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The Change-up: The Emergence of the Real Estate Sector in Urban China, 1978-2004


This dissertation analyzes the political economy of the real estate sector in China since its post-1978 creation. During Mao's socialist era, the nation had no real estate sector. Only with economic reforms in 1978 and the production of commodity housing in the 1980's did a real estate sector come into being. This study asks two questions in particular: How did the major metropolitan centers on the eastern seaboards of China manage to accomplish monumental amounts of infrastructural and urban development in the short span of thirty years? Second, what was the role of the state--at the central level and at the local level--that enabled the construction of this industry, capital accumulation and development?

The analytical construct of the developmental state is used as a useful starting point. As is widely known, critical resources in the form of land, large project opportunities, financing options and permits in Chinese real estate are in local state control. The presence of the state looms large in Chinese real estate. To finesse how this construct fits and does not fit the situation in Chinese real estate provides analytical leverage.

Although the high levels of central and local state involvement in the real estate sector is undisputed, I argue instead that one of the core characteristics of the developmental state - i.e., an institutionally cohesive bureaucracy - was widely missing whether at the local level or at the central level. This was true despite the accepted wisdom that an effective and independent bureaucracy is critical for industrial transformation, let alone its creation.

Instead, within the post-reform real estate sector, central policymakers planted and activated a new set of "game rules" that structured the delivery of urgently needed urban infrastructure and residential building construction. It did so by putting in place three critical reform elements: (i) commodifying urban land use rights (LURs), which had been administratively allocated for free and in perpetuity according to central economic plans prior to the constitutional amendment of 1988; (ii) valorizing the critical importance of economic and infrastructural growth by inserting such achievements into the professional criteria for political promotions of provincial, prefectural and municipal-level leaders; and (iii) allowing the revenues from land use rights (LUR) sales to go directly into the extrabudgetary reserves of local governments at a time when budget constraints were hardening. In other words, I argue that the new political economy of land usage and real estate development put in place an entrepreneurial local state structure. The incentive structures for local state agents is directly tied to promoting economic growth; and municipal governments have a direct financial stake in generating governmental income through urban LUR sales and commercial real estate development. Concomitantly, real estate developers increasingly populated the field throughout the 1990's, attracted by increasing profits. The entrepreneurial interdependence of local government leaders and property developers who are both looking to capitalize on real estate-generated profits centrally characterize the dynamics of this field.

In the absence of full marketization of key resources such as land and capital, furthermore, which remain under local government control and influence, the real estate firms themselves work to stabilize their access to resource dependencies. Real estate firms manage, nurture, maintain and coddle their relationships with local government officials even as they try to compete in the marketplace and branch forth into larger operations. This relational "maintenance work" has been accomplished via three dominant mechanisms: (i) corruption and bribery at the individual level; (ii) quid-pro-quo behavior of building of infrastructure or public buildings and public works in return for land allocations, tax breaks and commercial opportunities; and (iii) founders' long-standing relationships with state officials who have access to profitable opportunities and/or land; or through their history as red capitalists entailing generative periods of state employment.

This entrepreneurial state model of development provides an additional developmental path distinct from either the Anglo-Saxon "market-led" form or the East Asian developmental "state-led" form of economic development. In the entrepreneurial state model, the state is, in fact, a market actor driven to pursue its own profits as though it, too, were a business agent. In the developmental state typology, state officials plan and intercede in the market indirectly via the centralized administrative apparatus, coordinating projects, investing in hard and soft infrastructure, promoting business and creating an environment conducive to economic vitality. But it is the enterprises themselves that engage in the entrepreneurial activity. Direct profit goes to the entrepreneurs rather than to the developmental state; and the state plays a more coordinative and promotional role than in the case of the entrepreneurial state. In the entrepreneurial state model, state agents vie to generate profits that accrue to them either institutionally or personally. The positive incentives flowing from economic development accrue directly to the state actors in question.

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