Photo: Elmastudio on flickr
Bank of America strategist David Cui lays out the details of China’s big new low-income housing plan, which he describes as “The biggest peacetime wealth distribution in China.”The social housing program – A Rmb5tr redistribution According to Mr. QI Ji (a deputy minister of MOHURD) at a press conference during the NPC, the planned construction of 10mn subsidized housing units in 2011 will cost roughly Rmb1.3-1.4tr, out of which, the government will put up about Rmb500bn+ and it expects the private sector, including corporate, investors and individual beneficiaries, to cough up Rmb800bn+. In our opinion, the social housing program is one of the biggest peacetime wealth redistributions in China – based on the 2011 numbers, the 36mn units planned over the next five years will cost more than Rmb5tr, some 13% of China’s 2010 GDP. The winners are the 100mn or so low income people who will move into one of these units, and indirectly, low end consumption including staples; the ones funding the program are many: the government (indirectly tax payers), banks, enterprises, insurers, social security fund and whoever else putting up the money in our mind. The only question remaining seems to us to be the exact split of the bill as the funding situation still remains fairly fluid – the above is only the government’s game plan by our assessment.
How will the new scheme be funded?
This is what Mr. QI said according to Shanghai Securities News: the Rmb500bn or so for economical housing will largely come from the private sector via market means with the local governments contributing free land; as to the Rmb500bn or so for shantytown reconstruction, the central government will provide Rmb40bn, local governments Rmb120bn and the rest (Rmb340bn) will largely come from the enterprises that the workers belong to (thus a cut to their margins) and individual beneficiaries; the government will fund most of the costs related to rental housing, some Rmb340bn; the Rmb500bn or so government spending will come from government budget, land sales proceeds (Rmb2.9tr in 2010; at least 10% to be earmarked for the housing program), housing fund earnings (Rmb5bn in 2010) and lending (Rmb40bn last year), a portion of the bonds issued by the central government on behalf of the local governments (Rmb200bn planned in 2011) and additional LGFV loans. According to CBRC, the outstanding balance of subsidized housing related loans reached Rmb222bn by the end of 2010.
As we’ve argued previously, China’s new effort to expand the wealth could be incredibly bullish if the perceived expansion of the safety net frees up the famously spendthrift Chinese consumers.