China Proposes A Fix For Its Crashing Housing Market: "Transplant" 100 Million Farmers Into Its Cities

Tyler Durden's picture

Following China's Central Economic Work Conference which concluded on Monday, and which mapped out China's economic priorities for next year, global markets soared on speculation that China will, once again, unleash some form of stimulus, which in turn sent commodities surging over the past three days even though ironically any incremental injections, monetary or fiscal, will simply force domestic producers - already on the brink of bankruptcy - to produce more, export even more, and accelerate the global deflationary tide which earlier today forced the US to fire the first trade war salvo after the Department Of Commerce announced Chinese steel imports will be taxed at 256%.

What the market once again is missing is that when it comes to China, it is no longer a question whether the PBOC or Beijing will inject a few billion into the economy (which have a "credit impulse" halflife of a few weeks at most) which they may well do, but a question of leverage: with consolidated debt/GDP of over 300% as of the end of this quarter (compared to 282% a year ago), China is now the most levered nation in the world behind Japan, more so than even the US.

Until this leverage comes down substantially, either through defaults or inflation, China will no longer be the world growth dynamo as it was in the early and mid days of the financial crisis, when it had "only" 160% in leverage.

As such it is only natural to fade the market's now traditional bullish misinterpretation of what China tried to convey to the market.

However, one thing that did catch our attention, is that for the first time, China officially admitted not only that it has a major housing bubble in the form of a massive excess inventory overhang, but that unless addressed said bubble could lead to an even greater crash in the economy.

According to the official mouthpiece of the communist party, Xinhua, "China will continue to actively destock its massive property inventory
over concerns that the ailing housing market could derail the economy.

Xinhua adds that along with cutting overcapacity and tackling debt, destocking will be a major task in 2016. This is key because not only does it preclude any speculation about more stimulus, it actually suggests that Beijing is far more focused on the risks emanating from the overindebted economy and thus actually reducing leverage.

It was here that, in a rare moment of rationality and insight, China's political leaders actually made a lot of sense: they admitted that the main reason why China's housing market is moribund is because as a result of the housing bubble which burst in 2014, prices are still too high, and need to come down substantially more!

"Obsolete restrictive measures [in the property market] will be revoked," said the statement, without specifying which "restrictive measures" it was referring to. To rein in house prices, China has been trying to curb real estate speculation, with policies such as "home purchase restriction" that only allows registered residents to buy houses. It is believed the restrictive policies mainly affected the property markets in third- and fourth-tier cities, which saw the most supply glut.

As we have shown before, and as Xinhua adds, "the property market took a downturn in 2014 due to weak demand and a supply glut. This cooling continued into 2015, with sales and prices falling, and investment slowing."

Furthermore, as we have also shown before, when it comes to household wealth, in China real estate is of far greater importance for the perception of wealth than the stock market - in fact, as a percentage of relative wealth, for Chinese residents the real estate market is the equivalent to the stock market for Americans.


Xinhua confirms as much saying that "property investment's GDP contribution in the first three quarters of this year hit a 15-year low of 0.04 percent. The property market is vital to steel and cement manufacturers, as well as furniture producers; its poor performance would breed financial risks."

So far, all of this surprisingly makes a lot of sense as China demonstrates an impressive ability to diagnose the causes of its economic slowdown.

Where things, however, suddenly veer dramatically off course and into sheer delusion, is China's proposal how to "solve" its affliction.

In brief, Beijing is hoping to "transplant" 100 million farmers into registered urban residents, who no longer being migrant workers, will rush to buy real estate in the process soaking up some of the millions of vacant square meters of excess capacity real estate. At least that's how the thinking goes: "attendees of the meeting agreed that rural residents that move to urban areas should be allowed to register as residents, which would encourage them to buy homes in the city. Property developers have been advised to reduce home prices, according to the statement."

More from Xinhua:

Nearly 55 percent of the population live in cities but less than 40 percent are registered to do so. There are around 300 million migrant workers but most are denied "hukou" (official residence status). In addition to housing rights, a hukou gives the holder equal employment rights and social security services, and their children are allowed to be enrolled in city schools.


Starting next year, China will roll out policy to transform 100 million farmers into registered urban residents, according to Xu Shaoshi, head of the National Development and Reform Commission, on Tuesday. No deadline for completion was specified.

The punchline: "Ni Pengfei, a researcher at the Chinese Academy of Social Sciences, estimated that if 70 percent of migrant workers buy homes in the cities, it would solve the 2.2 billion square meters of housing inventory."

And since these migrant workers would be unable to afford local homes at going rates, they would get preferential prices: the government is suggesting a reduction of home prices. The monthly income for migrant workers in 2014 was 2,864 yuan (440 U.S. dollars), while property can easily exceed 10,000 yuan per square meter. People's Daily, the flagship newspaper of the ruling Communist Party of China, added in an editorial on Wednesday that "cutting home prices is an inevitable and wise option for developers in destocking, particularly for those in third- or fourth-tier cities."

At this moment we are supposed to forget the disastrous consequences of what happened when China tried to "transplant" 100 million farmers into stock traders, and just focus on real estate, where we will admit that in theory, this idea may even make sense: 100 million potential buyers granted deeply discounted home prices will do miracles for China's ghost cities and millions of vacant apartments.  Because, quite simply, what the Politburo is proposing, is to dramatically accelerate the rural-to-urban migration that has been taking place over the past 30 years, and to pull forward some 10 years of urban worker migration.

There is just one problem - or rather risk - and it happens to be the one which only we touched upon over a month ago, in "Here Is The Biggest, And Most Underreported, Risk Facing China", a risk which has since been picked up by both the NYT and the WSJ: social upheaval and public unrest.

As we have been discussing over the past two months, most recently yesterday in "China's Cost To Avoid The Dreaded Working Class Revolution: A Record CNY11.1 Trillion, And Rising", while China's biggest economic problems are record debt and excess capacity, the biggest risk is a suddenly very angry population which can no longer find either employment or acceptable wages.

The result has been a record surge in labor strikes in the past few years, culminating with November of 2015, a record month. 


So what does Beijing think will happen when its already imploding commodity companies, those who happen to be the biggest employers across the country, are faced with 100 million new able-bodied workers, all recently moved into their brand new urban apartments which cost them far less than comparable costs for existing employees?

The answer: a deflationary wage neutron bomb, as millions upon millions of these migrant workers are hired over their already employed peers, who are suddenly expendable now that more ambitious, and less demanding workers are there to fill their shoes: expendable in a country of of 1.4 bilion without any social safety net! Which is great news for the 100 or so million migrants... and very bad news for the 100 million existing workers whom they will replace.

What happens then? The same thing that we have been showing ever since 2014 when we presented China's riot police drills against a "working class insurrection"... drills which took place because it is only a matter of time before China has to deal with the real thing.


The conclusion: China has shown admirable aptitude in diagnosing its problem, and a terrifying lack of vision in its proposed solution. Then again, since none of the other conventional avenues to boost the housing market are available, perhaps it makes sense: with no other options, Beijing is resorting to only measure it knows will work if only for a while, before social unrest finally gets out of control.

Then again, the "developed countries" are not doing anything more prudent: the western central banks know well they have blown the biggest asset bubble ever, one which will have dire consequences, far worse than the aftermath of the Lehman collapse, but the prerogative is simple: kick the can for as long as possible or else accelerate the social collapse as all modern and insolvent Ponzi schemes are exposed.

Is it any wonder that China is now doing precisely the same?

At the end, both "solutions" are doomed to an explosive failure, but for now sit back and just enjoy every day as it comes along, and try not to think too much about the future: with the increasingly more chaotic decisions made by the "leaders" of the developed and emerging worlds, there may not be one.

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nmewn's picture

"Thank you Vice Public Security Minister Meng Qingfeng!" - Thomas Freidman

Apparently I'm going to have to step it up a notch ;-)

TeamDepends's picture

All your farm are belong to us.

nmewn's picture

It's like the Great Leap Forward 2.0!

Mao would be sooo proud, look at how far they've come ;-)

Implied Violins's picture

This is more like 'Agenda 21' - er, Agenda 2030. Forced relocations. Seems to be happening on a global scale lately...

atthelake's picture

Farmers in every country are getting schlonged.

What happened to Farm Aid?

847328_3527's picture

"Forced relocations" ... sort of like Barry's importing 100k refugees to America?

knukles's picture

Something the fuck is very wrong with this and it ain't gonna work ....
Sure.... Just give everybody a Section 8 voucher... it's propped up property prices here in the US just fucking fine

Isy's picture
Isy (not verified) knukles Dec 24, 2015 7:23 AM

All the weapons in the world won't matter once ISIS army kick into gear!

new game's picture

i have a crawl space for rent, knee pads manditory.

how about this: 1/2 floors, divide an 8 foot room in to 4 foot heights with a ladder to your "top floor", x-tra for top floor, of course. crawl home baby, crawl to daddy bitchez...

DosZap's picture

"Forced relocations" ... sort of like Barry's importing 100k refugees to America?"


That was PER year just for Islam,not counting Hispanics.

popeye's picture

Ok, lets at least get the fundamentals correct. There are no forced relocations. Not a sudden migration from farms. These guys & gals are already working in cities.


China operates a registration system to control who is eligible to certain support mechanisms and rights (like property ownership) offered by local government. These people who have already moved from other villages/towns/provinces are still registered in their place of origin. The proposal is the registration system be relaxed so they may shift registration to their current city of domicile and then be eligible to buy property (amongst other things).

techpriest's picture

Silly human. Farm Aid is for Monsanto!

Antifaschistische's picture

nailed, the plan is to destroy the value of village homes to prop up the value of oligarch development projects in the cities.

great plan!!   and how will those migrant workers get from their newly aquired high rise home to the place where they work to earn their $440 per/month?  taxi?  that's a great plan!!  

even better, buy a new CAR and support the oligarch in the auto industry...spend 3 hours a day in traffic jams supporting the oligarch in the oil industry, and developing lung cancer along the way, eventually supporting the oligarchs in the healthcare industry.

central planning SUCKS!!

Cheduba's picture

I can't wait until I have to work 3-4'months to afford that one square foot that will be all mine in the mega city of the future.

With a place to stand that is my very own, who says private property rights are dead?  

Implied Violins's picture

Ah, but you'll have to work another 3.5 years to earn enough square footage of space above that one square foot to encompass your body, and that won't include the air you breath. That's extra. And you won't even own the mining rites.

new game's picture

they don't call it a foot for no reason, ha...

a half a foot is standing on one leg, next answer.

here is your half foot, don't loose your balance, next solulution a toe(sq inch=1/144 of sq ft), subdivions leverage 144:1!-bankers dream, ballet dancers, the next housing boomet, ha again...

OregonGrown's picture

*POOF* Poor farmer to Instant middle class.....

Finally, now they can start buying their own shit and cut america COMPLETELY out of the equation!

three chord sloth's picture

Think of the possibilities! One hundred million *actual* farmers can suddenly afford knock-off smartphones and begin playing games on them. China will quickly become the world's premier Farmville superpower!

OldPhart's picture

Now we know why all those Ghost Cities were built.

Ok, Farmer Chan, you must leave your farm and move to residential zone 6-14-Z-Unit 4.  We're selling it to you for 1 yawn, we're taking your farm.  You owe us a million yawns for our efforts.  Better find a job quick in that empty city or we'll have just one more talk.

stacking12321's picture

no, the ghost cities were built so that corrupt government officials and their crony building contractors could both get rich on unneccessary projects and then launder the money in macau casinos and in buying mansions in vancouver and sydney

techpriest's picture

While I do think this is exactly what the contractors are doing, I would also argue that the bureacrats from their offices in Beijing genuinely believed the spin they were being given in their field reports. Or, they were at least paid enough to believe them.

As a scientist by training, I like to explain it this way: some high level bureaucrat/politician wants to have some fried ice to eat, and the legit scientists tell him that this is really not possible. So he fires those types and gets the guy who figures that at the right temperature and pressure he could engineer some hot ice, but the moment it comes out of the pressure vessel it's going to detonate in the politician's face. But for the sake of his paycheck he won't say that, and let one of his students serve it up so they get the blame.

This is just the latest step in economic fried ice. Given that picture of the entire company of cops cowering behind shields from two guys with sticks, I don't think China has the resources to pay for a big enough "pressure vessel" to contain 100 million farmers should they choose not to go along with it.

Tarjan's picture

Read the article. They are proposing to give urban residency to migrant workers who are already there. Nothing there about uprooting 100 million farmers.

MrNosey's picture
MrNosey (not verified) nmewn Dec 24, 2015 7:33 AM

China is losing control of their vast population and they know it. So they are going to implement the UN Agenda 2030 ASAP in an attempt to take back control before it all blows up!

rubiconsolutions's picture

Oh yeah, the reverse Pol Pot. Instead of the "killing fields" it will be the "killing cities".

Ignatius's picture

"Stay on the farm, boy."  --  me

duo's picture

Goodbye Yellow Brick Road

buzzsaw99's picture

those fuckers are industrious. if the populace gets mad enough heads are gonna roll.

nmewn's picture

I kinda like that one ;-)

TeamDepends's picture

Pray dat funky moosic Mao boy
Pray dat funky moosic RIGHT!

Implied Violins's picture

Better hide those glasses, boy. You look - intelligent...

surf0766's picture

Sounds like the Obama plan

Barrack Chavez's picture

Obama is forcing indebted people to move to apartment complexes that haven't been built, and probably never will. Big difference

ebworthen's picture

The largest cultural upheaval in history; bigger than Peter the Great, greater than the Bolshevik revolution, Mao, the French Revolution, and even more so than the American Revolution.

Billions of people in a country which now controls a large % of manufacturing capacity and military might.

Huge implications for the rest of the World, huge.

conraddobler's picture

Huge implications allright but they share a border with Russia.

The best thing we could do right no is just pull anchor and rehost in our own domain and wait.

it won't be 25 years and they'll be killing each other unless we keep agitating them enough to have them ignore each other.

willwork4food's picture

As an aside, perhaps this was all planned from the begiining to demonize central bank authority. A true PTB world utopia would disallow any over building, over production and have a global one world currency that is coming to a town near you to manage that.

conraddobler's picture

Central planners gonna plan.

It's like watching Wile E. Coyote, Super Genius in action.

"I'll take captial misallocation for 1 gerzillion Alex."

Government needs you to pay taxes's picture

Or just import 100 million Africans and call them 'dreamers'.

bunnyswanson's picture

Or import 100 million Americans, Dutch, German,  and call them debt slaves.  They will be moved to their respectively themed city when train stops.

Everyone of those vacant apartments is owned by a middle class citizen as an investment.  This will squelch riots when one class wins while one class lose. 

Foreign investors and developers/architects focused on China's city planning - each from Holland, Germany, Paris, US.  Construction stops when money is short and begins again when the funds show up.  Notice no theaters, nightclubs, restaurants, city parks.  These cities are prisons.  Suicide is preferred to the old farmers than to living in this life the wealthy class created in order to replenish their treasure chests of loot.  Rich stay rich by stealing from the poor.  The entire world is in danger and if we could all realize 400 people have sent 6 billion into hell through a well-designed and considerably efficient killing machine called our life. 60 minutes LESLIE!  (edit)  Stahl  2013 - 12 min - China's ghost city covered. - Poor construction  (3 min) Australia's 60 min also does a great job on this subject.

Government needs you to pay taxes's picture

Americans, Dutch, German debt slaves are capable of significant productivity without the feral proclivity.  BIG difference.

KyttenX's picture

It would also be interesting to see what the male to female ratio is in that nation. My guess is too, too many men, not nearly enough women. Time for a war. To thin out the herd.

atthelake's picture

If farmers are in cities, many wil starve. Depopulation.

rsnoble's picture

Fucking morons.  And I bet the fkheads in DC dream and droll over the day they can get away with shit like this.  LEAVE US THE GODDAMN FUCK ALONE!!!!!

CHoward's picture

Who - really - didn't see this coming?

Implied Violins's picture

Yup. "If you build it, they will come". And if not, then force 'em outta the corn.

Wilcox1's picture

Brilliant...Take somebody who knows how to grow/raise their own food and move him into a hive situation where the paycheck depends on exporting whatever crap the factory makes. 

Bazza McKenzie's picture

All those empty cities and millions of "Syrian refugees".  Sounds made for each other. 

You could probably get the US to pay for it with more money borrowed from China -- so long as Wall Street gets it's cut of course.

Fuku Ben's picture

Can you imagine what the future holds if the current global leaders are the visionaries? It should be similar to a combination of Soylent Green and Blade Runner. I hope you all enjoy eating other people to stay alive on a poisoned dying planet while these mf'ers live on Elysium.

On the bright side of life the announcement of the rapidly accelerated Agenda 21 relocation plan seems more like someone is scared. The globalist criminals don't rush anything. There's too much chance for blow back and to figure out what they're up to.

In case anyone didn't notice the France Climate announcement. Here's a quote (while they cowered behind many layers of heavily armed security in a country under martial law because of a few alleged terrorists.):

OBAMA: "Our task here in Paris is to turn these achievements into an enduring framework for progress. Not a stop gap solution but a long term strategy. That gives the world confidence in a low carbon future."

Let's just say I hope you're not made of carbon or your futures options are set for an early expiration if they succeed. No carbon credits accepted for useless eaters only profitable corporations.

Our task? Why does that sound familiar? Oh yeah.