Private schools distort China’s real estate market, frustrate Xi’s pursuit of equality

Officials in an economic recession in central China have come up with a new way to boost the local real estate market: schools funded by developers who have earned a reputation for getting their students into the country’s top universities.

Property sales in Hengshui, a city of 4.3 million people in Hebei Province, have soared, despite recent attempts by the central government to rein in runaway property prices and China’s booming private education sector.

“I’ve done more deals in the past two months than in the previous two years combined,” said Li Hongning, a real estate agent in downtown Hengshui. “Customers are willing to pay more to finish the transaction as soon as possible.”

Xi Jinping’s determination to achieve “shared prosperity” in one of the world’s most unequal societies will depend in large part on his administration’s ability to rein in an unbridled Chinese property market. The Chinese president also pledged equal access to education, after cracking down on expensive private tutoring services last month.

But the degree to which good schools continue to distort property markets across the country suggests that even China’s most powerful leader in decades will struggle to overcome market forces and local government interests that stand in the way of egalitarian goals.

“Beijing may not be happy with the Hengshui model, as it creates a real estate bubble and exacerbates education inequality,” said Dan Wang, an economist at Hang Seng Bank in Shanghai. “But local governments are eager to adopt this practice to boost the economy.”

Chinese President Xi Jinping has long considered that he has little effect on rising real estate prices. © Leo Ramirez / AFP via Getty

Chinese property developers, led by industry leaders such as Vanke and Country Garden, have a tradition of building high-quality private schools near residential developments to make the latter more attractive to homebuyers.

New York-listed Bright Scholar Education Holdings, a unit of Country Garden, has grown into one of the largest private school networks in the country with more than 57,000 students.

Hengshui is no exception as parents have long been drawn to the city by the quality of its private schools, most of which have been funded by property developers and have built a reputation for academic excellence.

Average home prices in the city have more than doubled over the past five years, while median home prices in neighboring cities have only increased by 20 percent over the same period.

The reason for the sales boom was the introduction of government rules limiting school places to the children of property owners. This requirement runs counter to central government policies aimed at reducing barriers to education and other social services in urban areas.

“Education in Hengshui is better than anywhere else in Hebei,” said Wang Xiaona, an office worker from Shijiazhuang, the provincial capital. “I have no problem buying an expensive home as long as it helps my child attend a good school.”

This month, Wang paid 310,000 renminbi ($48,000) for a one-bedroom apartment, which will allow her son to enroll in a high-profile middle school owned by one of Hengshui’s biggest real estate developers. Before the residency requirement was introduced, the apartment price was RMB 280,000.

“Our economy is booming because of the influx of students, which has benefited everyone from grocers to real estate developers,” said a Hengshui government official, who asked not to be named.

However, Shi has often raised little sway against runaway property prices, saying that “homes are to live in, not to speculate”.

Hengshui first outlined plans to expand its overcrowded school system a decade ago, when the then cash-strapped municipal government had no choice but to turn to wealthy business owners for funding.

Real estate developers were quick to agree, betting that well-run private schools would boost local home prices and would also emerge as profit centers in their own right.

“Local governments need us to build good schools to support the economy,” said a Hengshui real estate executive. “They are not able to do it on their own. It has been a win-win for both us and the local government.”

Thanks to highly qualified teachers with above-average salaries, and a rigorous curriculum, Hengshui Private Schools now offers students who excel in exams. In 2019, the city’s No. 1 high school, owned by a local developer, captured 61 of the top 100 college entrance exams in Hebei.

“Give us a regular student and we’ll give you back a new one at Peking University,” said an official at Hengshui No 1 High, referring to one of China’s top-ranked universities.

Hengshui is now exporting education-led growth model across the country. Over recent years, Hengshui developers have opened schools in more than a dozen cities, most of which are also underdeveloped.

Zhang Fuqian, a Hengshui-based developer and president of Taocheng Middle School, one of the best schools in the city, opened a 15,000-student campus in Binxian, a rural county in northeastern Heilongjiang Province.

“The [local] Zhang said at a conference last month, referring to stagnant housing markets and population outflows in Heilongjiang, as well as in neighboring regions. Jilin and Liaoning Provinces.

Zhao Hongchen, the governor of Binxian, said in April that the new Taocheng campus would “greatly meet the demand for education and promote economic development.”

Others, such as Pan Guilan, a Binxian mother whose son did not score high enough to enter the new school, are more skeptical. She is now worried about leaving her son behind.

“It is unfair for outsiders to steal our educational resources,” Ban said.

Additional reporting by Tom Mitchell in Singapore and Xining Liu in Beijing

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