Private schools distorted China’s real estate market and thwarted Xi Jinping’s egalitarian pursuit

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Officials in the stagnant economy in central China have come up with a new way to boost the local real estate market: developers-funded schools that have a reputation for allowing students to enter China’s top universities.

Despite the central government’s recent attempts to control runaway real estate prices and China’s booming development, real estate sales in Hengshui City, Hebei Province, with a population of 4.3 million, are still soaring Private education sector.

“I have completed more transactions in the past two months than in the previous two years combined,” said Li Hongning, a real estate agent in downtown Hengshui. “Customers are willing to pay additional fees to complete the transaction as quickly as possible.”

Xi Jinping is determined to deliver “Common prosperity“One of the most unequal societies in the world depends to a large extent on his government’s ability to control China’s runaway real estate market. This Chairman of China After cracking down on expensive private tutoring services last month, they also promised equal access to education.

But the extent to which good schools continue to distort the national real estate market shows that even China’s strongest leader in decades will find it difficult to overcome market forces and local government interests that hinder them from achieving egalitarian goals.

“Beijing may be dissatisfied with the Hengshui model because it created a real estate bubble and exacerbated education inequality,” said Wang Dan, an economist at Shanghai Hang Seng Bank. “But local governments are keen to use this approach to boost the economy.”

Chinese President Xi Jinping often complains that it has little effect on runaway real estate prices © Leo Ramirez/AFP via Getty

Chinese real estate developers, led by industry leaders such as Vanke and Country Garden, have a tradition of building high-quality private schools near residential projects to increase the latter’s appeal to home buyers.

Boshi Education Holdings, a New York-listed subsidiary of Country Garden, has developed into one of the largest private school networks in the United States, with more than 57,000 students.

Hengshui is no exception. The quality of private schools here has long attracted parents to the city. Most of them are funded by real estate developers and are known for their academic excellence.

Average house prices in the city have more than doubled in the past five years, while house prices in neighboring cities have risen by only 20% during the same period.

The sales boom is due to government regulations restricting school places to the owners’ children. This requirement runs counter to the central government’s policy aimed at reducing barriers to education and other social services in urban areas.

“Education in Hengshui is better than elsewhere in Hebei,” said Wang Xiaona, an office worker from Shijiazhuang, the provincial capital. “As long as I can help my child get into a good school, I can buy an overpriced house.”

This month, Ms. Wang spent 310,000 RMB (US$48,000) to purchase a one-bedroom apartment, which will allow her son to enter a first-rate middle school owned by one of Hengshui’s largest real estate developers. Before the introduction of residential requirements, the price of the apartment was RMB 280,000.

“Our economy is booming due to the influx of students, which benefits everyone from grocery stores to real estate developers,” said a Hengshui government official who asked not to be named.

However, Xi Jinping often complains about out-of-control housing prices, saying that “the house is for living, not for speculation.”

Ten years ago, when Hengshui first outlined plans to expand its overcrowded school system, the city government, which was short of funds, had no choice but to seek funding from wealthy business owners.

Real estate developers quickly agreed, betting that well-managed private schools will push up local housing prices and become a profit center by virtue of their own advantages.

“The local government needs us to build good schools to boost the economy,” said a real estate executive in Hengshui. “They can’t do this on their own. It’s a win-win for us and the local government.”

Due to the higher-than-average salary of highly qualified teachers and the strict curriculum, private schools in Hengshui now produce students with excellent test scores. In 2019, among the top 100 college entrance examinations in Hebei Province, 61 were among the city’s first high schools owned by local developers.

“Give us an ordinary student, and we will give you a Peking University freshman,” said an official at Hengshui No. 1 Middle School, referring to one of the top universities in China.

Hengshui is now exporting its education-led growth model to the country. In recent years, Hengshui developers have opened schools in more than a dozen cities, most of which are still underdeveloped.

Zhang Fuqian, a Hengshui developer and head of Taocheng Middle School, opened a campus with 15,000 students in Bin County, a rural county in northeastern Heilongjiang Province.

“this [local] The government said that if I don’t go there to open a good school, the population and local housing prices will drop rapidly,” Zhang said at a meeting last month, referring to the downturn and population exodus in Heilongjiang and nearby real estate markets. Jilin, Liaoning Two provinces.

The Governor of Bin County, Zhao Hongchen, stated in April that the new Taocheng campus will “greatly meet educational needs and promote economic development.”

Others, such as Pan Guilan, a Binxian mother whose son did not enter the new school, are even more skeptical. She is now worried that her son will be left behind.

“It is unfair for outsiders to steal our educational resources,” Pan said.

Additional reporting by Tom Mitchell in Singapore and Liu Xinning in Beijing

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