Social and Spatial Implications of Housing Reform in China

Social and Spatial Implications of HousingReform in China*

YA PING WANG AND ALAN MURIE

Introduction

Over the last two decades housing policy in advanced economies has overwhelminglyfavoured owner occupation above other tenure forms (Ballet al., 1988; Harloe, 1995). Inthe UK, for example, the most important element in the privatization between 1979 and1997 was the sale of publicly owned dwellings (Forrest and Murie, 1988; Malpass andMurie, 1999) and this formed part of a wider strategy to increase the role of the privatesector in housing and the share of home-ownership. In Ireland the promotion of home-ownership and privatization of housing was also vigorous. In other countries with largestate-supported sectors, privatization through the sale of rented housing to homeownerswas less prominent, although wider strategies generally envisaged a growth of home-ownership. In eastern Europe different tenure arrangements existed prior to the politicalchanges of 1989 and in some cases sale of state-owned housing predated these changes.The political events of 1989 led to the collapse of the socialist system in eastern Europeand the economic systems which now exist are referred to as transitional economies.Housing provision in these economies has changed with a greater role for the market andactive privatization of housing (Nord, 1992; Schmidt, 1992; Siksio, 1992; Turner, 1992;Hegedus and Tosics, 1994; Nataliya, 1994; Claphamet al., 1996; Struyk, 1996a). China,like other countries with very different political regimes, has launched a series ofeconomic reforms since the late 1970s. These allow market forces and private enterpriseto play an increasing role in the production and consumption of goods and services (Nee,1989; 1991; 1992). Various new policies were introduced from as early as 1979, designedto commercialize and reform the public-sector dominated housing system (Fong, 1988;Kirkby, 1990; Lim and Lee, 1990; Lau, 1993). In 1988, the government issued a majorreform document, the Ten Year Reform Strategy. Its main objectives were to encourageurban residents to buy their houses, to formulate new housing finance arrangements andto restructure rents in the public sector. Since then various central and local legislationand regulations for the privatization of urban housing have been issued. Large numbers ofhouses have been built by developers and, during the early 1990s, large numbers ofexisting dwellings owned by the state through state enterprises and institutions have beensold to sitting tenants. More and more urban residents have bought newly built

ß Joint Editors and Blackwell Publishers Ltd 2000. Published by Blackwell Publishers,108 Cowley Road, Oxford OX4 1JF, UK and 350 Main Street, Malden, MA 02148, USA.

* The support of the Economic and Social Research Council (UK) is gratefully acknowledged. Part of thiswork was funded by ESRC in 1995 and 1996 (award number: R000221368). Recent fieldworks in Chinawere funded by a Faculty Research Grant of Edinburgh College of Art/Heriot-Watt University (1997) and aBritish Academy Grant (1998). The Authors would like to thank many Chinese individuals and institutionswhich helped during fieldwork over several years and the two anonymous referees for their constructivecomments.

International Journal of Urban and Regional Research Volume 24.2 June 2000

commercial housing. Housing privatization has become one of the most importantelements of economic reform in the late 1990s. Urban housing development, particularlyfor low- and middle-income families, is seen as a key sector in future national economicgrowth.

These policy developments have been more widely reported recently. Some articleshave provided detailed case studies of housing reform in different regions and cities(Chen and Gao, 1993; Lau, 1993; 1995; Chen, 1996; Chiu, 1996; Tong and Hays, 1996;Wang and Murie, 1996; Wu, 1996). However, the social and economic impacts have notbeen fully examined. Housing reform has been seen as an important change to thesocialist urban system, but much of the discussion has stayed at a superficial level andspecific attention has not been given to the distribution of benefits and losses and toimpacts on the spatial pattern in Chinese cities.

The Chinese system before reform had many things in common with some easternEuropean countries. Policies were developed separately for urban and rural areas andwork units or state enterprises played a major role in the provision of urban housing. Instudying the eastern European reform, researchers found that privatization provides somepeople with valuable financial, property and other assets, while others lose out (Andrusz,et al., 1996; Struyk, 1996b). Privatization took place alongside the growth of massunemployment and poverty, and increasing social and physical exclusion and segregation.There is a growing consensus that market reform in many countries has been a partialreform, preserving some features of socialism and particularly the advantages of manymembers of the old political class (Gaubatz, 1995; 1996; Zhou and Logan, 1996). Partymembers and factory managers in the former Soviet bloc have discovered that theirpolitical connections and control over scarce resources can be profitable (Staniszkis,1991; Burawoy and Krotov, 1992). How far are these conclusions true for China? Thisarticle aims to answer this question by examining the social and spatial consequences ofhousing reform. The next two sections look at the social and spatial patterns in Chinesecities before housing reform was introduced. The following sections assess the impacts ofreform separately in social and spatial terms. The analysis draws attention to the widersocial and political effects and problems arising from these changes.

This article argues that the extent to which the Chinese housing system has beentransformed is more limited than analysis of eastern Europe suggests (Claphamet al.,1996). There are also specific aspects of the Chinese system which affect the pattern ofbenefit. These particularly involve rural/urban divisions, the role of work units and theparticular class structure developed in China.

Official division of residence and social status

In the late 1950s, the Chinese government introduced the resident registration system,which created a division between urban and rural areas. In the following years, with thedecreased demand for urban-based labour, rural to urban migration was strictly controlledalong with the food supply system employed in the urban areas (Chan, 1994; Kirkby,1984). The registration of residence became the most important mechanism effectivelydividing China into two distinct societies. Although the Communist governmentintroduced fundamental changes to both rural and urban areas, the country is ruledfrom the cities. While much of the rural life has remained in the traditional style, urbanlife has been given new meaning, and industrial workers from state-run factories,professionals and party leaders are all associated with cities and towns.

The Chinese Communist Party has not pursued a goal of absolute equality even inthe urban areas. As early as the mid-1950s, the government introduced a distinctiveemployment classification system which divided the urban population into severalcategories. In the state sector there were cadres and workers. The cadre category

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398 Ya Ping Wang and Alan Murie

included government and party leaders at all levels and professionals and academics inurban areas. The workers’ category included all skilled and unskilled employeesengaged in industrial establishments or any other organization. This cadre or workercategory was recorded in each person’s file and set the social status of urban residents.A change from worker to cadre status was treated as promotion. People who had littleeducation or with limited special training would be put into the worker category.College and university graduates would become cadres wherever they worked. In thecadre category, there was correlation between a person’s salary and his/her officestatus. A promotion in the office would automatically increase the salary grade. Theonly way to increase personal influence, power and income was to move up theadministrative or professional hierarchy.

Although the cadres and workers were the most important social groups in Chinesecities, there were other urban residents outside the state sector. During the early yearsof communist control, not all urban enterprises and businesses were nationalized. Mostsmall establishments set up before 1949 were collectivized and referred to as thecollective sector. Local municipal authorities were important organizers of this sector.Apart from the leaders and managers, general employees in the collective sector had alow social status compared with state-sector workers. Their jobs were poorly paid, lesssecure and they usually had short contracts. They got fewer benefits and lived in theirtraditional private homes. The population not employed by the formal state sectorusually lived in the old central areas or traditional villages which were later absorbedinto the built-up areas. These people were referred to by many asxiao shi min(the‘little citizen’), a term which itself conveys discrimination. During the early 1980sthere were important expansions in the collective sector. Many people who were sentto the rural areas during the cultural revolution period came back to the cities. Therewas also an increase in the number of school leavers. The formal state sector found itdifficult to absorb this. More collective enterprises were set up, either by the localgovernment or the large state enterprises, to provide jobs for people who lived in theirareas (i.e. in homes provided by work units for their parents). These new employeesreceived more limited social and economic benefit from the state than formal public-sector employees.

Housing and residence

The different population groups referred to above were treated differently in housingprovision in China (Wang and Murie, 1999). The most important feature of Chinesehousing is the different position of urban and rural residents. Housing provision in theurban areas changed fundamentally after 1949 and the government has been deeplyinvolved in almost every aspect of housing production and consumption. Massiveresources have been invested in cities and towns to provide accommodation for urbanresidents, particularly those employed in the state sectors. The majority of urban residentswere housed in publicly owned shelters. The number of homeowners declined steadilybetween the 1950s and the 1970s and much of the private-rented sector was transferred tothe state (Wang, 1992). In contrast, in the rural areas traditional family houses and privateownership were not changed fundamentally. This urban and rural division is not onlyrelevant to housing, but to almost every other aspect of the social and economic life of theChinese people.

The second important feature of Chinese urban housing is the differentiation betweenthe public and the private sectors. For 30 years after 1949, urban housing provision wasdeliberately moved from the private to the public sector. The private-rental sector wasalmost eliminated and the remaining private housing was mainly owner occupied. Duringthis period, home-ownership compared unfavourably with highly subsidized new public


Social and spatial implications of housing reform in China 399

Table 1 Housing allocation standards in a large university in Xian in 1996

Criteria for Housing Allocation Housing Allocation Standard*

Basic conditions Specific conditions Housecategory

No. of rooms Priorities

Married, permanentand full-timeemployee of theuniversity whosepartner is an officialresident of the city;household has noappropriate house inthe city (private orpublic rental)

● Professors with PhD supervision status I Flat: 4 rooms with a hall● Leaders at principal level● Professors with national distinction award

● Professors II Flat: 3 rooms with a hall or Professors● Leaders at deputy principal level 3 big rooms● Associate professors and section directors with over 25 years of work experience● PhD degree holders with post-doctoral research experience

● PhD degree holders III Flat: 2 big rooms with a hall PhD degree● Associate professors and section directors or 3 small rooms holders,● Deputy section directors with 15 years of work experience associate● Lecturers, unit directors and technicians with over 20 years of work experience professors● Senior grade workers with 25 years of work experience and section

directors● Other deputy section directors IV Flat: 2 rooms with a hall or● Other lecturers, unit directors, technicians and senior grade workers 2 big rooms● Other employees with over 18 years of work experience

● Other employees with 15 years of work experience V Flat: 1 room with a hall

● Masters degree holders VI One single room● Other employees with over 12 years of work experience● Married couples where both work in the university● Married special workers (cleaners, chef and cook, drainage workers)

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Married, permanentand full-timeemployee whosepartner is not anofficial resident of thecity; single ordivorced

● Professors, associate professors, section directors, PhD degree holders with over IV Flat: 2 rooms with a hall or30 years of work experience 2 big rooms

● Other professors, associate professors, section directors, PhD degree holders V Flat: 1 room with a hall

● Lecturers, unit directors, technicians and senior grade workers VI One single room● Masters degree holders● Other employees with over 12 years of work experience

● University and college graduates 2 persons sharing a room

● Other employees with less than 12 years of work experience 3 persons sharing a room

* The standards listed indicate what house one might get through the distribution system. The actual housing allocated depends on availability at thetime. The standard isnot only applied to the allocation of housing to new employees but also to the rehousing of promoted staff. Once a new building is completed, not every flat is allocated tothe staff in the housing queue and allocations are made to create turnover and overall adjustment. Promoted staff with small apartments will move to newer and biggerhouses and the older and smaller flats released by this will be allocated to junior employees who meet the allocation conditions.

The queuing order of staff with similar status are decided according to a points formula:

Overall Points = Status Points+ Year of Work Experience Points+ Points for Year of Service in the University+ Special Allowance Points+ Distinction Award Points

More recently, this work unit has provided temporary shelters for temporary employees engaged in labour-intensive work or other services.

Source: Wang and Zhou, 1996: 129–42.

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housing. The pattern of urban development and planning meant that old private houseswere not secure places to live in. The land could be requisitioned by local government forother development. Old houses also lacked basic facilities such as an inside WC andwater supply and provided poor shelter with broken windows and cracked doors. In mostcities, homeowners were people who had been living in the city before 1949. The newurban residents working in government offices, organizations, institutions and industrialestablishments were recruited and selected through various mechanisms with particularreference to their political reliability. This new urban class formed the core of the urbansocial system.

Another distinctive feature of Chinese housing provision was the role played bywork units in the state sector. Housing was provided as part of capital investment fornew enterprises or institutions. The result was a pattern of housing production,distribution, maintenance and management which was decentralized to each publicinstitution or enterprise, rather than to a unitary housing authority (Wang, 1995; Wu,1996; Zhang, 1997). These decentralized institutions often organized both theirhousing activities and their production activities within areas of land allocated to themin cities. Housing was regarded as part of the wage costs of enterprises and public-sector housing was freely distributed to employees. No deposit or other payments wererequired before the tenants moved in. Rents were extremely low because the housingprovision had been taken into account in determining wages. Housing was allocatedaccording to a notion of need which related to the status of the household head in hisor her office, rather than according to the characteristics of the family, the number ofchildren, housing conditions, overcrowding or other considerations. The linkagebetween work and housing is financial and social and affects where people live. Largestate enterprises and institutions all had residential quarters adjacent to their workshopsand offices. This reduces travel to work costs and traffic congestion. In economic termsit puts constraints and burdens on the production establishment and in social terms itcreates different patterns of social mix because of the complex employmentrequirement in each work unit.

Social mix in the work unit did not mean that everyone was equal in housing terms.The differences between cadres and workers, higher status professionals and low-skilledtechnicians were real and significant. Table 1 illustrates this through a summary of thehousing allocation policies in a large public-owned work unit — a university in Xian city.Although this is only one example of how housing is distributed in a particular location, itrepresents the common practice of most large state-owned institutions (state-ownedenterprises have a slightly different housing allocation system). Work-unit housingpolicies were formed within the central government determined framework. In acentralized system there were important similarities in policies adopted in differentlocations and institutions. The basic eligibility criteria for housing was formal urbanresidence and permanent employment by the institution. Then the most important factorinfluencing housing entitlement was official status as cadre or worker. Workers weregiven low priority. A long service (over 25 years of work experience) higher grade workerat best could get a two-room apartment. For workers, the years of service completed wereof principal importance. Some people were excluded altogether. This included peoplewho worked in the university temporarily or had fixed-term contracts, and people whohad made a major mistake in the past, including the breach of the family-planning policyor a criminal conviction. Factors which affect living conditions, such as the size of thehousehold and the number of dependent children, were not considered at all. People whomarried a non-official urban resident were also discriminated against, although thepartner could live on the campus. Since housing was the most heavily subsidizedcommodity and it related directly to the social status of the household head, the lifestyleof Chinese urban residents was determined to a large extent by the occupation of thehousehold head.



Housing reform: a summary

Housing reform in China began to address the issues more generally associated withsocialist housing systems: the heavy fiscal and management burden on government, poorliving environments, problems of corruption and inequality in distribution and the lack ofindividual initiative affecting housing investment. A full account of the stages of housingreform is available elsewhere (Wang and Murie, 1996; 1999) and this section summarizesmajor experiments and some of the key policy changes introduced between 1994 and1998.

China has followed a pragmatic approach to housing reform. Through the 1980s, aseries of reform programmes were implemented and tested at various locations. Theseincluded the following stages:

• Experiments with the sale of new housing to urban residents at construction cost(1979–81).

• Experiments with the subsidized sale of new housing (1982–85): These experimentsoffered an opportunity for an individual buyer to pay only one-third of the total costsallocated with the house. The other two-thirds were to be subsidized equally by theemployer (usually a public enterprise or institution) and by the city government.However, the costs attributed to these houses included more elements thanpreviously. They included the costs of land acquisition, compensation and provisionof local public facilities.

• Experiments with comprehensive housing reform (1986–88): These experiments hadtwo major features: adjustment (raising) of rents in the public sector and theintroduction of housing subsidy for all public-sector employees; and promotion ofsales of public-sector housing (old and new).

The publication, by the central government, of the important document,ImplementationPlan for a Gradual Housing System Reform in Cities and Towns(State Council, 1988;World Bank, 1992), marked the turning point of housing reform from pilot tests andexperiments in selected cities to overall implementation in urban areas. The objective ofthis plan was to ‘realise housing commercialisation according to the principles of asocialist planned market economy’. Specific policies included rent increases, introducinghousing subsidies to offset the rent increase and the sale of public-sector housing. Theplan was interrupted in 1989 by economic and political problems.

It is important to note at this point that in these early experiments the sale of flatsinvolved the sale of the use right only — changing the basis of payment for use andsecuring the family’s right to use the property and pass it on through inheritance but notsecuring the right to sell it on the market.

The beginning of the 1990s was marked by further policy moves towards a marketeconomy. In October 1991, a major national housing reform conference was held inBeijing. The conference resolution,On Comprehensive Reform of the Urban HousingSystem, compiled by the State Council’s Housing Reform Steering Group, was issued inNovember 1991 (General Office of the State Council, 1991). This document reinforcedthe 1988 resolution and required all urban authorities to carry out housing reform.Although there were no major changes in the overall objectives of housing reform, thisresolution led to the large-scale sale of existing public housing at very low prices,particularly to their current occupiers. In 1993, concern about the low-price sales ofpublic housing led government to suspend the housing reform programme.

1994 saw the publication ofThe Decision on Deepening the Urban Housing Reform(Housing Reform Steering Group of the State Council, 1994). This was an important andcomprehensive policy document on housing reform. The new strategy included:

• changing the housing investment, management and distribution systems;



• establishing: (1) a dual housing provision system with a social housing supplyproviding economic and comfortable housing to middle- and low-income householdsand a commercial housing supply for high-income families; (2) a public and privatehousing savings system; (3) housing insurance, finance and loan systems whichwould enable both policy-oriented and commercial developments; and (4) a healthy,standardized and regulated market system of property exchange, repair andmanagement.

These policies were gradually implemented in all urban areas. The main elements aresummarized here to provide a background for later discussion:

• Establishment of a new housing savings system: This involves the establishment of ahousing provident fund through which every employer and employee makes acontribution to the employee’s housing savings. The savings can only be used topurchase housing or for housing repairs, but will also be available as an addition tothe employee’s pension on retirement. The rates of saving vary from place to placebetween 5% and 10% of an employee’s monthly salary in the public sector. Someprivate firms pay a higher rate, while some small businesses and loss-making stateenterprises do not participate in the system or pay a very low (2%) contribution.

• Rent reform: The government aimed to increase rents gradually in the public sector.It was planned that by the year 2000 rents should cover the costs of building, repair,management, interest on loans and property tax and would total about 15% of acouple’s salary. New tenants should pay higher rents than sitting tenants as well as adeposit. Local authorities were asked to make plans and timetables for rent increases.In 1998 a safety net for poor or laid-off workers in cities was provided. Local housingauthorities and work units were instructed to use old or unsaleable public housing toprovide housing for families with incomes below the officially defined poverty line.The rent on these properties would be subsidized or waived.

• Sale of public-sector housing: In 1993 the sale of existing public-sector housing atvery low prices had been stopped. Three different price mechanisms and salespackages were introduced in 1994, providing different arrangements designed fordifferent income groups. Firstly, high-income families would pay market prices andwould have full property rights including the right to resell on the open market.Secondly, the prices for low- and middle-income families should be subsidized butshould cover the basic costs of seven elements: land acquisition and compensation,pre-construction costs (survey, design), construction, neighbourhood public facilities,management and interest on loans and tax. This would be a price below the marketlevel but would involve full cost recovery for new dwellings. Thirdly, a standardprice, taking into consideration both costs and affordability, was proposed as atransitional mechanism where the basic cost price was unaffordable to families.

• Where houses were purchased at the subsidized level (under the last twomechanisms), the buyer only bought part of the full property rights — the userights. With use rights, the purchaser has the right to use and inherit, but the owner isnot able to sell the property on the open market. Where resale is necessary, the ownermust obtain the approval from the original seller and pay back to the seller aproportion of profit he or she has made. This is similar to arrangements in othercountries where some repayment of discount or subsidy is required at resale. Theresale of privatized public housing has proved a complex problem and there was nosecondary market in most cities in 1999 despite some experiment and intensediscussion.

• Reform of housing maintenance and management: This involved setting up housingservice systems independent from government and introducing commercial housingmaintenance and repair.



• Affordable housing (economic and comfortable housing — jingji shiyong fang andanju projects): The idea of subsidized commercial housing for low- and middle-income families was introduced in 1994 and special central government loans andfree land allocations were used as the main mechanism for the development of thistype of housing. Since 1994 most cities have carried out a programme known asanju(peaceful living), aimed at low-income urban employees such as teachers.

To speed up the process of housing commercialization in urban areas, a majordecision was made by central government in July 1998 which aims to stop materialdistribution of public housing to urban employees and to introduce a cash subsidy forhousing. According to this new policy, the future housing requirements of public-sectoremployees should be met directly by property developers or the housing market, ratherthan by the employers. The public-sector employers will only issue the housing subsidy totheir employees and will not be directly involved in housing construction, distribution andmanagement. Affordable housing built with government support was identified as a keysource of new housing for low- and middle-income groups. The government planned tomake this type of housing accessible to most urban residents (70–80%). The higherincome households in urban areas (10–15%) will be encouraged to obtain high-standardhousing through the market; and poor urban families (about 10–15%) will be givensubsidized rental housing by their employers or the city government (State Council,1998).

The overall timescale to implement this policy was set at the end of 1998. Localauthorities were left to decide when the change would take place and the details ofsubsidy policy. Central government documents only set out guidelines and generalprinciples, and variation will be an important feature of implementation. The basicapproach can be demonstrated by policies adopted for Beijing in September 1999(Department of Real Estate Management of Construction Ministry, 1999):

• A public-sector employee who iseligible for housingbut has not been allocated adwelling, or lives in a dwelling below the qualifying standard, is entitled to housingsubsidy.

• From January 1999, housing subsidy is paid monthly into the employee’s housingfund account, and the amount of housing subsidy in 1999 is 66% of the employee’sstandard salary.

• Housing subsidy will be paid to the employee as a lump sum for his/her employmentbefore the end of 1998 when the employee purchases a house. The amount ofpayment will be calculated by the following formulae:

Subsidy= (S1�0.66� n) + (S2� y�a)

S1: The standard monthly salary of the employee in 1998n: Total number of months the employee had worked for the employer before

January 1999S2: The standard subsidy in 1999 for each year of employment: 13 yuan per square

metrey: Number of years of employment before housing provident fund was introduced

by the employera: The qualifying standard of housing (in square metres of construction floor space)

which is determined by the office rank only. (For civil servants, for example,60m2 for persons below section head, 70m2 for section heads, 80m2 for deputydepartment heads, 90m2 for department heads, 105m2 for deputy bureau directorsand 120m2 for bureau directors.)

This new policy, once implemented, will have a far-reaching impact on the housingprovision system in Chinese cities. In early 1999, most local authorities were still in a



process of policy consultation and face two difficulties in implementing the new policy.Firstly, in the public sector, particularly for the civil servants, local authorities havedifficulty finding the resources to pay the subsidies. It may be possible for centralgovernment to finance the reform through the central budget for those employed by theministries, but local governments could not afford to do so for their large numbers ofemployees. Secondly, while this reform may be feasible for the government employees, itmay have important implications for the state-owned enterprise sector. Most of theseenterprises have financial problems and they cannot afford these subsidies. The long-termimpacts of these policies can only be assessed at a later date.

Social implications of housing reform

Although these policies were aimed at the whole society, their impact on different socialand economic groups vary (Leaf, 1997). Firstly, it is important to recognize that, althoughhousing reform in China has been referred to as the largest privatization programme thiscentury, it is restricted to urban areas. It has very limited impacts on rural society apartfrom encroaching on large quantities of good agricultural land. It is also almost irrelevantto the large numbers of rural migrants found in the cities. Throughout the reform, urbanand rural registration was maintained with some relaxation in the control of temporarypopulation movement. Although it was still difficult to change residence registration, itbecame possible for rural people to travel to the cities to find short-term work ortemporary jobs (Chan, 1996). However, these people were continuously excluded fromhousing in the public sector and they have not been allowed to purchase subsidizedhousing in most cities. Only in a few large cities (e.g. Shanghai and Guangzhou) werepolicies recently introduced to give migrants official rights of residence, if they bought afully market-priced property. In Beijing, only about 2000 properties were sold to non-Beijing residents in 1998. Those who were allowed to buy were required to go throughdifferent approval and registration procedures before the transaction went ahead. Of these2000 buyers, most were small businesspeople, senior employees in foreign-owned firmsor Chinese citizens returning from overseas (Feng, 1999).

Government statistics show that urban housing conditions improved dramaticallyafter 1978, but this relates only to officially registered urban residents. Rural to urbanmigrants could only find housing in the flourishing private-rental sector and it is notunusual to find several rural migrants crowded into one small rented room in the suburbanareas of large cities. It was estimated that in the mid-1990s there were over 70 millionfarmers ‘floating’ in cities throughout the country (Editors Committee of The Populationof China towards the 21st Century, 1994: 17). Some of them were concentrated inparticular areas in large cities and became a problematic ‘illegal’ community. Theseunofficial urban residents are a source of concern as they could create social instabilityand pose a threat to the process of planned urbanization and modernization in cities. Withthe widening gap between urban and rural incomes, this group is bound to expand in thefuture.

In most cities, housing reform only concerns public-sector employees. It has limiteddirect impacts on people who are traditional homeowners and are not employed by thestate sector. Policies on sales of public housing to sitting tenants, rent increases, subsidiesand employers’ contributions to individuals’ housing provident funds are all irrelevant tomost of these people. In terms of privatization they cannot buy subsidized public housingbecause they do not currently occupy it. Traditional urban homeowners have neverthelessbenefited from economic reform and urban development in other ways. Where they wereinvolved in businesses (restaurants, street corner shops etc.), their income increasedsubstantially. This enabled them to improve their houses through self-building orpurchase from the market at a very high price. Early urban renewal provided them with a



chance to be integrated into the public sector. When the land occupied by their house wasneeded they were usually compensated with a new flat, to rent or buy, near the originallocation. In more recent years, with the economic boom in large cities, urban renewalprogrammes have been carried out on a large scale with central areas redeveloped forcommercial and office premises. When new housing was developed on the site, it wasusually too expensive for the original residents. New large replacement housing estateshave been constructed, at a lower cost, a long way from the older central areas, andformer private homeowners were rehoused in these peripheral locations. This rehousingwithout social integration actually increased social divisions and segregation in Chinesecities. It reduced the social mix which characterized the older neighbourhoods and hascaused frequent complaints and protests. Although relocation improved the immediatephysical living conditions of these people, it left them in a more isolated peripheral socialand economic environment.

The people most affected by housing reform were employers and employees in thepublic sector. Although the objective of housing reform was to improve housingconditions in general, the heart of the reform policy has been a more fundamentaladjustment of social and economic distribution within the public sector. The policy was toshare housing provision costs within the current public sector between the state, workunits and individuals, with a progressive increase in the costs borne by individuals.However, the specific impact of housing reform depends upon individuals’ currentsituations. Under the old system, people employed by the public sector waited in thehousing queue and improved their housing conditions step by step. With privatization,what housing people were in at the time of the reform was crucial. People in good qualityapartments would gradually secure their position in those apartments. They would obtainthe use rights to their house through subsidized purchase and become homeowners.People who were seeking to enter the housing system for the first time would increasinglyhave to obtain housing through the market, with or without subsidy. People employed inwork units which have not been performing well, and have not invested substantially inhousing, were more likely to live in poorer quality housing. People who have sufferedunder the old system will not find their circumstances changed under the new one. To thisextent the housing reform will reinforce existing inequalities within China. The economicreforms are likely to generate increased inequalities of income. For those in successfulparts of the economy, newly built commercial housing will be available at market orsubsidized prices. Table 2 summarizes the effects of reform policies on different groups.

Commentators on housing privatization in eastern Europe have indicated thatprivatization involved an exchange of social status achieved during the communist era fora real property asset (Struyk, 1996b). This could also be true in the Chinese case, but thenature of the asset and restrictions on its sale are crucial. For most people theopportunities to purchase are restricted to the property currently occupied. This is aconsequence of the previous distribution system which was based on merit and socialstatus. Those who benefited under the previous distribution system will also benefit mostfrom privatization. For those who are in good housing it presents no problem, but thosewho are at an earlier stage in their work careers, and who could have anticipatedprogressing to better quality housing, find that opportunity closed down. The pragmaticapproach adopted in China has meant that in some cases provision is made to overcomethis problem. Even after housing privatization, someone who has been promoted to ahigher post and would have been entitled to a larger dwelling may be able to return theflat that they had purchased to the authority or work unit and purchase a new and biggerhouse with an increase in their expenditure but also in subsidy.

It is important to recognize the complexities of the changing role of work units. Withthe increase in the retired population in China, every major work unit owned by thegovernment supports an increasing number of pensioners. As well as providing housingfor current and new employees they have continuing obligations towards retired persons.



Table 2 Major current housing reform policies and their implications for different urban social and economic groups

Major housing reform policies: 1994–99

Social/economic groups Compulsory savings Rent increases Sales of public Affordable housing Issue of housing New social rental(Provident Funds) in the public sector housing (anju projects) subsidy housing

Cadres Applicable and Some impacts but Subsidized sale Lower rank Those with no Retired, beingsecured compensated by price for the best overcrowded families housing or under laid-off, or other

Party organization,salary increases housing brought only: subsidized sale provision are the low-income

Administration &major benefits price major targets for families (very few)

Public institutionsubsidy

General service Applicable and Same as above Subsidized price, Same principles as Same as above, but Same as above, butstaff secured but less desirable above apply, but smaller amount of could be many

State houses to buy limited space allocation subsidySector

Managers Applicable and Same as above Subsidized sale Similar to cadres but Same as cadres Same as abovesecured for most price for the best depends on enterpriseof them housing brought performance.

Industrial major benefitsenterprises

Workers Applicable, but Major impacts for Subsidized price, Very limited subsidy Depends on enterprise Main targetdepends on the those facing but less desirable and choice, usually performance, butperformance of unemployment houses to buy at market price. large subsidy unlikelyenterprise

Collective Sector Applicable, but Applicable to the senior managers and Buy at market price or No policy yet, Applicabledepends on the not relevant to most employees sincesubsidized by employersunlikely subsidy willperformance of they had not been allocated houses (for managers only) be availableenterprise previously.

New Private Business Sector Applicable, higher Not relevant Not relevant Buy at market price or Not relevant Applicablerate for some subsidized by employers

(for managers only)

Informal Traditional Sector, or Not relevant Not relevant Not relevant Buy at market price or Not relevant ApplicableSelf-employed as compensation for

original house;peripheral location

Temporary Workers (Rural Migrants) Not relevant Not relevant Not relevant Not allowed to buy; Not relevant No provisionand most can’t affordto buy

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The better quality houses in their residential areas are often occupied by retired (ratherthan current) employees and the proportion of elderly residents is increasing. The cost ofpensions and housing provision for this group has become a major burden on work units.Separating housing and employment is the only logical option. However, in a period oftransition there will be important readjustments of the relationships between individualsand employers and between individuals, the government and the party. To make the workunit effective and competitive, employers need to retain the best and most energeticworkforce. To do this they need to develop or purchase more housing for distribution. Therelationship between work and housing has not been broken. It was common practice touse public housing to attract high-quality employees, particularly in the administrationand professional sectors. For these work units, housing privatization and reform was not aone-off exercise, but a continuous process of building/buying and privatization.Theoretically, housing reform would involve a fundamental social reorganization ofurban society. However, the reform has involved economic reorganization rather thandramatic social and political changes. It could also be argued that, contrary to somereformers’ wishes, while economic reform will lead to social and political changes,housing reform will actually re-reinforce the current political and social system. Thereform process consolidates advantages associated with the current system. The leadersand professionals, who already enjoy better housing, benefit most from privatization.General employees and manual workers who were not properly housed before will not behoused properly in the future. The most recent policy initiative of stopping materialdistribution only cut the physical and management linkage between housing andemployment, but not the economic linkage. The cadres’ current and future housinginterests are well protected through the introduction of housing subsidy.

The policy of development of affordable housing could have a wide impact on theurban poor, but close examination reveals that it has limitations. Affordable housing willnot be available to most rural migrants to the cities. To have access to such housing, onemust be an official resident of the city and must have a stable job. As the definitionindicates, this subsidized housing was intended for the ‘low- and middle-income’ groups,and this mainly relates to the general workforce in the public sector and particularly those,such as teachers, employed by non-profit making establishments. From 1999, public-sector employees will see this as the key source of housing rather than acquiring readybuilt housing from their employers. The employers’ responsibilities will entail issuinghousing subsidies to those who meet the conditions for housing allocation in the oldsystem. This housing was developed for sale by commercial companies, but unemployedpeople and those with income from sources other than formal employment were not thetarget group. Their influence is limited and their importance very much less than teachers,whose support the government could not afford to lose.

Leaving this aside, the social effects of the privatization and the separation of workand housing are likely to be significant. As government and employers relax theirresponsibilities in relation to the provision of housing, they also relax key ways in whichthey exercise control over employees and citizens. For the government and theCommunist Party, control of the urban population will become more difficult in the shortterm. In the longer term, the population will change from one of proletarians and socialistworkers into petty bourgeois and property owners. What impact this will have on thegovernment is difficult to foresee. A key element is likely to be how far governmentemployees still identify their best interests with the Communist Party and thegovernment, and how far the privileged positions which have been secured throughhousing reform and other processes will lead such employees to continue to identify withthe government and the Communist Party. Housing reform, along with the wider processof economic reform, involves important changes in the structure of society, the state andthe Communist Party. We can expect the huge financial subsidies to the core employeesof the public sector introduced by the 1998 policies to have reinforced the financial



linkages between the government, the party and the civil service. This has led someChinese commentators to believe that the 1998 policies actually represent a backwardstep on the road to the type of housing market found in market economies.

Spatial implications of reform

The development of a socialist economy in China between 1949 and 1990 changed theurban landscape in many large cities and produced a particular spatial pattern. It led to theupgrading of parts of the original areas in the old historic city centres and thedevelopment of work-unit zones beyond this. Before economic reform, or, moreprecisely, before the commercial property boom of the early 1990s, a general land-usepattern could be identified in most large cities. In the historical core of the city there waspublic and private mixed with poor quality single-storey housing dominating thelandscape and modern state-owned shops and offices along the main street. There wasthen a ring of work units of public institutions and their related housing estates. In a finalsuburban zone there was a ring of work units engaged in different industrial activities,with the remnants of the original rural settlements in between them.

Patterns of spatial segregation in Chinese cities are linked to a differentiation betweenland-use zones and between different work units with a considerable degree of social mixwithin work units. To some extent, each work unit existed as an independent small townwithin the city. They could be educational, industrial or cultural. In Xian City (a majorindustrial city since 1953), for example, particular land-use zones can be identified ineach suburb: an electronic industrial suburb in the west, an educational and culturalsuburb in the south, a manufacturing industrial suburb in the east and a textile district inthe far east (Wang and Hague, 1992). Under the planned economy, social equality withineach of these districts was considerable, although the differences between them weredramatic. Because certain types of work units, especially those with governmentemployees, were better paid and had higher status, some of the segregation between workunits resembles the social segregation more familiar in the West. However, as a wholethis system produced a different pattern from that in the West. The image of housingwithin work units is that the driver of the director of the unit could well live in the sameblock of flats as the person he drove, and certainly they would live in neighbouringdwellings. They would have occupied different sizes of flats but they were not segregatedspatially. The spatial divisions related to occupational and industrial and administrativedifferences, which divided work places from one another. Within these work places thesocial mix was considerable.

This is a very different pattern, either from that produced by a market system inwhich segregation relates to affordability, or that associated with public and socialhousing in western European economies, based on a redistributive welfare state.Households whose status changed within the work unit moved to a larger flatcommensurate with their new status, but they would move within the same compoundand they would still pay similar rents. The degree of social mix was retained. The sharpestsocial distinctions were that those in administrative or government employment did notlive alongside those employed in industry or different kinds of production enterprises.This discussion indicates a very general pattern of large Chinese cities. Variations doexist between coastal and inland, large and small, and old and new cities.

Because of this particular land-use pattern, housing reform policies in China arelikely to have important spatial implications. The effects on different areas will bedifferent. For example, the sale of public-sector housing will only affect areas where largework-unit housing estates are located; changes in rent and subsidies will have the mosteffect where dormitories or other housing not suitable for privatization exist; theaffordable housing programme and commercial housing development will create new



areas of housing (in different areas of the city) and house groups whose income and statusis similar to that of their neighbours. The affordable housing programme will especiallycater for people from non-profit organizations, people who work in small work unitswhich do not have a purpose-built housing estate for their employees, and people whowork in the private sector. Reform policies will have different effects on the socialistwork-unit zones than on the central areas and the older rural communities which havebeen absorbed into the built-up areas. The current features of each of these areas and thepossible future prospects are discussed and presented in Table 3.

The process of urban renewal and the displacement of population is importantbecause it involves breaking up the mixed areas in the centre of cities which were stillassociated with pre-revolution patterns of building and allocation of housing. Whilepeople moving from these areas to large peripheral estates have experienced aconsiderable increase in housing quality, their access to the facilities and services ofthe centre of the city has been reduced and the social mix of the older central cityneighbourhoods has been lost. The property development in the central areas has moreclosely integrated old towns into the new economic system. More commercial activitiesand office works have been developed, while the limited number of new housing unitsbuilt in central areas are occupied by a different social class from the traditional ‘littlecitizens’. The peripheral estates built for the displaced population in the far suburbanareas will require new employment opportunities which are not always available. Theyalso lack the old established social and kinship networks. They may become western-styledeprived housing schemes which will require economic regeneration in the near future. Inthis sense, the new land-use pattern emerging in Chinese cities, and particularly the core-periphery differences, will be more similar to the pattern in western cities.

Commercial housing development organized by the public and private sectors hasimportant effects on the land-use pattern related to work units. With the increasedcompetition for urban land and the increase in work-unit employment, the closerelationship between housing and work will be changed. The ending of materialdistribution will have far-reaching impacts on this relationship. One of the objectives ofthe housing reform is to separate housing from production activities, but the spatialdimension of this has not been addressed. The weakening of housing-work links has beenapparent even without the main housing reform. Large work units without housing landand small work units which cannot afford house building can buy commercial housing,usually block by block, for distribution to their employees. The financial relationshipbetween employer and employee has remained in these cases, while the spatialrelationship has been broken. The new commercially built housing estates have becomemixed communities with tenants from several work units. Privatization of older housingmay lead to the development of local communities independent from the workplace.However, the extent of this change should not be overstated. Most of those who havebought housing have bought it in the work unit and they will continue to live in thathousing for the rest of their lives. Even if they wish to move, and even if there was amarket which would enable them to move, in most cases they have not purchased the fullproperty right but merely the user right. Consequently, they are not able to sell theproperty on the open market. It will take a long time for the privatized public sector to beabsorbed into the market sector.

Commercial housing development has produced houses of very different standards.The most popular designs consist of multi-storey buildings of 4 to 6 floors and a limitednumber of high-rise tower blocks. The government has encouraged the development ofthis type of housing and the affordable housing (anju projects) fell into this category.However, in most large cities some high-standard cottage houses have also beendeveloped for rich and powerful families. The quality and construction costs of thesecottages were very different from other housing and some of these are very expensiveapartments. Tenants and purchasers are selected on the basis of individual purchasing



Table 3 Spatial impacts of housing reform

Land-use Housing Current characteristics Future prospectszone type/areas

Public Independent buildings or parts of commercial/office blocks built as a result of past renewalprocess; occupied mainly by senior officials

Centraland professionals.

Private Traditional private homes owned mainly bysmall family businesses. Simple structure andlack of basic amenities.

Urban renewal means a reorganization of the central area; the existing tenants in properlybuilt public-sector housing will buy and stay and the property will be privatized; thetraditional private housing will be demolished and most of the original residents will berelocated to new peripheral housing estates; some wealthy residents may manage to stay andthey will be joined by the new public-sector residents who will purchase their housing onceit is allocated to them. The central area will be inhabited by a more homogeneous high-status population closely associated either with the government or private capital.

Private Remains of traditional villages brought intourban areas under the planned economy;similar structure to private housing in thecentral area but lower density.

The residents in these areas will face a similar situation to those in central private housing;however because of the stronger local community identity and traditional villageorganization, they will be able to remain in their original location but with some pressure toredevelop with high-rise, high-density building.

Institutional Various size of housing estates developed bypublic-sector institutions for their employees.

Intermediate

Internal redevelopment and renewal would increase the density of these areas; governmentsupport will sustain the building and privatization process; residents will be the mainbeneficiary group converting the social status achieved in work into a real asset, particularlyin the government and administrative sectors.

Enterprise Housing estates developed and maintained bystate-owned enterprises.

Most of the traditional industrial workers will be the losers of the reform because of the poorperformance of their enterprise in the restructuring process; the main pressure on them willnot come directly from housing but from declining income; traditional workshops might belost in the transition and the relationship between housing and work may be weakened; thesehousing estates are likely to be the first to show signs of deprivation in the new Chineseurban society.

Traditional Traditional agricultural communities whichvillages lost part or all of their farming land to the

property development.

Facing a similar future in housing terms as the intermediate zone; but may gain short termsubstantial financial benefits from the release of agricultural land under their control; theycould integrate into the urban economy using their compensation as capital. They may alsoimprove their housing through rebuilding, but without the necessary technical support thequality of their new house will be a problem.

PeripheralCommercial: New housing estates built with governmentaffordable subsidy and support and distributed to various

work units or sold to low- and middle-incomegroups.

There are two types of estate: those with links to work units and independent estates. Theformer will be more viable because of the guaranteed income for the residents. The latterwill be likely to face more social and economic problems.

Commercial: New commercial housing built by public and privateexpensive property developers for rich families emerging as a

result of the economic reform.

This will be the showpiece for each urban authority and will have limited impacts onordinary residents’ lives. These areas will be exclusive and restricted to the wealthy.

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power or their employers’ purchasing power. The privatization programme of the 1990swill create more privileged homeowners in cities and towns. They are the new urbanclass, with better job security and higher incomes, and their homes are located well awayfrom the old private sector (see Table 4).

These changes, as well as the urban renewal programmes which have moved peoplefrom central districts to peripheral areas, have resulted in new patterns of socialsegregation and division. The reform will create new social divisions and newly dividedcities. It will eventually involve changing the structure of communities and cities fromone which is work-based to one which is residence-based. The pace at which this changetakes place will speed up from 1999 when direct housing distribution is finally ended, butwill be affected by existing institutional ownership and the pattern of privatization. AsFigure 1 indicates, there are three distinctive land-use zones in large Chinese cities. Thecentral area is the legacy of the old self-sufficient economy and has undergone newchanges under the new market economy. The intermediate work-unit ring is the legacy ofthe socialist planned economy. The outer ring of housing estates and related facilities isthe direct product of the new market economy. In both economic and land use terms,there is pressure from the inside and outside on the intermediate ring, particularly the oldindustrial factory areas because of their important location. This development pattern isalso related to the general industrial restructuring occurring in China. The figure alsoindicates the long process of reform in China. The new market system will not becompletely established until the intermediate ring has been absorbed into the central andperipheral rings. Only then will there be more similarities between Chinese cities andcities in other market economies.

Conclusion

Although privatization and housing reform have been widespread across the world sincethe beginning of the 1980s, these policies have been implemented differently in different

Table 4 Design standard of residential scheme: a comparison of two estates in Beijing

Enjili Purple Jade

Total land use: hectare 9.95 66.67Type of housing Official affordable housing Commercial villas (detached or

Multi-storey tenements or tower semi-detached)blocks

Total housing units 1885 Around 400Flat/House size: m2 61 170–500Materials used Ordinary SpecialFacilities

School Yes NoHealth centre Yes YesChildren’s playground Yes YesPrivate car park space No YesCentral lake No YesTennis courts No YesPrivate gardens No YesOpen spaces in the scheme Yes, small Yes, very large

Price Price at 1995: Price at 1997:Per flat/house US $30,000–$46,000 US $426,000–$1,800,000Per m2 of floor space US $500–$750 US $2,300–$3,660

Sources: Promotional and sales information collected during field work in 1995 and 1997.



cultural and political systems and have produced very different results. The process ofchange reflects the legacy of the past and continuities with previous systems. This articleshows that housing reform in China shares some common features with the transitioneconomies of eastern Europe. Housing privatization provides some with valuablefinancial, property and other assets, while others lose out. Economic and housing reformhas resulted in a social and spatial reorganization of cities and the widening of the gapbetween the poor and the rich. This article also shows some distinctive features of theChinese housing reform and its social and spatial implications. Although housing reformhas brought significant changes to the housing provision system and improved many urbanresidents’ living standards, it has not entirely broken the traditional system. The reformhas yet to break through the old institutional framework and to fully develop a commercialhousing market independent of work units. Reform has to a large extent been carried outwithin work units. Nevertheless, housing reform has had very different impacts ondifferent social and economic groups, with the leaders, managers and professionals in thepublic sector benefiting most and industrial workers gaining less. In this sense, housingreform in China has sustained former patterns of benefit. This also confirms the consensusthat market reform has been a partial reform, preserving some features of socialism andparticularly the advantages of many members of the old political class (Gaubatz, 1995;1996; Zhou and Logan, 1996). The partial system involves more private ownership but has

Figure 1 Spatial impacts of housing reform in Chinese cities



not yet created a substantial secondary market or market exchange. And because manypurchasers have not initially bought a right (property right) which enables them to sell onthe open market, such a secondary market will be slow to emerge.

Spatial impacts have varied, with considerable differentiation between the old andnew and between the rich and the poor areas. However, Chinese housing provision willcontinue to be influenced by the way in which it has been established and the socialcontext in which it operates. China’s starting point in terms of spatial and socialsegregation is a very different one from either western cities or the socialist cities ofeastern Europe. Although many of the pressures and changes have begun to producepatterns similar to those in western cities, it will take a very long time before distinctiveelements and the legacy of past patterns of residence are eliminated. Chinese cities arelikely to retain elements of past arrangements. The longer term objective of Chinesehousing reform is to introduce a market system. As China moves towards that goal, manyof the features of western cities will emerge. However, for the next twenty or more years,we are likely to see cities which show evidence both of the past system and of a slowdevelopment of market processes. The reform of Chinese housing will slowly begin tobreak the links between employment and residence, and in some cases this will mean thatthose households with the least choice will begin to be concentrated, irrespective of theirplace of work. For example, they will be likely to be housed in the less desirableperipheral areas of cities, where low-profit housing is cheaper and where newdevelopments aimed at households with difficulties are concentrated. Governmentworkers and core groups in the economy are more likely to remain in higher status zones,perhaps previously associated with government employment, or with higher prices incommercial production. The significance of the changes embodied in housing reform maybe less about the language of markets than about changes in spatial patterns associatedwith the break between the historic role of the public sector in linking production andconsumption in the same place.

Ya Ping Wang ([email protected]), School of Planning and Housing, EdinburghCollege of Art/Heriot-Watt University, Grassmarket Campus, 79 Grassmarket, EdinburghEH1 2HJ, UK andAlan Murie ([email protected]) Centre for Urban andRegional Studies (CURS), The University of Birmingham, Edgbaston, Birmingham B152TT, UK.

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Documents

Social and Spatial Implications of Housing Reform in China