Can China's workers keep up with China's real estate boom?

In Chinese cities with a real estate boom, workers' wages are high, but so are their mortgage payments.

Eugene Hoshiko/AP
Scavengers carried bricks from demolished old houses at a construction site last week in Shanghai. China's urban real estate boom is squeezing many Chinese workers.

Does urban infrastructure such as new airports cause urban growth? China is running an interesting "natural experiment" in cities such as Libo (a city of about 166,000 in a mountainous region in Guizhou, one of the poorest provinces in China) Source . In Libo, China has unveiled a $57-million airport opened in late 2007.

"Local officials were so confident that tourists would flock to this beautiful, mountainous county in southwestern China that they made the terminal big enough to accommodate 220,000 passengers annually, and built a runway capable of handling a 140-seat Boeing 737." The LA Times says that as of right now that nobody is using this airline but will this infrastructure attract employers to cluster nearby and then if people follow jobs then you have the start of a dynamic "chain reaction" and a new vibrant city.

Switching to the New York Times, there is a long article today probing the deep thoughts of Han Han. Mr. Han is a handsome race car driver and a blogger. So we share 1/3 attributes. While I usually do not turn to such drivers for wisdom, he did say one smart thing;

"Once viewed by critics as petulant and self-consciously rebellious, Mr. Han has moved beyond ad hominem attacks on poets, pop stars and fellow bloggers. These days his attention is largely drawn to society’s deeper problems: a surge in nationalism; the lackluster quality of contemporary culture; and the albatross of sky-high real-estate prices that keep China’s nascent middle-class in a constant state of anxiety.

He blames the high prices on local officials, who sell off land to the highest bidder in an effort to finance public works and pump up the double-digit economic growth figures that keep Beijing happy. High property values, he adds, also pay for all those dinners and fancy gifts that seem to be the birthright of officialdom.

The grim result is a country of young professionals so overworked and distracted by mortgage payments that they have no time to care about what ails China. “The government is happy to see prices go up, people are forced to buy property they can’t afford and they end up living in fear.” Then he smiles and adds, “It’s a perfect situation, right?”"

This quote nicely summs up the Real Wage issue in China's major cities. Yes, nominal wages in big cities are high but when you deflate by real estate prices in such cities --- is the standard of living that high? Your answer hinges on whether high real estate prices are driven by quality of life fundamentals (i.e Beijing is a great place to live) or due to artificial government land use regulation barriers (building height restrictions).

The market test of this claim is whether the skilled continue to move to the high rent cities or whether the next Chinese Google does seek to locate in a cheap city such as "Libo" that offers an underutilized airport and cheap land. In a system of cities, the "cheap" cities can compete against the superstar cities and this will impose discipline on the big city politicians to take actions to continue to attract and retain the skilled.

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