A professor of the Party School of the Central Committee of the Communist Party of China said that housing issues are an important cause for the polarization of Chinese society. His judgment is quite right and it accurately pinpoints the reason for a widening income gap in today’s China, says an article in the 21st Century Business Herald. Excerpts:

There were two major rounds of changes for the State-owned property market in China.

Before 1998, most of the property was State-owned. The properties were sold to the people living in them at very low prices in the late 1990s during the reform of China’s housing system. The prices of the properties then increased many times in big cities over the past decade. The largest beneficiaries were the homeowners who worked for State-owned units.

The second round of changes happened during the recent explosion of the land transfer market. Local governments bought the farmers’ land at very low prices and transferred the land at much higher prices to real estate developers, who sold the houses at exorbitant prices. The price of the land, which used to be owned collectively by the rural community members, soared in the process. But the main beneficiaries were local governments and the real estate developers.

Given the poor public services enjoyed by the rural population compared with their urban counterparts, the land transfers effectively robbed them of their most valuable assets and production materials.

Some State-owned units and government departments still have the rights and channels to obtain land cheaply and build homes for their staff members at prices well below the market level.

As Chinese authorities vow to fill the income gap in the Chinese society and promote new urbanization policies, they must reform the housing system and market, which are distorted by the local governments’ desire to increase revenues and the special connections between real estate developers and local governments.