC” section (2013) of www.Ifeng.com, theidea of Zhang Ping will support my conclusion about new urbanization will make the housing
price in China's big cities cool down.
6. In the article of “China's New Urbanization Plan” (Shannon Tiezzi, 2013), which talked
about the urbanization in China prioritizes Hukou reform over construction and relocation
projects. It will support my analysis about solving the Hukou problem will increase housing
consumption demand and overcome housing oversupply problems.
2 / 26	  II.

The logic of my research paper

1. Introduce Chinese housing bubble
Because Chinese housing bubble is accumulating, more and more people worried about the
housing bubble will burst soon;
2. Analyze the characters of Chinese housing bubble
According to data and analysis, I think there are different housing bubbles in different tiercities of China. In the Tier 1 and 2 cities, prices are high due to strong demand and constraint insupply, so the housing bubbles in these cities seem to be more severely; in many Tier 3 and 4
cities, oversupply is the main problem, even creating some “Ghost towns”. We should pay close
attention to these housing bubbles, even if the housing prices in these cities are not very high andhousing bubbles seem not so severely.
3. Discuss the influence of urbanization on housing price
Housing bubble is caused by many problems. My research will focus on the influence ofurbanization policy. However, there are two different ideas about the influence of urbanization
on housing price: one is urbanization maybe increase housing bubble; the other one is newurbanization maybe soft-land Chinese housing bubble.
4. Get my research result
We should implement the new urbanization, which can make housing prices return toreasonable prices and soft-land overall housing bubble in the long term.
III.

Main body

1. Chinese housing bubble
Chinese housing prices have been skyrocketing over the past few years, with seemingly
unstoppable momentum.	
  The Chinese government has tried a few times to control the real estatemarket, such as the real estate restrictions implemented. However, housing investment continues
to spike.

3 / 26	  Housing bubbles in the United States, Ireland, and Spain all burst between the years of 2005
to 2007. The amount of real estate investment in China as percent of national GDP is nearing thatof Ireland and Spain at their housing bubble peaks; but Beijing’s shows no indication of slowing
down. (As shown in the graph below) History shows that housing bubbles will eventually burst,
and when that happens, the whole country and the whole world will suffer the consequences.	
  The
IMF estimates that a 1 percent decline in Chinese real estate investment would reduce global
GDP by about 0.05 percent. So if we can soft-land the Chinese housing price and reduce thedamages to the minimized level, before the housing bubbles eventually burst, it will have very
important practical meanings.①

From 2005 to 2011, average housing prices rose rapidly in the Chinese real estate market.
Analysts argued over whether this rise was a result of a speculative real estate bubble, or genuine
increases in demand. Evidence for a bubble included significant numbers of vacant or underperforming commercial and residential properties and the continued construction of property
despite these facts, including an estimated 64 million vacant apartments. There were high priceto-income ratios, and high price-to-rent ratios for real estate, such as in Beijing where the priceto-rent ratio is 500:1 months compared to the global ratio of 300:1 months. There was a weaksecondary market for Chinese homes, with the ratio of secondary to primary residential propertytransactions at 0.26 for the first half of 2009 (four times as many new home purchases as
secondary sales). Comparably, Hong Kong had a ratio of 7.25, and the U.S. had a ratio of 13.45.
What caused the Chinese housing bubble?
4 / 26	  (1) Economic contributors① Cheap and abundant liquidity for the real estate has been a key driver factor
There have been many factors that may have led to rising Chinese housing prices, but
economic system problems are the key driver factors of Chinese housing bubble. Possible
economic contributors include low interest rates and increased bank lending, beginning in 2003
under Premier Wen Jiabao which allowed cheap credit for the construction and purchase ofproperty while making competing debt investments less appealing. And responding to the 2007–2012 global financial crisis, the huge spending from the China economic stimulus program may
have found its way into real estate, contributing to the housing bubble.	
  ② Lack of the other profitable investment fields
Currently, the China economic slowdown, overcapacity, lack of profitable investment fields
and the rapid development of real estate, makes profit-seeking capital accumulating impulse ofinvesting in housing industry. Many Chinese companies in the chemical, steel, textile and shoeindustries open real estate divisions, and expect higher returns than in their core businesses.
During this period, residential housing investment as a share of China's GDP has tripled from 2%
in 2000 to 6% in 2011, similar to the peak of the U.S. housing bubble. Meanwhile limited accessto foreign investments for Chinese citizens increased the appeal of domestic investments such as
property. Furthermore, Chinese citizens also faced cultural pressures encouraging homeownership, particularly for men seeking a wife.
③ Banks have incentive to drive property market
In China, the banks account for more than 90% of the amount of housing industry financing.
If real estate risk once appears, the banks' losses will be very heavy. So	
  banks have incentive todrive property market.
	
  	
  	
  	
  	
  	
  	
  	
  (2) Some local governments in China have incentive to drive property markets andpush up housing prices
During the bubble, local government relied on land sales for income, incentivizing thecontinued sale and development of land. This is partly a result of 1994 fiscal reforms to raise
5 / 26	  local government revenues, which were falling despite overall GDP growth. By most estimates,
land sales and taxes account for between 40% and 60% of local government revenues. In 2009,
proceeds from land sales alone amounted to RMB 1.5trillion, some 40% of local government
income. Local government encouragement of high property prices is underpinned by loose
monetary policy.
（3）Regional disparities and the Hukou (Chinese household registration) restriction
Regional disparities caused the housing price in Chinese Tier 1 and 2 cities continue to rise.
It is because of limited land supply but huge housing demand. There are more work opportunities,
better education, and better medical care in big cities. Social services are much better than thesmall cities or countryside, so a large population swarm into big cities, in actually, every year
there are 600,000 people become new residents of Beijing or Shanghai. What is more, many
citizens living far from these mega cities also buy a flat for investment, if they can afford it,
because they believe investment housing industry will never lose money in these mega and big
cities.
However, in China is running similar way to US's green card system. As a citizen of China,
Hukou residency status based on cities indicates what kind of medical and education service a
citizen can obtain from local Chinese government. Hukou residency is not determined by where
people actually live but by their parents' Hukou status. As a developing country, the fairly goodeducation, employment opportunities and medical services are provided only in big cities ofChina such as Beijing, Shanghai and some core second tier cities. Premium of Hukou at big
cities in China should be evaluated properly when justifying Chinese property bubble. For
instance, the education and medical premium of a Beijing Hukou can be evaluated at RMB
600,000 ($100,000), which is popular cited in Chinese internet. Most government and stateowned enterprises only provide interview opportunity to people with the local Hukou.
（4）Grey Income
According to independent economist Andy Xie, the scale of China's gray income is verylarge, possibly one-tenth of GDP. Most of grey incomes are invested in the real estate market oftier 1 and tier 2 cities, which contributes to the fact that the leverage rate of Chinese properties

6 / 26	  are small compared to the property bubbles in other countries. The normalization of grey
incomes in China feeds the property bubble in the long run.
（5）Urbanization
Trends of increasing urbanization and rising incomes in China could continue to support realestate prices. However, In China, there were comparatively conservative mortgage lending
practices, particularly in contrast to those at the height of the United States housing bubble.
2. The characters of Chinese housing bubble
The China’s central bank Governor Zhou Xiaochuan said: “China may have housing bubbles
only in some cities, the issue that’s difficult to solve with a single nationwide policy.”

The price-to-income ratio1 and affordability ratio2, commonly used indicators to analyze
housing market exuberance, showed that the China’s average ratios are higher than most othercountries, which means that there are housing bubbles.3 However there is a degree of varianceamong different areas. The ratios are much higher in the Tier 1 and 2 cities where price increases
have taken on a faster pace, while Tier 3 and 4 cities have ratios that are comparable to othercountries.

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
1

	
  The	
  price-­‐to-­‐income	
  ratio,	
  which	  measures	
  median	
  housing	  prices	
  in	
  a	
  given	
  city	  against	
  median	
  disposable	
  incomes,	
  reflects	
  affordability	
  rather	
  than	  absolute	
  property	
  value.	
  	
  
2
	
  The	
  affordability	
  ratio:	
  Monthly	
  mortgage	
  payment	
  for	
  mainstream	
  unit	  size	  versus	
  average	
  household	
  income.	
  3
	
  Source:	
  Citi	  Research,	
  China	
  Property,	
  Ghost	  Towns	
  and	
  Property	
  Bubbles,	
  December	
  2013.	
  7 / 26	  According to Citi Research, the price-to-income ratio in China is 9.2, higher than in mostother countries with the exception of Hong Kong (15.6) and just below Singapore (9.4).
Similarly, the affordability ratio in China at 41.1% is higher than in most other countries except
for Hong Kong (48.7%). This is due to the higher mortgage rates in China, besides the highproperty prices.	
  (As shown in the graph above)
However, these do not reflect a nationwide bubble. The ratios are higher in Tier 1 and 2
cities, while Tier 3/4 cities exhibit ratios comparable to other countries. The ratios in Beijing,
Shenzhen and Shanghai are among the highest in the world, given their fast rates of price growth
8 / 26	  which have outpaced growth in disposable income. Price-to-income ratio and affordability ratio
have reached 22.4, 95.4% for Beijing; 23, 92.7% for Shenzhen; and 17, 91.2% for Shanghai
respectively. (As shown in below Table) The root causes for the high ratios in the Tier 1 and 2
cities are ample liquidity and supply shortage. Property has become a popular investment method,
because it grows rapidly and preserves value against inflation amidst a lack of other investment
channels. In the Tier 1 and 2 cities, the better job prospects attract a continuous growing
population, including new graduates, businessmen and migrant workers. However, land
resources are getting limited as these cities grow, exerting pressure on housing prices. ②

While the high prices in Tier 1 and 2 cities have a part to play in the high price-to-income
ratio and affordability ratio, the huge wealth gap (As shown in below graph) and under-reportingof income have also caused these ratios to be disproportionately higher. Because affordability isless of an issue for the higher income groups, the greater constraints for them are the credit
tightening for second properties and ban on third property purchases. At the same time, the rising
prices in the Tier 1 and 2 cities have made housing less affordable for the lower income worker,
resulting in pent-up demand in the lower end segment.	
  ②

9 / 26	  However, I do not think a national or devastating bubble will burst in the whole China
property market, although some smaller markets may occur due to oversupply and weak demand.
China is a large country with a wide degree of variance among different geographic areas. In the
Tier 1 and 2 cities, prices are high due to strong demand and constraint in supply, so the housing
bubbles in these cities seem to be more severely, but reasonable in some degree; in many Tier 3
and Tire 4 cities, oversupply is the main problem. We should pay close attention to these housing
bubbles, even if the housing prices in these cities are not very high and housing bubbles seem not
so severely.
3. The influence of Urbanization on housing price
Housing bubble is caused by many problems. My research will focus on the influence ofurbanization policy. However, there are two different ideas about the relationship between
housing bubble and urbanization: one is urbanization created enormous consumer demand forreal estate investment, so urbanization accelerate progress will certainly have a huge impact on
housing price in the future. The other one is the new urbanization plan maybe have short term
impact on supply/demand prices but it will eventually lead to a moderation in prices in the longterm.
(1) Why did China accelerate the urbanization?

10 / 26	  Urbanization is a historic transformation process by which the means of production andpeople’s lifestyles evolve from the country to the city. While this process is often characterized
as farmers’ migration to cities and the continuing development of cities, the process is in fact far
more complex. Considering the rapid economic growth in China, some experts and scholars havemaintained that urbanization in China lags far behind that of developed nations in Europe andAmerica and it is imperative for China to catch up with this process. As a result, the Chinese
government is permitting farmers move to cities and has instituted various measures to accelerate
the urbanization process. (As shown in the graph below)

For a nation whose culture and society have been shaped over millennia by its rice-farming
traditions, China has just passed a remarkable milestone: its city-dwellers now outnumber its
rural residents. Data from the National Bureau of Statistics show that of China's 1.35 billion
people, 51.8% lived in urban areas at the end of 2012. (As shown in the graph below) Even now,
its ratio of city-dwellers is low for an economy at its stage of development. America reached the
50% mark before 1920. Britain passed it in the 19th century.

11 / 26	  Source: World Bank, Haver Analytics. Data as at January 2, 2013.

More important is that urbanization will become a new impetus for the development ofChina. Now, the new Chinese government is facing a complex economic situation: economic
growth is slowing down; export growth is slowing down; and an aging society is leading to labor
recruitment difficulties in some cities and provinces. Under the new circumstances, what
measures will the new administration take to ensure the sustainable and balanced development of
the Chinese economy? Premier Li Keqiang has emphasized urbanization, which will become thefocus of China's economic growth in the future, and will become a new impetus for thedevelopment of China.
According to Chinese news reports, urbanization could add 400 million more people to thecurrent Chinese urban population in the next decade, which will involve a capital investment of
40 trillion RMB. The government is also said to be expanding the bond market to support
urbanization. This will objectively promote the further liberalization of China's domestic capital
markets, driven by comprehensive reform.
Gu Shengzu, a member of the NPC Standing Committee, he said: “If industrialization
increases, urbanization will create more need in the market. Calculated against the current

12 / 26	  urbanization rate, total social consumption can rise by one trillion to two trillion Yuan. The
annual investment volume would maintain more than two trillion Yuan for 20 years.”(2) Urbanization maybe increase housing bubble
Housing demand will increase dramatically as China’s urbanization accelerates. With theurbanization rate increasing by 13 percentage points from 36 percent in 2000 to just below 50
percent in 2010, China has added more than 200 million urban residents within the decade. This
population change has created a huge demand for housing. Assuming a requirement of 30 square
meters of space for each resident, 200 million people require a total of 6 billion square meters ofaccommodation.
According to a recent report by BNP Paribas (BNPP), the following Table summarizes the
economic effects of Chinese urbanization, especially relating to the consumption of raw
materials and the boost given to the real estate market. (As shown in the graph below)4 The fateof China's property sector is closely watched as a key economic risk. Capital Economics
estimated that the property sector contributed 9.5 percent of China's gross domestic product(GDP) in 2013.③

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
4

	
  CAGR:	
  Compound	
  Annual	
  Growth	
  Rate	  13 / 26	  According to above data, urbanization created enormous consumer demand for real estate
investment, so urbanization accelerate progress will certainly have a huge impact on housing
price in the future. At the same time, we can simply look at the incremental supply fromresidential land under construction and social welfare supply for the next four years (2014-2017),
the number is 227 million and already higher than our projections of incremental demand basedon migration and marriage needs, only 176 million. (See following table)②	  It is not including the estimates of supply from land held by developers and the possibilityof some vacant units held by multiple-home owners being put back into the market due to lack oftransparent information. These would make the oversupply looks even larger.
However, this oversupply situation is not evenly distributed. In the developed Tier 1 andcore Tier 2 cities, land is more lack and old buildings especially in the prime city centers are torn
down to make way for new developments. Housing prices in these cities are high due to strong
demand and constraint in supply, so the housing bubbles in these cities seem to be more severely;
while in the Tier 3 and 4 cities, a higher rate of increase in residential GFA (Gross Floor Area)
being commenced, constructed and completed between 2008 to 2012, resulting in a higher
inventory digestion period. (As shown in the graph below) We should pay close attention tothese housing bubbles, even if the housing prices in these cities are not very high and housing
bubbles seem not so severely.②
14 / 26	  *CAGR (2008-2012): Compound Average Growth Rate from 2008 to 2012

GFA: Gross Floor Area

The smaller cities bear the brunt due to the large supply of land sold by local governments.
Massive advance town planning, which over-forecasted demand, and local governments’strategies of building infrastructure and selling land for housing construction to achieve their
GDP-driven KPIs (Key Performance Indicators) have resulted in excess supply in many cities.
Oversupply exists not only in the units that have been completed or are under construction; italso lies in the massive land bank held by developers following the local governments’
aggressive selling in the past. Local governments will inevitably try to take advantage of suchlarge-scale investment, to build new urban infrastructure. Given the large number of corrupt
officials involved in inefficient government spending, people are wondering whether publicmoney would be better for urbanization and under the stricter eye of public opinion. To makematters worse, many smaller cities do not enjoy high sustainable housing demand. As a result, a
number of cities have been labeled as “Ghost Towns” by the media given the low occupancy ofthe newly completed homes.
In actually, “Ghost Towns” are caused by too fast urbanization incompatible with slow
cities' development. Firstly, blind city expansions. Some local governments propose
15 / 26	  development objectives that are impractical and do not consider principles of city development,
stages of economic development and limited resources; Secondly, symbolic projects areprevalent. Without considering investment returns, some local governments build “show-off
projects,” such as administration centers and luxurious office buildings, at the expense ofinvestments in city facilities that are critical for public welfare; Thirdly, cities lack guidance on
small-city development and special regulations, blindly imitating the patterns of others; Fourthly,
very few people take into consideration their current labor conditions, future population growth,
the construction of matched environmental and sanitary systems, and so on.
According to Citi Research,5 Ordos, Yingkou and Tangshan deserve the label“Ghost
Towns” given the massive cumulative oversupply that has been built up, virtually no rental
market, resources-driven economies which have been hit by overcapacity, wide income disparity
which means many locals cannot afford to buy these new homes, and declining or slow
population growth.
Public perception of “Ghost Towns” usually comes from the impression of low occupancy
such as no lights at night or little activity in the town. However there are some peculiarities in the
China housing market that takes a newly completed building a longer time to reach highoccupancy. The primary market is still dominant with bare-shell units and young couples tend tobuy first and move in upon marriage. The physical key handover can come after 18 months ormore from purchase day while often taking another two years for decoration. Hence in general, it
can take 3-4 years for homebuyers from buying to moving in. From Citi Research’s groundchecks, they noticed many projects can indeed record around 50% occupancy in around two
years’ time, and over 70% after 3-4 years.
Urbanization is in fact far more complex. Particularly if this process is not brought undercontrol, it will cause many problems, which will have severe economic and politicalconsequences and affect social stability as well. Urbanization is not simply a process in which
farmers move to cities. Rather, it is a complex process that not only requires co-developmentwith industries and the entire economic system, but also needs to be compatible with the

	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  	
  
5

	
  Citi	  Research:	
  China	
  Property,	
  Ghost	  Towns	
  and	
  Property	
  Bubbles,	
  December	
  2013.	
  16 / 26	  conditions of employment, security, education, public transportation, medical insurance,
environmental protection, infrastructure, and so on.
(3) What is new urbanization?
There is some history background and social reality reason of new urbanization. This policy
is in close contact with the situation and problems of China's economic development. At present,
the Chinese investment and export growth rate become much slower than before and their rapid
development are unsustainable, and insufficient domestic demand can't quickly boost in a shorttime. Investment and consumption structure has been close to the "tipping point", and this judge
has basically reached a consensus. To find a new driver and to adjust the investment structure isurgent. Traditional urbanization problems and contradictions have prominently increased, so newurbanization transition is just around the corner.
Urbanization is not only the result of industrialization but it also provides a platform forindustrial development. At the current stage of China's development, urbanization without the
support of industry would be dangerous and unsustainable. Urbanization and industrialization are
two faces of the same coin - a supply side and a demand side. Both sides complement each other.
If urbanization needs industrial development to create jobs and promote entrepreneurship,industrial development could meet newly released domestic demand through urbanization. The
key point is, thanks to urbanization, the new trend of industrial development can offer more
opportunities for service industries, and also for new industries.
① New urbanization is population urbanization
In the past 30 years, urbanization mainly reflected in two aspects: First, the expansion of citysize; and second, a large number of migrant workers are working in the city, but they can't stayin the city. Even though most of the migrant workers have worked in the city for many years,
they still had to go back to their home in the countryside. The current institutional mechanism
doesn't give the migrant workers the convenience of staying in the city, so it needs to makesystemic changes. The Chinese government attaches great importance to this issue, because newurbanization is one of population urbanization, rather than the land urbanization.

17 / 26	  The core of new urbanization is people-centered urbanization. In the past, China's
urbanization was more reflected in material-based, which resulted of the land urbanization ismuch higher than the population urbanization. Currently, China appeared the semi-urban
phenomenon. 260 million migrant workers, although they lived and worked in the city, they can't
enjoy the city's share of public services, and of course this old type urbanization is notsustainable. To turn to people-centered urbanization, which does not mean the "hard turn" of
infrastructure, but is "soft turn around." Because China high-speed, massive urbanization
infrastructure investment for a long time, did not narrow the regional disparities between a large
number of rural areas and urban areas, and still remain at the level of focusing on speed rather
than quality. To prevent the next phase of urbanization from being a new “Great Leap Forward”
into real estate investment, it is important to focus on the human nature of urbanization. Thatmeans that urbanization should be for the benefit of the people. Both settlements in cities and theimprovement of farmers’ conditions in the rural areas should be taken into consideration.
Furthermore, new urbanization not only play a role in increasing investment in urban
infrastructure and expand the domestic demand, but also help to alleviate the problem of risinglabor costs. As we all know, China's labor costs now are increasing. But on the other hand,because of the current policy, China still has 30% -35% of the working population of migrant
workers, who are very difficult to stay in the city, which is the cause of shortage of urban labor.
New urbanization can increase labor force for China's future economy development.
② New urbanization is resource-saving urbanization
On the other hand, the construction of new infrastructure should lay the foundation for a new
development model characterized by resource-saving, environment-friendly and intensive
development. Recent government documents clearly indicate that the construction of centralized
settlements of farmers is not encouraged.
③ The timetable of urbanization
Urbanization has been a core part of the Chinese government's strategy over the past decade,and new-type urbanization is part of their continued drive to help more rural dwellers migrate tocities, improving their standard of living and helping boost the overall economy. And the newurbanization policy has a specific timetable:
18 / 26	  Firstly, on December 16th, 2012, Chinese central government put forward this economic
policy for the first time. Central Economic Work Conference proposed that new urbanization is
the historical task of China's modernization, which is also the greatest potential for expanding
domestic demand, so we should actively promote the healthy development of urbanization.
Subsequently, in 2012-2013, after several central level meetings preheat, as a general outlineof the development of China's urbanization, "The plan of Promoting the Healthy Development of
New Urbanization in China (2011 - 2020)" had been completed, had been reported to The StateCouncil, and soon be released. The plan is led by the National Development and Reform
Commission, and more than a dozen ministries jointly prepare and draft.
Then, on December 23th-24th, 2013, the Central Rural Work Conference further refined thenext stage specific time schedule of new urbanization, proposed three "100 million" goal, whichmeans that in 2020, about 100 million used into solving the agricultural population permanently
migrated and settled in the city; about 100 million used into reconstructing shanty towns andvillages in towns; and about 100 million used into the Midwest of China urbanization.
In December, 2013, the Central Working Conference about Urbanization discussed the"New National Urbanization Plan". According to the meeting discussion, the relevant ministries
will continue to amend the specific plan details.
On January 20th, 2014, "New National Urbanization Plan" had been revised and submitted to
the State council.
On March 17th, 2014, the Chinese government unveiled the National New-type Urbanization
Plan, which detailed plans to increase the amount of Chinese people living in cities from 54
percent to 60 percent by the end of 2020, which will involve 110 million rural residents
crowding into the cities over the next seven years, through huge investment in transport networks,
urban infrastructure and residential real estate, together with reforms to the country's registration
system (Hukou system).④

19 / 26	  (4) New Urbanization maybe soft-land Chinese housing bubble① Accelerating development of small and medium cities will make the housing price inTier 1 and 2 cities cool down.
Firstly, accelerate the new urbanization, especially the development of small and medium
cities in China. Improve urban layout. Cities and towns should have a reasonable structure: toproper control the scale of megacity and big cities, vigorously develop medium and small cities,
and small towns.
Secondly, strengthen the construction of infrastructure in the medium and small city, andimprove the carrying capacity of these cities. If we increase employment opportunities, improve
public services and infrastructures, which are the small and medium cities needed to run. I think
the people will prefer to live in their hometown.
Thirdly, the layout of the city population should suit for the resources and the environment. ⑤
According to Alaistair Chan, economist at Moody's Analytics, on March 17th, 2014, he said:"Now that the 70-City house price index has peaked showing that prices in the major cities arecoming down, the government is under pressure to reduce restrictions. I don't think they will dothat, but the new urbanization plan could be a method of putting a floor under prices." It impliedthat new urbanization has started had the positive effect on the Chinese housing price. It has
20 / 26	  increased housing consumption in the most of the Chinese cities, which will disperse housing
prices pressure in the Tier 1 and 2 cities. And this continued strong demand for cities housingsshould put a floor under house prices, rather than hard-land the housing bubble in the whole
China. So it will lead to a moderation in housing prices in the long term, although it maybe has
short term impact on supply/demand prices.
② The Hukou system is the biggest barrier to implement new urbanization.
Chinese policy makers proposed Hukou system problem is the biggest barrier to implement
new urbanization, and we should reform of the household registration system first, because it is
the key breakthrough factor of the new urbanization.
Firstly, the lag of population urbanization is the biggest barrier to implement new
urbanization. In the past, for a long time, we misunderstood that the urbanization equal to urban
construction, and too much focus on the expansion of the scale of the urban construction, but
ignoring the size of the urban population. The migrant workers are deemed to labor, rather thancitizens. As a result, urbanization seriously lags behind industrialization, and population
urbanization seriously lags behind land urbanization. In fact, nearly half of 700 million people in
the urban are not really citizens, which the experts call "semi-urban" or "pseudo-urbanization".
Secondly, the reform and breakthrough of the Hukou system is the key to promote the newurbanization. Currently, the land urbanization is much faster than population urbanization, so thereform of household registration system is the key of transforming rural farmers into citizens.
We should gradually release the cities settled restraints and focus on improving the quality ofurbanization, rather than blindly pursuing the rate of urbanization.
New urbanization policy, rather than emphasizing the building of new homes and new cities,
the top priority will be helping rural residents who have already migrated to the cities win thestatus of official legal residents. In other words, new urbanization will focus first on solving the
Hukou problem.
③ Solving the Hukou problem will hugely increase housing consumption demand andovercome housing oversupply problems, mostly in Tier 3 and 4 cities.

21 / 26	  In coming years, China will fully remove Hukou restrictions in towns and small cities;
gradually ease restrictions in mid-sized cities; setting reasonable conditions for settling in big
cities; while strictly controlling the population in megacities. In other words, China will continue
to emphasize the growth and development of “small cities” by removing Hukou restrictions forthese underdeveloped areas. But “megacities” like Beijing and Shanghai will likely continue tohave strict limitations on Hukou in a bid to fight overcrowding and rising housing costs.⑥
As part of Hukou reform, China’s leaders hope to begin breaking down the socioeconomic
gap between registered urban residents and rural migrant workers. Such a plan wouldn’t
technically increase China’s urbanization ratio, since non-registered migrants are alreadycounted as urban residents.
However, reforming the Hukou system would achieve the underlying goal of new
urbanization by increasing domestic consumption. Solving the Hukou problem will help rural
residents to win the status of official legal residents, and providing residence permits for
migrants workers would raise their standard of living, which would lead to increased housing
consumption. Then further increase the housing demand, and finally digest housing inventory,
mostly in Tier 3 and 4 cities.
④ Improve urbanization quality and further improve people living conditions.
While reforming the Hukou system was the number one priority for China’s urbanization
efforts, the five other tasks: more efficient land use, a sustainable funding system, better patternsof urbanization, holding construction to a higher standard, and providing stronger managementof urbanization as a whole. These goals promise that China will continue to relocate current rural
residents even while it addresses the needs of people already living in cities.
However, the government wants to ensure that urbanization does not come at the price ofChina’s already-damaged environment. Now numerous mentions of China’s ecology and natural
resources, showing these concerns are constantly on the minds of leaders. And there be a “redline” for the quantity and quality of arable land that is left available for farming. Urbanization is
also expected to proceed with modernization of farming techniques to make up for the loss ofboth farmland and rural agriculture workers.

22 / 26	  Finally, the government remains cautious about the potentially negative economic aspects ofurbanization, including ballooning local government debt, housing bubbles, and economic
imbalances between urban and rural regions. To address these concerns, the government seeks tostrengthen its management of the entire urbanization process, ensuring tighter control over local
officials. Of course, strengthening central government control is always easier said than done inChina, but the call to do so proves China’s leaders are aware of the potential for local
governments to abuse the new emphasis on urbanization for personal gain.⑥
4. My research result(1) New urbanization is an unprecedented opportunity for real estate
The development of urbanization has brought unprecedented opportunities and long-term
broad space to the real estate industry. China has 1.35 billion people, which is more than current
total population of the developed world (Around 1.2 billion in 2012), but nearly half of Chinese
live in the poorer rural areas. Before urbanization, housing demand in cities was generated by thenatural increase in the population and by the renovation of old housing stock. With thedevelopment of urbanization, more rural people are now becoming urban residents, creating
heavier demand, which offers a huge opportunity to the real estate industry.
So urbanization will not only provide the basis for sustained growth of the Chinese economy
over the next few years, but also have a significant impact the world economy. Meanwhile, weshould clearly see that the urbanization of China is only the start of accelerated development. To
further realize the changes of new urbanization and digest the oversupply housing inventories,
which is the key of soft-landing Chinese housing bubble.
(2) Implement people-centered urbanization
Currently, a handful of rich people in China are spending millions even billions to pursue thecity's luxurious style houses, while many migrant workers are sharing the small dormitory
placement in a long-term. The huge gap of living conditions in cities has resulted in increasingly
higher suicide rate and crime rate, and eventually society will pay a high cost for the unfair. New
urbanization is bound to be population urbanization or called “people-centered urbanization”.
We should gradually ease the Hukou restrictions in different cities and ensure more and moremigrant workers can enjoy the fruits of cities development as urban residents, and is the key step
23 / 26	  of improving their living conditions, increasing housing consumption demand and soft-landing
Chinese overall housing bubble in the long term.
(3) Implement resource-saving urbanization
Residential, commercial, services, and urban-related infrastructure, supporting facilities
related industries, will pull national economy. However, the poor quality of construction isdifficult to take into account the needs of energy saving and environmental protection. A large
number of buildings are only an average of 30 years of life. This led to a large urban buildings
demolition and reconstruction, which is waste of resource and energy. So, it is the time to
implement a new resource-saving urbanization, which means more efficient land use, asustainable funding system, better patterns of urbanization, holding construction to a higher
standard, and providing stronger management of urbanization as a whole.
(4) We need to pay attention to many issues in the process of new urbanization
In the current stage of urbanization, the biggest problem caused China's domestic housing
oversupply is uneven. A lot of migrant workers worked in the cities for many years, but they
can’t buy houses in there, because they do not have the urban Hukou. So we should solve the
Hukou problem at first, and then adjust income distribution. The government should eliminate
identity discrimination in the labor and civil rights, though giving migrant workers the right ofliving in the city and enjoying the corresponding services, rather than hopelessly crowded
barracks-style dormitory, such as the tragedy of Foxconn.
In my opinion, new urbanization should pay attention to the interests of the 260 million
migrant workers, including through the reform of income distribution system, household
registration system, land system, central and local fiscal and taxation systems, college entrance
examination, pension, etc, in order to enable migrant workers to benefit from equal public
services.
Firstly, urbanization should be focused on human development. If we allow immigration, we
should provide job training, funding for small businesses, and eliminate all hurdles that could
cause new citizens trouble.

24 / 26	  Secondly, we should coordinate urbanization and rural area restructuring. While a proportionof the rural population will be moved into cities, the modernization of the countryside should not
be neglected. The formation of the joint development of urban and rural areas will lay thefoundation for healthy and sustainable development.
Thirdly, new urbanization should avoid imitation. Each city or town should have its own
characteristics, or should build its own brand. Every city (including small towns) should plan
according to its local competitive advantages, focusing on the development of specific industries
or services.
Fourthly, new urbanization should focus on green and low carbon development. Resourcesaving and environmentally friendly technologies should be promoted so that land resources canbe used in an economical way, and production can be used intensively. New urbanization should
also strengthen energy conservation, reduce carbon dioxide emissions, and try to avoid thedestruction of the existing ecological environment. If possible, it should also try to restore theecological environment by reforestation.
Fifthly, cluster development should be prioritized in this new round of urbanization. Not
only are industrial clusters rational, but town clusters can also be very significant. The difference
between towns would allow the formation of a reasonable division of work, enabling them todevelop their own advantages in order to enhance the overall competitiveness of the urban
system.
Sixthly, urbanization should let the market play its role. Although government should play a
guiding role in this new round of urbanization, the market should never be replaced.
Urbanization is a natural development process to meet people’s needs, so peasants, citizens, andenterprises should play a main role in urbanization.

25 / 26	  Reference:①	
  Zhu Weijing. (2013). China’s housing least affordable in the world. The world of Chinese.
July 3, 2013.
② Alpha Watch. (2014). China residential, when will the party end. Alpha Investment
Partner Limited. January, 2014.
③ Guillaume Rougier-Brierre, Guillaume Jeannet.(2009). Urbanization and real estate
investment in China. IFRI. December, 2009.
④ Business Sohu. (2014). New urbanization.
http://business.sohu.com/s2012/chengzhenhua/.
⑤	
  Zhang Ping. (2013). Let us talk about NPC & CPPCC. www.Ifeng.com. April, 2013.
⑥	
  Shannon Tiezzi. (2013). China's New Urbanization Plan. The diplomat. December 17,
2013.
	
  

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