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China economy

Welcome to the Chinese city of Tianjin: where the housing glut can build you a better future

Applicants rush in as debt-ridden city appeals to skilled young workers with homebuying dreams

PUBLISHED : Friday, 15 June, 2018, 11:32am
UPDATED : Friday, 15 June, 2018, 9:40pm

When Liu Yanjun, a 28-year-old IT engineer in Beijing, learned that a nearby city was wooing talent by granting permanent residence to anyone under 40 with a college degree, he rushed to apply.

Tianjin, a city of 16 million people and one of China’s four municipalities, surprised the country when it joined the nationwide race to attract skilled workers by relaxing the rigid household registration system, a shift that could redefine China’s future economic and social landscape.

While Chinese provincial capitals from Xian to Wuhan have opened their arms to young domestic migrants, Tianjin’s move was unexpected because the city has national significance, and there is huge demand for residency because of its benefits – for instance, the odds of a Tianjin student getting in to a top-notch Chinese university are the highest in the country.

Within 24 hours of the city announcing its new policies on May 16, more than 300,000 people – about the population of Pittsburgh, Pennsylvania – submitted applications through a government service app for permanent residence, according to Tianjin’s local media.

When demand crashed the online system, many, including Liu, rushed to Tianjin in the following days to stand in long lines at government offices to hand in their paperwork.

For more than five hours, he stood in the heat with hundreds of applicants in the zigzag queue at the Tianjin Hexi Administrative Centre, then got a three-minute chance with a city officer to preview his qualifications for residence.

Liu has worked in Beijing for 3½ years but is still considered “unqualified” to buy property, and his odds of obtaining a Beijing residence, known as a hukou, is small given the Chinese capital’s rigid control of new immigrants. Without a hukou, the unmarried young man will face a slew of troubles in Beijing, including getting children into a local school and receiving a Beijing pension.

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But he has no plans to return to his hometown in Heilongjiang province, where income levels are lower and jobs fewer than in Beijing. So when Tianjin, which is only 40 minutes from Beijing via high-speed train, said it would open its doors, Liu jumped at the chance.

If his residence application is approved, Liu will immediately qualify to buy a flat.

“Ideally I hope to buy properties in both cities, one for work in Beijing and one here for parents to live or children to study,” he said.

While Liu said he had no plans to quit his Beijing job – Tianjin is a port city with few hi-tech firms – his plan to obtain residence and then buy a flat is badly needed by Tianjin, whose old growth model of relying on state-led capital spending is running out of steam.

The city, once a model of growth in China, is grappling with an economic downturn. Tianjin’s regional economy grew only 3.6 per cent in 2017, the slowest among the country’s 31 provinces, and the city’s growth rate slowed even more, to 1.8 per cent, in the first quarter of 2018.

Binhai New Area, a pride of Tianjin that only a decade ago was boasting of becoming China’s answer to Manhattan, said early this year that its economic size was actually one-third smaller than the official numbers.

The city’s overall fiscal revenues shrank 15 per cent in 2017, while nationwide they rose 7.4 per cent. Cargo going through the Port of Tianjin dropped 8.7 per cent last year, while fixed-asset investment increased only 0.5 per cent versus the national growth of 7.2 per cent.

And amid the downturn, people are leaving.

Last year, Tianjin reported its first drop in registered population in decades. The total – defined as permanent residents as well as migrant workers who had lived there for over six months – fell by 52,500 as many migrant workers moved away.

Chinese cities, which once kept a strict threshold for accepting new migrants for fear of an influx of people, have woken up to China’s demographic reality that the population is quickly greying, the urbanisation process is slowing, and the pool of young migrants is shrinking.

Chinese municipal authorities are also putting hopes on new migrants to support housing prices. Residential real estate markets are the nexus for China’s urban economy – local governments need them to boom for fiscal revenues.

In Tianjin, it’s an open secret that the new policy to welcome migrants is aimed at shoring up the property market and, indirectly, the local government’s coffers.

“Tianjin’s industries are turning down and the population is ageing, so the government decides to use hukou relaxation as a tool [to support the local economy],” said an agent, surnamed Zhang, who helps prospective Tianjin residents submit applications.

“Many people just hope to take advantage of Tianjin’s excellent school system or to get qualification for property investment here ... not many are really willing to work here.”

The volume of residential property sold in Tianjin the first four months of this year dropped 49.7 per cent to 2.7 million square metres, but new starts were up by more than a quarter from a year earlier to 9.9 million square metres, according to data from the Tianjin Municipal Bureau of Statistics.

The price of second-hand residential property in the city rose 1.3 per cent in May from a year earlier, compared with a 0.6 per cent fall in April, according to data from the National Bureau of Statistics on Friday.

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The government’s policy of opening doors to professionals had an immediate impact on local housing prices. A review of data posted on real estate information service Fang.com showed that asking prices of property in Tianjin increased in the three weeks after the policy was announced. One property project named Sunrise Apartments in Wuqing, close to the Beijing-Tianjin border, saw prices jump 45 per cent in the last month.

Developers and agents in Tianjin regard the new policy as a stimulus for their business.

“You need to buy a flat to enjoy local welfare such as schooling,” said property agent Li Aijun, who has recently booked tours with dozens of applicants. Another salesperson, Wang Ke, who was distributing property leaflets to residence seekers at the government office, tried to invite the applicants to visit a development still under construction.

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But Iris Pang, chief economist for Greater China at ING Bank, said the city could not rely on real estate to solve its economic and financial problems.

“Property can be an effective painkiller, but it can’t save a life,” Pang said.

She said a booming housing market could hide deep-rooted problems, such as excessive debt, weak corporate profitability and state sector inefficiency, and could delay substantial changes to the economic structure.

“When tens of thousands of talents are introduced, it should consider carefully what industries the city needs to develop and have advantages in,” she said.

Li Qing, a talent policy researcher with the Centre for China and Globalisation, a Beijing-based think tank, said the municipality had great advantages to lure more professionals from the capital city, such as lower living costs and property prices.

“[But] it’s more important to create an environment for them to settle down, give play to their knowledge and make their contributions,” Li said.

From a national viewpoint, cities’ competition for people and their homebuying funds won’t help the country’s growth. But from a local perspective, such competition – and new residents’ spending – gives cities a much-needed way to bolster their economies, especially in places like Tianjin.

“Tianjin has been falling behind booming cities in the Yangtze or Pearl River deltas for the last couple of years,” said Huang Zhilong, a senior researcher with the Suning Institute of Finance.

Heavy borrowing has made Tianjin particularly vulnerable to changes in monetary conditions. “Many state firms and local government financing vehicles can hardly borrow money to repay old debt,” Huang said.

It has the mainland’s most deeply indebted city government, with debt from its local state-owned enterprises amounting to 700 per cent of fiscal income, according to a 2017 report by the credit rating agency Moody’s.

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Signs of economic stress are visible. Bohai Steel Group, one of Tianjin’s biggest industrial enterprises, reported trouble repaying nearly 200 billion yuan (US$31 billion) in debt in 2016, and Tianjin Municipal Development and Tianjin Real Estate Group were on brink of bond defaults in April. The property developer, which owes 180 billion yuan (US$28 billion), or 85 per cent of its assets, narrowly missed a last-minute default.

Liu Yong, a senior researcher with the Development Research Centre under the State Council, said northern Chinese cities such as Tianjin faced problems similar to those of the rust-belt provinces when old growth engines stopped working and a new dynamic was absent.

For Liu, the applicant whose white T-shirt was drenched in sweat after long hours of standing in line, the first step is to attain residency, and he felt fortunate to be admitted for a second-round interview.

After all, among the 300,000 applicants in the first 24 hours, only 5,800 permits were actually granted.